What happened to Japan??? (Lost decades, etc.)?

Question:

20 years later, I still don't understand what happened to "Japan, Inc.", which was in the 1980s what China seems to be today - the next great superpower and world hegemon, on track to overtake America in just a decade or two.

Back in the '80s, Japan seemed to be doing everything right - they had:
low inflation,
low unemployment,
high savings rates,
high investment (especially in Research & Development - good for future growth),
high trade surpluses year-in and year-out,
a top-notch educational system,
excellent health care system (and longest life expectancy in the world),
high economic growth rates, certainly when compared to the US and other Western countries...

In short, they seemed to be doing everything right! And then... 1989, 1990, 1991.... just crash! Stock market, real estate market, job market... everything. Suddenly there were homeless people in Japan (!) - recently laid-off businessmen, camped out in front of train stations, still wearing their business suits and quietly reading the daily newspaper.

What happened???? I don't get it.

And they never recovered? They've been going sideways, even down a bit, ever since?

Can someone explain?

Answer:

These are the reasons why Japan had been going downhill:

1. the US is no longer able to provide an economic boost for Japan like before:
Back in the 1970s and 1980s, while the Cold War was still raging on, the US had been providing substantial financial aid for Japanese economic recovery and actively served as a potential market for Japanese exports. This was because the US hoped to win Japan on her side in order to contain communist China and USSR. HOWEVER, ever since the US economy started going downhill since the early 21st century due to reasons like the expensive anti-terrorism war, she was no longer able to help Japan the way she did before. Furthermore, the Cold War was long over, hence the US no longer have the need to continue being so generous to the Japanese.

2. stiff competition from Japan's neighbours:
Three to four decades ago, countries such as South Korea and Taiwan are not as economically developed as Japan partly because they could not yet match Japan's technological progress yet. However, in recent years, both countries have proved themselves to be economic powerhouses to be reckoned with, as manifested in them being labelled as the Four Tigers (which also include HK and Singapore). This was because these countries started opening their borders and trade with the West, and were eager to catch up with Japan's economic progress. If you ever realise, world-famous electronics are no longer limited to such Japanese ones but also to other Asian brands such as Samsung. Not to mention too that China provides a much bigger market than Japan, and thus adversely affected the export sector which Japan is heavily reliant on for economic growth.

3. Flaws in the Japanese economic culture:
the Japanese have always believed in seniority-based job security. While this may guarantee the senior experienced staff a job in exchange for their loyalty and long-term contribution, it also means a decline in productivity of the company because logically speaking, these senior staff are not as agile and innovative as younger ones. This is a problem that many Japanese companies didn't realise. Furthermore, the younger staff would have no or less motivation to strive hard for the company because career advancement opportunities are hindered by the need to retain the more experienced and senior workers. As such, many young workers ended up job-hopping which leads to even much lower productivity.

4. Flaws in the Japanese political system:
In a short span of 10 years, we see Japan keep changing its prime ministers. This is because whenever a minister wishes to come up with policies to turn the tide, the opposition parties would be too strong for him to get his way. With no strong and stable political leadership, it is difficult to put in place good policies that might have otherwise saved Japan from the crisis.

5. Tight Japanese immigration policy:
As opposed to countries such as Singapore, HK and Australia, Japan has a tight immigration policy that strictly limits the economic opportunities that foreign talent can bring to Japan. Not saying that Japan should totally free up her borders but Japan is really WAY TOO STRICT in this aspect.

Hope this helps! ;)