As Japan Declines, What Fills the Vacuum?

A article in the Washington Post this weekend on Japan's gradual, possibly inexorable economic decline touches on some topics I have been looking at for a while--how an aging population puts a drag on a country's power, and what industries are the next to rise as economic engines globally. Not only have economists and leaders of industry been worried about this over the past two decades, but even Japanese consumers seems to have bought into the storyline as far back as the mid-1990s (and were prescient enough to tag China as the probably successor even then).

The article points out that as Japan's population gets older, and more comfortable based on years of economic success, the country's ability to grow and thrive seems to be tracking along the same path. Japan barely came out of recession before it now seems to be stagnating and sliding backwards. Overall, manufacturing, consumer technology and automotive industries have peaked and Japan's strength on the world stage not only as an economic giant but as an influencer of other markets seems to be waning.

So, these two questions stand out: who fills the vacuum that Japan leaves as the pace- and trendsetter in areas such as technology, and what industries could the country turn to to provide some revival. Korea, China, India are all putting their unique stamps on the global consumer technology market, and all are beginning to export their own internal markets' tastes and values in the same way Japan did from the 1960s to the late 1990s. While Japan can still influence global tastes through projection of its cultural power, even this is becoming softer and is still rooted in the same industries that made it a worldbeater, represented in technologies such as media-- think Nintendo Wii--and  transportation--think hybrid cars. While these are influential areas, they are kinder, gentler products. While China and India will pick up the slack Japan leaves in these markets, they know they will only grow by bringing something new to the world, some industry that is derived from their own particular challenges and strengths: think about the intersections of cheap labor, available production capacity, and the need for resource management, food production, environmental management. Efficient, macro-scale infrastructure management will be one areas these countries can step into, for example.

On the last question, some experts point to robotics and biotechnology as possible lifelines, taking what the country develops for its own shrinking population and exporting it. While Japan is ahead in robotics, and also has a growing biotech industry, Korea is racing ahead in robotics and the biotech sector is stymied by a bureaucratic national R&D structure, putting it behind the US still by some ways. Perhaps Japan's real expertise is in niche specialization, managing small, delicate, unique processes that other nations bring to scale. Think bio/nanotech meets sushi. Just at a conceptual level, the mind boggles.

The US and Europe would do well to pay attention to Japan's path. As in the past 30 years, where Japan goes, they may also follow. Both are becoming gradually less powerful on the world stage, and while they have much larger populations, both should redouble their efforts to find new economic engines now rather than waking up well down the road with an aging population and an outdated innovation model.