This is a "silver lining in the dark cloud" story. On the one hand, according to the Harvard Growth Lab, Japan's per capita GDP could grow at 2.3% per year if it were as good as other countries in capturing the benefits of its technological prowess. That's almost double the current rate.

            The dark cloud is that no one really expects Japan to achieve that 2.3% pace. On the contrary, the IMF expects total GDP to grow just 0.7% a year through 2029, and per capita GDP to grow only 1.2% per year (see chart at the top).

            The reason for the shortfall is clear. While scientists and engineers can produce new inventions, it takes companies to transform those innovations into economic value. Think of SONY and the transistor. But, these days, Japan's companies come up short. For one thing, Japan's financial and labor systems are so rigid that not enough capital and labor flows to the most innovative existing firms, let alone new firms with untapped potential. Even when companies do get the necessary resources, they don't always use them well. Japan throws a lot of money at digital technologies, but in 2023, it ranked a dismal 64th out of 64 economies in "digital agility," i.e., how much improvement it got in sales, profits, and productivity as a result of that investment.

            The silver lining is that companies greatly improve their performance when they face fierce competition. And more new technologies are deployed when new companies not anchored by old habits can proliferate. If Japan undertook the required business reforms, it could grow at a rate commensurate with its technological assets.

See https://richardkatz.substack.com/p/japans-technical-prowess-should-enable

Richard Katz

The Contest for Japan's Economic Future: Entrepreneurs vs. Corporate Giants at https://tinyurl.com/4u8nrdbp