What Lies Behind Japan's Economic Stagnation—What Are We Protecting at the Expense of GDP?

Japan is apparently about to fall even further in the global GDP rankings.

Whenever news like this appears, someone inevitably says that GDP is meaningless or that the size of an economy has nothing to do with happiness.

I do not think we need to place that much importance on GDP rankings either.

But a country with one of the lowest GDPs in the world is certainly not a happy country.

GDP alone cannot measure prosperity, but it is still a useful indicator to some extent.

So why has the Japanese economy struggled so much to grow?

The declining birthrate and aging population are often cited as causes, but economists point to another major problem: low productivity.

This does not mean that Japanese people have become lazy. Companies that succeeded in the past have failed to keep up with changing times, yet remain in the market even after losing their ability to earn money.

Under normal circumstances, such companies would disappear, allowing workers and capital to move to growing businesses. This would raise productivity across the economy.

This is the so-called problem of “zombie companies.”

I understand the logic perfectly well.

But whenever I hear this argument, one thought occurs to me.

Would you say the same thing if the “company that ought to fail” was your own employer?

“Shut Down Zombie Companies” Is Easy to Say When It Is Someone Else’s Problem

Economic commentators say it casually:

“Unproductive companies should be eliminated.”

“We need greater labor mobility.”

“Workers should move into growth industries.”

All perfectly correct—as economic theory.

Then try telling an office worker in their fifties, “Your company has low productivity, so please become unemployed next month.”

They still have a mortgage. Their child is at university. They may also be caring for an elderly parent.

You can tell such a person to move into a growth industry, but who is going to hire them?

In economics textbooks, workers move from declining industries to growing ones.

Real people, however, are not cells in an Excel spreadsheet. You cannot simply copy them and paste them somewhere else.

“Economic renewal” is a beautiful phrase.

But to the person being eliminated, it is simply unemployment.

What Is Japan Protecting in Exchange for Low Growth?

In Japan, even struggling companies sometimes survive through subsidies or financial assistance.

From the perspective of economic efficiency, that is probably a problem.

But it is also true that such companies support employment in their local communities.

If the company survives, its employees continue receiving salaries, their families can live, and local shops retain their customers.

One reason Japan’s unemployment rate remains low is its employment practice of not dismissing workers easily.

In the United States, by contrast, companies often carry out large-scale layoffs when business deteriorates. Growing companies hire, while workers leave declining ones.

From the perspective of economic renewal, this is extremely rational.

But behind that rationality are people whose lives collapse after losing their jobs.

In major American cities, homeless people can be seen on the streets. The country achieves strong economic growth while also facing severe inequality and poverty.

Of course, unemployment is not the only cause of homelessness. Many factors are involved, including housing and medical costs.

Still, consider this scenario.

Suppose Japan carried out sweeping structural reforms and allowed one unproductive company after another to fail.

GDP rose. Corporate profitability improved. International competitiveness recovered.

In exchange, the streets filled with unemployed people, homelessness increased around train stations, and people lined up at government offices to apply for public assistance.

Could we still proudly declare that the Japanese economy had recovered?

I would not consider that Japan more prosperous than it is today.

In other words, Japan’s low growth can also be viewed as the price it pays to maintain social stability and low unemployment.

It is sacrificing economic efficiency to protect people’s lives.

Closing a Company Is Easy, but Its Employees’ Lives Do Not End

That does not mean zombie companies should be kept alive forever.

That would only lead to a slow decline. Eventually, they would collapse anyway.

Over time, companies need to be replaced and labor mobility needs to increase.

But this process has no choice but to move slowly.

We need a society where someone who loses a job in their fifties can find another one, where changing jobs does not cause a major drop in living standards, and where people can support themselves while unemployed.

If we eliminate companies without first creating that kind of society, we will simply manufacture unemployment on a massive scale.

Economic commentators say, “Shut down zombie companies.”

But they become remarkably quiet when asked how the employees are supposed to live afterward.

Corporate renewal is necessary.

But when a company dies, the people who worked there do not conveniently die with it.

Does a Higher GDP Make Us Happy?

In the end, what do Japanese people actually want?

High economic growth? Or a society where people can live securely without constantly fearing unemployment?

Ideally, of course, we would have both.

In reality, however, the two are not easily reconciled.

Economic commentators demand higher productivity. Politicians promise to protect jobs. And the public wants GDP to rise while hoping that their own employers, at least, will not be allowed to fail.

That is terribly self-serving, but I would feel the same way in their position.

Every time Japan falls one place in the GDP rankings, people make a great fuss about the country’s decline.

But if recovering that position meant mass unemployment and more homelessness, how many Japanese people would actually support it?

It is easy to shout, “Shut down the zombie companies.”

But the moment people discover that their own company is a zombie, most of them suddenly become humanitarians.