Shujiro Urata

Professor, School of Sociai Sciences,

Waseda University

　

The final ten years of the twentieth century left the Japanese and other Asian economies, which had been steadily growing until then, with serious challenges. For Japan the decade had opened with the bursting of speculative bubble economy, and excesses of that era still haunt the country, since no adequate measures were devised to overcome its negative effects. Even now, at the beginning of the new century, the light at the other end of the long tunnel of post-bubble recession is not in sight. Other East Asian economies had been growing rapidly from the mid-1980s, but in 1997 they were suddenly hit by the currency crises. The following year, they experienced minus growth on an unprecedented scale. They have since been moving toward recovery at a faster-than-expected pace, but not to the point of regaining the rapid growth rates of previous years.

　We can learn much about the future of economic recovery and growth in Japan and other Asian countries now struggling with difficult circumstances, by looking at their potential competitiveness. This report examines the economic tasks they have to deal with in order to increase their competitiveness, referring to the results of surveys we have conducted at the Japan Center for Economic Research (Ajia Nihon no senzai kyosoryoku [Potential Competitiveness in Japan and Asia], December 2000).

The competitiveness of the thirty-one OECD and Asian countries and regions were assessed in eight categories: international finance and trade, corporate activities, education, domestic finance, government, science and technology, social infrastructure, and information technology (IT). By analyzing the variables that affect each category, we estimated each country's score, and ranked the countries/regions on that basis. Their overall competitiveness was obtained by estimating the average values for all the categories.

　In terms of overall competitiveness, Japan once ranked very high, taking fourth place in 1980 and third place in 1990, while in the more recent period of 1995-98 its rank had fallen to sixteenth. As this shows, the 1990s was Japan's "lost decade." We may note that Singapore ranked first in both 1980 and 1990, and the country ranking highest in the 1995-98 period was the United States. In the area of science and technology, Japan ranked second, after only the United States, in 1980, 1990, and the most recent period as well, but in other categories its ranking declined. Even in the category of science and technology, Japan's score, as opposed to its ranking, reveals that the gap vis-a-vis the United States has not shrunk at all and also that Korea and Taiwan are rapidly catching up.

　Japan's ranking fell considerably in the areas of corporate activity, education, and domestic finance. Among factors responsible for the lowered rank in education were a low rate of high school graduates going on for higher education and a decrease in the proportion in the GNP channeled by the government for education. Japan's lower rank in domestic finance was due partly to the fragility of financial institutions that is symbolic of the current financial recession and due partly to the underdevelopment of direct financing. Declining competitiveness in the category of corporate activity was attributed to the drop-off in investment resulting from lower earnings.

　The table shows Japan's ranking in each category for the 1995-98 period. Japan has a great deal to accomplish if it is to recover competitiveness in not only corporate activity, education, and domestic finance, as mentioned above, but in international finance and trade, infrastructure, and IT as well. Specifically, it must expand imports and foreign direct investment inflows, improve the efficiency of communications and transportation, and encourage the use of information technology. The Japanese government is doing its best to foster information technology by setting up IT Strategy Headquarters and other organizations, but in use of personal computers and the Internet. Japan lags behind not merely other major industrial nations but Singapore, Hong Kong, Taiwan, and Korea as well.

　Japan faces many challenges as it seeks to recover its competitiveness. In order to meet them, the government must eliminate regulations and implement appropriate competition-stimulation measures, thereby creating a lively and attractive market environment that encourages private-sector corporate competition and promotes technological progress. Domestic incentives for deregulation are low, so it is important to make effective use external pressure. In the past, multilateral trade liberalization under the GATT (predecessor of the WTO) and bilateral negotiations such as with the United States were effective. Now that liberalization is at an impasse at the WTO, workable measures for liberalization through bilateral free trade agreements, such as that with Singapore, are now under negotiation.

Competitiveness varies widely in Asia. Singapore and Hong Kong rank high, while Malaysia, Thailand, Indonesia, the Philippines and other ASEAN nations(except Singapore) and China come in under twenty-fifth place. Taiwan and Korea have been ranking higher in recent years, but they stand at around twentieth. There still is a vast gap between them and the major industrial nations. China and the members of ASEAN (except Singapore) rank very low in almost all the categories, which is indicative of the many tasks they have to deal with in order to improve their position. (See table.)

　Singapore, Hong Kong, Taiwan, and Korea-the so-called Asian NIES (newly industrializing economies)-share a common weakness in education and in science and technology. Taiwan and Korea also have much room for improvement in such areas as domestic finance, government, social infrastructure, and information technology. These points are justified, indeed, if one recalls that the main reasons for the currency and financial crises that hit many East Asian nations were inefficiency in the domestic finance and private enterprise sectors and inability of governments to adequately supervise these two sectors.　Further progress is expected in globalization and information technology. Competitive nations, capable of taking advantage of these new developments, will grow even more whereas countries where competitiveness is lackluster will be left far behind. In order not to lag behind the industrial countries and competitive developing nations, it is imperative that Asian countries be keenly aware of the magnitude of the problems they currently face and work hard to solve them.

　Improvements in education, science and technology, and social infrastructure require active and efficient government assistance. Stimulating of corporate activity, domestic finance, and information technology require reduction of government intervention through deregulation. We should be aware that there is a shortage of human resources, funds, information, and so on in other Asian countries, and the assistance of Japan and other industrial nations, as well as development aid organizations such as the World Bank and the Asian Development Bank will make an important contribution to this endeavor.