RIETI Report January 26, 2024

The Japanese Economy's Position Viewed from a Historical Perspective

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This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition we are featuring topics related to the Japanese economy’s position, examined from an historical perspective. RIETI Faculty Fellow Junko Watanabe looks at current international political and economic situations, social circumstances inside and outside Japan as an economic historian.

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This month's featured article

The Japanese Economy's Position Viewed from a Historical Perspective

WATANABE JunkoFaculty Fellow, RIETI

Historic Turning Point

For me, 2023 has in many ways been reminiscent of the 1930s because of the outbreak of war and signs of spreading conflict as well as the rise of protectionism. Although the images of atrocities committed in the Russian invasion of Ukraine and the Israeli-Palestinian conflict are being projected across the world through news and other media, there does not seem to be a party with the means or willingness to stem the expansion of these conflicts. The situation is also similar to what happened in the 1930s in that existing international organizations are dysfunctional. On the other hand, the thrust of the conflict between the United States and China is about to divide the global economy as it puts other countries in either of the two superpowers' respective blocs of like-minded nations.

Of course, despite some similarities, the present situation is different from the one that existed in the 1930s in most aspects. However, for me, as someone who teaches the economic history at a university, this development is surprising because conflicts like those underway today are events that we read about in history textbooks, but not something that I imagined would happen during my lifetime. I also have a sense of déjà vu from an historical perspective in terms of not only international political and economic situations but also social circumstances inside and outside Japan and the mindset of the masses.

In that sense, we have reached a critical turning point in history once again. There are concerns that the rapid change that we are now witnessing may lead to more serious developments in 2024 and beyond.

How should Japan deal with this situation?

For better or for worse, Japan is not among the key geopolitical players that can exercise leadership in setting the future course of the international situation, so it has no option but to respond passively while watching other countries' actions. However, Japan shouldn't simply avoid involvement in activities that could move the general situation in the wrong direction. It should make proactive efforts to resolve problems while maintaining cooperation with other countries as a major member of the international community. I also look forward to Japan playing an active role not merely on political and diplomatic fronts but also in terms of economic diplomacy efforts by both public and private sectors, including through the Ministry of Economy, Trade and Industry.

Generally speaking, industries and companies crave peace. In particular, major Japanese companies are multinational enterprises engaging in economic activity on a global scale through procurement, production, and sales operations that they conduct around the world. Rising geopolitical risk must be something that they would like to avoid for the sake of business interests. Companies as economic agents through their activities are expected to exercise some kind of risk-hedging function, such as promoting both mutual understanding between countries and recognition of common interests.

Over the course of history, some politicians, journalists, and business institutions and executives, of both past and present ages, have accurately made sense of the atmosphere of the time and come forward to speak their mind. In Japanese economic history, Tanzan Ishibashi is among those who are frequently cited as such an example. In prewar Japan, Ishibashi was a journalist at Toyo Keizai Shinpo, an economic magazine publisher, and later, became president of the company. In the postwar era, Ishibashi served as finance and trade minister under the administrations of Prime Ministers Shigeru Yoshida and Ichiro Hatoyama, respectively. At the end of 1956, he himself became prime minister. In this new age, his profound thought and the actions that he took as a social commentator and critic as well as a thinker, appear to be attracting renewed interest.

I hope that the current situations will be improved moderately with freedom of speech, a principle most cherished by Ishibashi, toward a better direction where true democracy, based on individuals and diversity, is secured.

To read the full text:

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