Environmental influences on U.S. and Japan's economic development

¶ … Environmental Factors Influence U.S. And Japanese Economic Development

The United States and Japan are among the top five economic powerhouses of the world today, but they arrived at their current level of performance by dramatically different paths. Further, both countries continue to be characterized by cultures with different business practices and traditions that have affected the manner in which commerce is conducted. Despite the status of these two countries as belligerents just a few decades ago, the United States and Japan have become fast friends in the 21st century in terms of the mutual advantages of increased economic trade and strategic military alliances in response to a growing threat from North Korea. This paper will provide an analysis of how selected environment factors such as social background, political systems, regulatory requirements, educational levels and religions have influenced the economic development in these two countries, followed by a summary of the research in the conclusion.

Review and Analysis

Japan.

Depending on the statistical view, the United States and Japan represents the top two (or three) economies in the world today. According to the World Factbook (2005), Japan enjoys a high degree of cooperation between its government and industries and the Japanese people are characterized by a strong work ethic. Japan remains one of the world's leaders in high technology applications and industrial robotics, and the country's miniscule defense budget (about 1% of its GDP) have contributed to this economic boom; however, Japan has experienced its share of miseries in recent years as the collapse of stock and land prices in the early 1990s ushered in a period in which the Japanese economy stagnated at a level of negative or near-zero economic growth (Carlile & Tilton, 1998), as well as fallout from the Asian financial crisis of the late 1990s, have seriously constrained growth (Japan, 2005). Nevertheless, the World Factbook points out that today, after the United States, Japan is the second most technologically powerful economy in the world and the third-largest economy (after the U.S. And China, measured on a purchasing power parity (PPP) basis; however, if market exchange rates are used instead of PPP rates, Japan's economy is larger than China's) (Japan, 2005).

Social Background. One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding (Japan, 2005).

Political System. The Japanese government is a constitutional monarchy with a parliamentary government; the legal system is modeled after European civil law system with English-American influence; judicial review of legislative acts in the Supreme Court; accepts compulsory ICJ jurisdiction with reservations (Japan, 2005).

Regulatory. Companies that compete within a regulated environment are subject to legal and economic constraints that are not faced by firms in unregulated environments; consequently, such companies are exposed to high levels of determinism which can severely limit the strategic choices available (Geiger & Hoffman, 1998). According to Carlile and Tilton (1998), there is a significant challenge involved in understanding the Japanese regulatory environment for those whose primary frame of reference is the regulatory environment found in Western countries. The fiscal situation that emerged was even worse than that which had induced the 1980s administrative reform movement, and Japan's debt level quickly soared to the highest level among the leading advanced industrialized countries. With the official discount rate eventually dropping to 0.5%, further lowering of interest rates was not an option. It also became clear around the same time that Japan's vaunted high-tech sectors were lagging behind those in the United States and other countries in such commercially and technologically strategic areas as telecommunications and microcomputers. The high cost of domestic services relative to overseas competitors was becoming a conspicuous drag on the competitiveness of all Japanese firms. Overregulation was widely perceived to be the primary cause in both instances. The worst crisis, however, was to be found in its financial sector, in which the fall of land prices and loose controls had given rise to stunning levels of bad debt that continue to threaten the very viability of the Japanese financial system (McCormack, 1996). Further exacerbating the domestic factors that urgently required regulatory reform were the increasing calls for deregulation and market liberalization from other nations; bilateral negotiations between the United States and Japan such as the Structural Impediments Initiative talks of the Bush administration and the Framework talks of the Clinton administration were indicative of these initiatives (Schoppa, 1997).

Educational Levels. Literacy rates in Japan are among the highest in the world and fully 99% of both the male and female population over the age of 15 years is considered literate (2002 estimates) (Japan, 2005).

Religions. The overwhelming majority of Japanese people observe both Shinto and Buddhist practices (84%), and the remaining 16% are comprised of others religions (0.7% are Christians) (Japan, 2005).

United States.

The United States remains the largest and most technologically powerful economy in the world, with a per capita GDP of $40,100 (United States, 2005). Like Japan, the U.S. has a strong market-oriented economy wherein private individuals and business firms make most of the decisions and the federal and state governments purchase required goods and services predominantly in the private marketplace; however, in contrast to Japan, U.S. companies enjoy significantly more flexibility in their decisions to expand capital plant, to lay off surplus workers, and to develop new products (United States, 2005). The United States is also a world leader in high tech-applications, particularly in computers and in medical, aerospace, and military equipment; however, U.S. superiority in these areas have diminished end in the post-World War II period. The increase in the U.S. GDP in 2004 was supported in large part by significant gains in labor productivity, but the national economy remains energy hungry and sharp increases in energy prices in the second half of 2004 offset some of these gains Finally, Long-term problems include inadequate investment in economic infrastructure,

Social Background. Significant problems remain in the form of rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income among the lower economic groups (United States, 2005).

Political System. The U.S. is a constitution-based federal republic with a strong democratic tradition; in contrast to the Japanese European-based tradition, the U.S. federal court system is based on English common law; however, each state has its own unique legal system, of which all but one is based on English common law (the State of Louisiana's legal system is based on the Napoleonic Code). Like Japan, though, the U.S. also has judicial review of legislative acts and accepts compulsory ICJ jurisdiction with reservations (United States, 2005).

Regulatory. Unlike Japan, the U.S. is comprised of 50 several states whose interests are not always mutually compatible; the respective states have been forced into budgetary and regulatory decisions that in many cases are more attentive to foreign interests than to their domestic constituents in recent years (Moon, 2000). Furthermore, unlike the close partnership between government and business in Japan, these interests are frequently at odds in the U.S., but the sophisticated regulatory apparatus in the United States such as the Security and Exchange Commission, the Federal Reserve, and so forth, were still unable to prevent the massive collapse of the U.S. savings and loan industry in the 1980s, much as Japan's economic ministries were unable to prevent widespread insolvency in its banking sector, which persisted throughout the 1990s (Moon, 2000).

Educational Levels. The U.S. is at a slight disadvantage compared to Japan in terms of literacy rates (97% of the male and female population over the age of 15 years is considered literate compared to 99% in Japan), but the U.S. still managed to score slightly ahead of Japan in terms of overall educational opportunities according to the World Bank (discussed further below) (United States, 2005).

Religions. Perhaps one of the most visible differences between the U.S. And Japan is in terms of the number of religions observed; in the U.S., 52% of the population is Protestant; 24% is Roman Catholic; 2% are Mormon and Jewish and Muslim represent just 1% of the population; 10% of American population does not practice a religion (2002 estimate) (United States, 2005).

Comparison and Analysis of Key Metrics

The World Bank's Knowledge Economy Index (KEI) is the average of the performance scores of a region or country in all four Knowledge Economy components (these are 1) Economic Incentive Regime, 2) Education, 3) Innovation and 4) Information Communications & Technology; the World Bank's KI (Knowledge Index) is derived from the simple average of the performance of a region or country in three KE pillars (Education, Innovation and Information Communications & Technology) (2004 Interactive Knowledge Assessment Methodology, 2005). A comparison of Japan and the U.S.'s respective scores for these components is provided in the tables and figures below (careful attention should be given to the increments used since the differences between these two countries is, in some cases, miniscule).

Table 1.

Japan -- Knowledge Economy Index.

Index Japan (most recent)

Group: All Japan (1995)