"Gazelles" Challenge "Elephants": The Corporate Wars Behind Japan's Economic Recovery

This article is a book review written by Guo Jinxing from the Institute of Economics at Nankai University for Who Will Dominate Japan's Economic Future? The original title of the article is The Transformation of Japan's Catch-up System and the Current Economic Recovery.

For a long time, due to complex and profound historical origins, similar cultural backgrounds, development experiences, and economic models, the domestic academic and practical circles have always paid great attention to the Japanese economy. However, since the early 21st century, as China's economic scale has surpassed Japan's, domestic attention to the Japanese economy has decreased. By 2024, in terms of purchasing power parity, China's GDP was approximately six times that of Japan. Although in terms of per capita level, China was still only half of Japan's. In the eyes of many people, Japan seems to be an opponent that we have surpassed in many aspects. Since the bursting of the bubble economy in the early 1990s, accompanied by a long - term economic downturn, the "lost two decades" or even "three decades" have seemingly become synonymous with the decline of the Japanese economy.

However, since the end of the COVID - 19 pandemic, Japan seems to have returned to the view of the practical circle. On the one hand, in recent years, the trend of the Chinese economy has shown some obvious similarities to that of Japan since the 1990s, such as a trend of slowing growth, a re - balancing of the real estate market, looming problems of insufficient effective demand and deflation, and even increasing economic pressure from developed countries in Europe and the United States. On the other hand, Japan seems to have gradually emerged from the shadow of long - term economic weakness in the past two years. Although the economic growth rate is difficult to return to the level before the bursting of the bubble economy, it has maintained positive growth since 2021, with an average annual growth rate of nearly 1%, and the unemployment rate has been maintained within 3%. More importantly, the inflation rate measured by the CPI is close to 3%, exceeding the 2% inflation target set by the central bank, and the deflation that has long troubled the Japanese economy has finally ended. Thirty years after the bursting of the bubble economy, Japan seems to have seen real hope.

If this is really the case, how did the Japanese economy get out of the trough? What policy adjustments and institutional reforms are worth learning from? What obstacles still need to be overcome on Japan's future path? Richard Katz's Who Will Dominate Japan's Economic Future provides preliminary answers to these important questions.

Katz is an American columnist who has long been concerned about the Japanese economy. He teaches courses on the Japanese economy at New York University and Stony Brook University. In the past two decades, he has edited the 90 - year - old Oriental Economic Report, providing in - depth analysis of Japan and other Asian economies for readers in the English - speaking world. Katz's first two published books are The Systemic Failures of Japan: The Rise and Fall of the Japanese Economic Miracle in 1998 and Japan Phoenix: The Long Road to Recovery in 2003. Together with this book, these two books form a trilogy by the author about how Japan moved from the bursting of the bubble to economic recovery.

In order to write this book, Katz conducted extensive and in - depth interviews with Japanese politicians, academics, and business people. On this basis, he analyzed the chronic problems that the Japanese economy must overcome to get out of the dilemma. One of the most profound insights is that the institutional advantages that played a key role in a certain development stage may become a shackle for economic growth in another stage. Only by breaking the shackles can the economy be transformed and enter a new stage with a new look. For example, the lifetime employment system and the seniority - based wage system were once considered distinctive features of the Japanese development model, which even created a capitalist model different from the classic free - competition market economy. However, Japan's experience shows that this employment system is not a product of Japan's special traditional culture, nor is it a universal system. It emerged in the specific historical background around World War II and is only applicable to the catch - up stage with strong late - comer advantages. When the economy has achieved catch - up and the overall economy needs to rely more on creative destruction, the transformation of the labor market to a more flexible institutional framework is a necessary transformation for the Japanese economy to enter the post - catch - up stage. As this book points out, the proportion of non - regular employees with lower salaries among workers has increased from 15% in the 1980s to nearly 40% at present. The competition in the labor market is more intense. Employees' promotions within enterprises are more performance - oriented rather than seniority - oriented. The termination of employment relationships is more convenient, and job - hopping among employees is also more common. Moreover, workers attach more importance to the balance between work and life. In fact, the average annual working hours of each Japanese worker are currently shorter than those of American workers. The stereotype of completely devoting one's life to one company and spending too much time on work to the point of "karoshi" does not conform to the actual situation of current Japanese workers and the labor market.

On the other hand, what hinders the timely change of the economic and social system with the development stage is not people's ideas, but the interest conflicts between and within individuals, enterprises, social organizations, or government departments. During the period of high - speed economic growth, some small Japanese enterprises eventually grew into world - famous companies or enterprise groups. The development and growth of these enterprises benefited from specific policies or systems, such as the government's preferential industrial policies and the protection of the domestic market, or the keiretsu enterprises' evasion of market competition pressure through main banks and cross - shareholding. When the catch - up process ended or was approaching the end, the increasing returns to scale turned into decreasing returns, and economic growth needed to rely more on innovation rather than scale expansion. However, small and medium - sized enterprises, or the "gazelle enterprises" emphasized by the author, which are the main force of innovation, had difficulty obtaining the necessary market, talents, and funds under the original system. Because the growth of gazelle enterprises will inevitably weaken the market position and competitive advantages of the currently large - scale "elephant enterprises". It is this interest struggle that hinders the more rapid and smooth transformation of policies and systems. Perhaps this is the reason why Japan's economic recovery has been so difficult.

