Japan’s Great Stagnation

Japan’s Great Stagnation

Forging Ahead, Falling Behind

W. R. Garside

This timely book presents a critical examination of the developmental premises of Japan’s high-growth success and its subsequent drift into recession, stagnation and piecemeal reform. The country, which within a few decades of wartime defeat mounted a serious challenge to American hegemony, appeared incapable of fully adjusting to shifting economic circumstance once the impulses of catch-up growth and the good fortune of an accommodating international environment faded.

Chapter 9: Recession, Stagnation and the Labour Market: Continuity and Change in the 1990s

W. R. Garside

Subjects: asian studies, asian economics, asian politics and policy, economics and finance, asian economics, economic psychology, political economy, politics and public policy, asian politics, political economy


There was perhaps no clearer indication of the coexistence of continuity and change in Japan than that provided by shifts in labour market and employment practices over the course of the 1990s. Recession and stagnation had prompted calls from within and outside Japan for the country to reassess the value and effectiveness of core elements of its high-growth political economy. Their continued existence was deemed to be a fundamental reason for institutional sclerosis and inadequate policy response. With low growth and lagging investment, Japan’s much-vaunted ‘employment system’ seemed particularly ripe for change. It had long been regarded as complementary to financial and corporate governance institutions, but the weakening of main bank relationships, the partial unwinding of cross-shareholdings and the rise of foreign institutional investors seemed to pose a direct threat to stakeholder-oriented corporate governance and institutionalized employment practices.1 Low labour mobility, seniority wages and ‘lifetime’ employment ran counter to the need for more flexible labour markets and cost reductions. By 1999 established employment practices were being viewed far more critically, both within and outside of Japan, than they had been in decades past. Nissan’s decision that year to reduce its workforce by 14 per cent (some 21,000 employees) was symbolic. Nippon Steel brought its six-year restructuring programme to a close in December 1999, having reduced its workforce by 45 per cent. In February 1999 the Japanese government’s Economic Strategy Council recommended that employment policy should shift away from retaining workers to raising their employability in the external labour market....

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