The major factor in this growth, however, has been cutting-edge technology and the development of whole new industries often started by new immigrants to Japan. Whether in the field of biotech, nanotech, electronics, materials, aviation, chemicals, or software, Japanese researchers and corporations—as in the cases of medical and aircraft technology—are in the lead. Government and private-sector support of R&D now accounts for nearly 6 percent of Japan’s GDP. But what has also made a major difference is the fact that this R&D is not random; rather, rigorous review at all stages of funding has made it extremely focused. Moreover, to facilitate and promote technology development, Japan offers bonuses to leading technologists from around the world if they come to work in Japan. Skilled foreigners who move to Japan receive automatic Japanese citizenship, along with grants and assistance in acclimating to the Japanese way of life. This influx of foreign technologists, combined with the entrepreneurial efforts of many new-generation Japanese, has given rise to thousands of new companies and hundreds of entirely new industries centered mostly in Japan.
The increase in Japan’s population and the boom in the economy have allowed Japan to avoid the problems of aging and austerity that have come to plague China, Germany, Korea, and most other major countries. As a result of continuous budget surpluses, the national debt has shrunk from 240 percent of GDP to 50 percent, while health-care costs have fallen from about 9 percent of GDP in 2013 to only 6 percent today. Considering Japan’s still relatively large population over sixty-five years of age, this decline in health-care spending, accompanied by improved health-care results, has itself been a kind of economic miracle. Japan has become the envy of the rest of the world because no other country can match its record of improved health care with falling costs.
At the same time, Japan’s expenditure on defense has grown from 1 percent of GDP to about 3 percent. This expansion began in 2014 when, in the wake of Chinese threats to the Japanese-administered Senkaku Islands, Japan redefined the extent of its defense powers under Article 9 of its constitution, which prohibited Japan from making war. This article had previously been interpreted to mean that Japan could only defend itself against direct invasion; it could not even provide support to an ally who might be under attack while defending Japan. The reinterpretation broadened the self-defense powers to enable cooperation with and support of allies. Later, the article was again redefined to allow Japanese forces to conduct forward defense and to support allies as part of such a defense. Under these reinterpretations, Japan now considers that it effectively has full sovereignty, including the right to go to war when vital national interests are threatened. The military buildup in response to China’s buildup has turned Japan into the world’s third-ranking military power, with a full nuclear arsenal and advanced cyberweapons, along with a panoply of international ballistic missiles. Its ships patrol the western Pacific, the Straits of Malacca, and the Indian Ocean. The combination of technological leadership, a booming economy, and military strength have made Japan an attractive alliance partner; most of the countries of East, Southeast, and South Asia, as well as the EU and the United States, have full security treaties or other security arrangements with Japan.
Japan’s revitalized status in the world has greatly increased the country’s already extensive soft power. In the 1990s, even as the Japanese economy was faltering, important parts of Japanese culture were adopted internationally. Sushi became a global food, kanban just-in-time delivery became a global management technique, karaoke became a global music form, and reading manga became a leading global pastime. Now, with Japan revitalized and booming, Japanese innovations in design, art, food, engineering, science, and much else are penetrating to the far reaches of the globe. The world’s thirst for Japanese performers, professors, chefs, painters, writers, engineers, designers, composers, and scientists—not to mention its political, economic, and social analysts—seems unquenchable. What some hoped would be the Second American Century—and what many predicted would be the Chinese Century—has, in fact, become the Japanese Century.
None of this appeared at all likely just a generation ago. Indeed, in 2014 the prevailing view was that Japan was a national basket case in grave danger of implosion. It was predicted that by 2050 the population would have declined to only about 85 million people, with 40 percent over the age of sixty-five. Some suggested that the last Japanese person might die before 2300. The low birthrate was destroying aspects of Japan that many had always considered fundamental to being Japanese, such as robust families, children as the center of family life, filial piety, respect for and care of elders, and closely knit villages. Men and women delayed or avoided marriage; when they did marry, they had few or no children. The extended Japanese family disappeared as elder care became too burdensome. Thus, from the traditional extended family, Japan progressed to only a nuclear family and often to no family at all. With a shrinking and aging population, the cost of pensions and health care appeared prohibitive in the face of minimal economic growth and a national debt that was a crushing 240 percent of GDP. Japan’s high national savings rate had always enabled the country to finance its own debt internally, but with savings falling and debt rising, analysts were predicting that Japan would soon have to sell its bonds to foreign investors. This, it was felt, would drive interest rates up and soon have debt service payments alone eating up three-fourths of the national budget before any other expenses could be covered.
The once-great Japanese corporations of the 1980s had become mere shadows of their former selves, with some near bankruptcy. Sony, formerly dominant in the electronics industry, had been surpassed by Korea’s Samsung and America’s Apple, suffering loss after loss. In 2012, Japan’s third-largest employer, Panasonic, suffered a US$10 billion loss—the biggest ever by a Japanese manufacturer—which led to the layoff of nearly 40,000 workers. Once world leaders, Japanese semiconductor makers Elpida and Renesas essentially went bankrupt in 2012 and had to be rescued. In the auto industry, Honda had become virtually an American company and Nissan had been flying in formation with Renault of France since the mid-1990s. The important innovations of Japanese management, such as kanban just-in-time delivery, kaizen continuous improvement, and six-sigma quality control, had all become global standards, but new management concepts were slow to emerge. Indeed, many observers noted that Japanese managers seemed slow to adopt the flexibility, hybrid approach, flat organization, and emphasis on innovation of other global managers in Korea, America, Germany, Taiwan, and Singapore. In place of Japanese management techniques, global business schools had begun using case studies of Sony and other Japanese companies to teach how to avoid stagnation, decline, and failure.
Ironically, Japanese business leaders who had been in the habit of criticizing American CEOs for outsourcing and offshoring jobs were now doing the same thing. Similarly, just as the Americans of the 1980s and 1990s had complained that the dollar was too strong, Japanese businesses in the early 2000s were complaining that the yen was too strong. Some analysts wondered whether the whole Japanese economic miracle of the 1960s and the storied virtuosity of Japanese management had been mainly a matter of an undervalued currency and a protected home market. It seemed that Japanese industry was unable to compete on a truly level playing field. In particular, it seemed to be failing at innovation. With a few exceptions, such as Softbank and Rakuten, the hot new ideas and companies of the early years of the twenty-first century like Skype, Google, Huawei, and Samsung came not from Japan but from Europe, the United States, China, and Korea. Smart young people with an eye to learning new things and advancing their careers and ideas flocked to America, China, and even to India, but not to Japan. Meanwhile, young Japanese, instead of traveling or studying abroad or learning English