"The green mountains cannot hold back the east - flowing waters." As long as there are appropriate institutional conditions, the adjustment of policies and systems will ultimately be realized, although it may take a long time and the whole society will have to pay a great price. For example, compared with the catch - up system established after World War II, the relationship between the Japanese government and the market has changed greatly. In the past, the relationship between the Japanese government and enterprises was closer. Government officials often took up positions in enterprises after retirement, thus establishing a smooth information communication mechanism, which facilitated the government to implement industrial policies through various administrative means and window guidance. However, as economic growth has shifted from scale - expansion - driven to innovation - driven, more reliance needs to be placed on the market mechanism to determine resource allocation. Therefore, the government's way of guiding economic development has shifted from industrial policies to competition policies. In addition, the overly close relationship between the government and enterprises in the past also gave rise to a large number of corrupt practices, and the Japanese government also tries to address such phenomena through civil service system reforms.

The same is true for the adjustment of the real estate market and the reform of the banking system after the bursting of the Japanese economic bubble. In the mid - to - late 1980s, accompanied by the slowdown of economic growth and the loose monetary environment during the process of financial liberalization, a large amount of capital flowed into the real estate market, leading to soaring real estate prices and a significant expansion of the real estate loan scale of the banking industry. After the bursting of the bubble economy, the government was worried that the sharp decline in real estate prices would bring disaster to the banking industry, so it connived at commercial banks to cover up the actual losses caused by the decline in real estate prices in various ways. As a result, Japanese real estate prices continued to decline for nearly two decades, becoming one of the important reasons for the long - delayed recovery of the Japanese economy. Only after the real estate market reached a new equilibrium and the financial system underwent in - depth reforms did the Japanese economy truly have the conditions for recovery. Of course, before the transformation of the economic and social system aiming at catch - up, especially the social security system, delaying the decline of real estate prices may have been a helpless move to maintain social stability.

Japan's experience over the past three decades shows that for developing countries, some seemingly cyclical economic difficulties actually mean that the existing economic and social system is no longer suitable for the new development stage. Therefore, the fundamental solution is not counter - cyclical macro - economic policies, but the transformation and reform of the existing economic and social system. For example, establishing a more competitive and open market environment, improving the exit mechanism for zombie enterprises that waste various resources, enabling individuals and enterprises to have more equal competition opportunities, and at the same time improving the social safety net to provide better protection for competition losers and vulnerable groups, so as to encourage individuals and enterprises to innovate more bravely. In - depth research on the policies implemented by Japan since the early 1990s and the experience of the transformation of its economic and social system is of obvious reference significance for developing countries, including China, especially catch - up economies with similar economic models.

Finally, a simple comparison can be made between Richard Katz's book and Prosperity and Stagnation: Japan's Economic Development and Transformation co - written by Takatoshi Ito and Takeo Hoshi (published by CITIC Press in 2022). Prosperity and Stagnation is a textbook on the Japanese economy, providing a panoramic and in - depth analysis of Japan's post - war economic growth. Although this book also devotes a chapter to the "lost two decades", this is not the most important part of the whole book. In particular, the English version of this book was completed in 2020, so the remarkable economic recovery of Japan in recent years has not been included in the analysis. Katz's book focuses on Japan's new development trends in recent years, especially pays attention to the changes of micro - enterprises. Taking this as an entry point, combined with rich interviews and case analyses, it analyzes the changes in the business environment of enterprises, government policies, and social systems. Therefore, these two books are highly complementary in terms of content and style. By comparing and verifying each other, it helps to deepen our understanding of the Japanese economy.

Richard Katz, a well - known expert on Japanese economic research

Analyze the life - and - death game between "gazelles" and "elephants"

Reveal the way out for Japan's economic recovery

Recommended by Ji Weidong, Wu Xiaoying, Takeo Hoshi, and Heizo Takenaka

This book deeply analyzes the core conflict that determines the direction of the Japanese economy: the game between dynamic emerging start - up enterprises (gazelle enterprises) and traditional corporate giants with deep roots (elephant enterprises).

After World War II, the development model dominated by large enterprise groups created the Japanese economic miracle. However, in the face of the accelerating digital wave, the intensifying aging population, and the drastic changes in the international competition pattern, the rigidity and lack of innovation of this model have become increasingly prominent. At the same time, start - up enterprises supported by venture capital have quietly emerged with agile innovation and disruptive technologies, challenging Japan's old order. This book focuses on this critical transformation period. It not only analyzes the exploration of start - up enterprises in breaking monopolies and injecting vitality in fields such as fintech, artificial intelligence, and biotechnology, but also analyzes the difficult practice of traditional corporate giants in promoting organizational changes and digital transformation relying on their resource advantages and market power.

This wrestling is not only about the success or failure of enterprises, but also will reshape Japan's economic structure, innovation ability, and global competitiveness. The book discusses how policies, culture, and capital affect the competition between gazelle enterprises and elephant enterprises, and points out that the future of the Japanese economy depends on the emerging forces leading the change and driving the traditional giants to be reborn.