A Warning from the Japanese Experiment of “Prosperity Without Growth”

by Alex Williams 

It was an economic experiment begun soon after the Cold War ended that Tokyo neither anticipated nor desired. The Japan of 1992, newly coronated as the world’s second-largest economic power once dubious statistics out of the Soviet Union could bedevil international indexes no longer, possessed a GDP of over half the volume of America’s and a population of 120 million that was the seventh-largest in the world. The size of its economy, overvalued as it was at the time of its crash in January 1995, nonetheless would scarcely be matched again.

A population plateau and protracted reduction since 2010 meanwhile ensured that little future improvement in productivity could offset the pressures of a vanishing labor force. The “lost decade” eventually became a lost quarter-century, during which time Tokyo resorted to a carousel of planning strategies whose practical if unspoken objective was to make a permanent stagnation as comfortable as possible for ordinary Japanese. It was an experimental model of “prosperity without growth,” a term which appears to have originated in an eponymous 2009 book by British economist Tim Jackson. That Japan was also one of the earliest nations to witness a fertility-induced population reduction renders it fittingly predisposed to pioneer such an experiment. Within this twenty-first century, one of the few emergent certainties is that the experience of Japan will not be the last, but rather the first of all others to witness what happens when a developed economy is left to diminish in the shadow of its rise.

The Japanese experiment is critical to study not merely for its foreknowledge of the global population decline which is to commence in this century, but for its direct applicability to the perpetual ambitions for a planned economy by a sprawling element of the present-day developed world. It is this element which seeks, by any justification, to recruit the powers of the state to implement its designs for utopia on earth. This immutable conceit, which posits that the capacity of the individual to engineer his surroundings can be replicated by collective organs to glorious effect, is naturally inclined to disfavor the decentralized and microeconomic activities of capitalist enterprise. 

The statist economic model likewise detests the growth-oriented mechanisms by which capitalism perpetuates itself and has accordingly exploited every opportunity to undermine the notion of growth economics, from neo-mercantilist arguments of resource depletion to perennial accusations of the exploitation of labor. A legitimate sentiment such as ecological sustainability is seized upon and presented as an ultimatum: shut off the engines of economic liberty, or else its intrinsic propensity for expansion will ruin the earth. Only when the circulation and investment of capital is halted could the state be invited to economically plan in its stead; where once there was growth, there is now the command of government. This brave new endeavor calls itself prosperity without growth – that we can keep prosperity, so the promise goes, without the growth of capital. A fantasy such as this sustains its appeal only while its consequences are concealed from reality, which on the question of a “sustainable” economic recession has already found its cautionary tale in the world.

The Japanese economy of today, even prior to the unfortunate pandemic, is of a lesser magnitude even in unadjusted terms than in the early 1990s. Periods of growth were offset by years of decline, such that a lasting net expansion never manifested. What transpired instead was a disquieting exhibition of the consequences of an eternal stagnation within a high income society. 

In the absence of new capital, a citizenry is deprived of the rewards of economic growth. The wages for much of the Japanese workforce stagnated while real wages outright declined; real output per capita grew further behind other nations; aggregate sales for companies diminished. The scarcity of new capital resulted in the circulation of less currency, which made individual yen increasingly valuable and set a course for chronic deflation and low interest rates. Tokyo subsequently strove to subsidize these losses in capital by conjuring successive stimulus packages out of thin air and injecting them into the economy, the cumulative total of which caused government debt to skyrocket. Policymakers grasped that the economic malaise was in large part the structural consequence of a country that was demographically incapable of supporting new growth, but such knowledge did not change the inability of any amount of economic strategies or level of comprehensive planning to banish the malaise. Japan, of course, remains developed; it remains industrialized and wealthy. Yet something indeed was lost, for how can its quarter-century of wintertime hibernation be mistaken for springtime prosperity? 

The absence of growth during these Lost Decades has instead enclosed the Japanese people within a tightening grip. The maintenance of the economy depended upon the vigor of a diminishing labor force, of which individual members were forced to bolster productivity through longer hours and maximized devotion to their professions. Private life naturally suffered as fertility rates, always low, plunged further in recent years. Annual population losses accelerated despite the arrival of hundreds of thousands of migrant workers. High suicide rates continued to stubbornly dominate international rankings while social atomization, intensified by the retreat from community organizations, pandemic-era absence of human contact, and climbing reliances upon mechanization and robots to compensate for labor shortages, brought pervasive loneliness and other ailments to mental health. A despair had settled among the populace.

The threat of lost decades is one that broadly permeates the political discourse of the developed world. While on some level this indicates a broad understanding among the political class that growth is intrinsically necessary to economic wellbeing, growth economics regardless remains a term by which capitalism is disparaged as the destructive pursuit of profit. Such an accusation remains wholly ignorant of the necessity of profit margins for ensuring that new innovations which can improve standards of living are financed with money of real value. The creation of new wealth sustains the capacity of capital to increase wages and thus individual purchasing power, while the absence of new wealth limits transactions to existing capital. An endless recession arises to gradually deforest Main Street of its businesses in what becomes a great reversal of the long arc of the Industrial Revolution. 

The efforts undertaken to mitigate such a reversal, such as imported labor and mechanization through robotics and self-corrective AI algorithms, have proven limited in their economic value in Japan and will grow further limited for an aging world at large as sources of migrant labor dwindle and economies increasingly rely upon uniquely human tasks for which no algorithm, however adaptive, can imitate. Against such a calamity, the foremost solution our indebted governments will naturally conceive of is to print more money in some futile effort to stimulate a fire where there is no oxygen.

The Japanese experience reaffirms that the connection between demography and economics influences both the size and dynamism of GDP. This relationship, which discredits too the notion that the depopulation process can be made into a prosperous and comfortable affair, is straightforward: a growing population leads to the creation of more capital and businesses, while a waning population leads to the constriction of capital and a rollback of businesses. A city expands and contracts according to the volume of its populace, a reality which cannot be subverted by central planning any more than a command economy can succeed in planning the creation of wealth. Capitalist prosperity is sustained by growth; prosperity in the absence of growth is sustained either by ignorant illusion or Orwellian doublethink.

Might we lastly ponder that if one of the most famously efficient nations in the world is struggling to contend with the ongoing catastrophe of a demographic-induced recession, how do the rest of the world’s nations poised to depopulate in this century expect to fare?

Alex Williams recently completed his sophomore year at Brandeis University. His interests include history, demography, film, and fine arts.


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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