Reforming Japanese capitalism: introduction

ABSTRACT

Is Japan creating a new economic model through digital and green transformation which will overcome its ‘lost decades’ lethargy and demographic challenges? Do Society 5.0, DX, GX, ‘new/sustainable capitalism’, Digital Garden City Nation and other initiatives represent a well-intentioned mish-mash, or something new and potentially coherent which other countries should take notice of? These questions animated a conference held in Oxford in February 2023, and subsequently informed the 11 articles in this special issue by European and Japanese academics and policy makers. The collection identifies tensions and contradictions but also significant changes in in corporate governance, innovation, public policy and human resources, which may point to a new direction for Japanese capitalism.

KEYWORDS:

• Digital transformation
• green transformation
• institutions
• labour markets
• Japanese capitalism
• Society 5.0

Introduction

In 2021 Japan’s incoming Prime Minister Kishida Fumio¹ called for Japan to adopt a ‘new form of capitalism’ to recreate a virtuous circle of growth and distribution. He subsequently set out four priority areas: people; science, technology and innovation (STI); startups; and digital and green transformation. In particular, he emphasized the first of these: ‘Investment in human capital is at the heart of the growth strategy of the Kishida Administration’, he stressed in his May 2022 Guildhall speech in London.

The call was not universally welcomed. In fact, the reaction from investors was swift – the value of shares on the Tokyo Stock Exchange plunged by almost 7% in just over a week, in what some called the ‘Kishida shock’. Investors did not like mention of the word ‘distribution’, especially if they might be expected to provide some of it. The Prime Minister modified his message, putting more emphasis on the ‘growth’ part of his formula.

There are echoes in the ‘new form of capitalism’ of Japan’s post-war high growth economic model which was centred on manufacturing. This model achieved a high degree of institutional coherence at the macro- and micro-levels of the economy. The economic landscape of the 2020s, however, is quite different. Japan is undergoing digital and green transformations. It is a mature economy, indeed one which is demographically ageing and shrinking, and one in which an increasingly large share of gross national income is earned from overseas investments. If Japan is to achieve a new growth model, it will be with a quite different institutional configuration than the post-war model.

Other countries are also undergoing digital and green transformations, are demographically ageing and/or facing structural labour shortages, with sluggish productivity growth, and derive substantial income from overseas investments, the UK being one such example. Japan is not unique, but the rapidity of change may be. And there are distinctive features in Japan’s approach to structural change, including the concept of Society 5.0, which is a kind of future-oriented beacon, and seeks to balance state, market and social relations in the country’s transformations, and to achieve a new form of macro- and micro-level institutional coherence.

Outside Japan little is known about these efforts to build a new economy. The ‘lost decades’ narrative, in which institutional coherence was lost, growth faltered and inequality surged, combined with demographic pessimism over Japan’s future, colours most discussions, admittedly not without reason. While former Prime Minister Abe’s cry of ‘Japan is back’ and his three arrows garnered much attention in the 2010s, any lessons for outside observers tended to focus on how to avoid deflationary ‘Japanization’, a complete turnaround from the learn-from-Japanese-management ‘Japanization’ of the 1980s.

With less fanfare however, from around 2015, a series of policy initiatives have begun to re-orient the economy in a new direction, with the aim of building a new growth model around a digital and green economy. ‘Society 5.0’, digital and green transformation (DX, GX), ‘green growth strategy’, Suga’s decarbonization targets and (Japan Business Federation) Keidanren’s ‘sustainable capitalism’ laid the path for Kishida’s ‘new form of capitalism’. A question is, however, whether all these initiatives are simply a clamour born of desperation to escape from more lost decades, or whether they are beginning to create something new, something coherent, and something worth taking notice of. Are they disparate and lacking ideational and institutional cohesion; or do they have the potential to really set Japan on a new path?

This was the overarching question which a conference in Oxford on 17–18 February 2023 was organized around, with the title ‘Reforming capitalism, going digital and green: Does Japan hold answers?’ ‘Answers’ here meant both for Japan, and potentially for others. A group of mainly Japanese and European academics and policy makers gathered to present their views and debate this. In addition to giving presentations and commentary at the conference, sufficient interest was generated to turn their thoughts into articles, which have been assembled in this special issue, with the addition of two further papers. Individually the articles cover different aspects of Japan’s current economic transformation; collectively they present a unique view of current developments in the Japanese economy, and the challenges to building Society 5.0 and a new, post-neoliberal, form of capitalism.

One powerful impetus for change mentioned in several of the articles, was the experience of the triple earthquake, tsunami and nuclear disaster of 11 March 2011, and subsequent natural disasters, which highlighted the need for socio-economic resilience at the local level. Another was the Global Financial Crisis, and the advent of Trump and Brexit in neoliberalism’s heartlands, adding to unease about growing inequality and social division within Japan. Yet another was unease about the digital transformation, both in terms of the perception that Japan was falling behind, but also that Japan needs to chart a path between domination by oligopolistic ‘Big Tech’ on the one hand, and an overbearing state on the other, represented by the US and China respectively.

The coherence and adequacy of Japan’s responses are questioned in the collection of papers. There are tensions, as well as contradictions – in labour market policy, corporate governance reform, in approaches to decarbonization, and so on. Yet there are also strengths which are apparent, including increasingly strong but supple coordination measures and policy continuity. Both are meaningful for other countries which face similar challenges to take notice of.

The remainder of this Introduction gives a brief overview of the papers, and more importantly, how they fit together, and the logic of the order in which they are presented.

Overview of the articles

Institutions and the way they fit together – or do not – are an important factor in determining whether Japanese capitalism has changed. The French Régulation school refers to ‘viable institutional configurations’ in which institutions become complementary, but some institutions are more influential than others. This influence and the configuration can change over time. In particular, the wage-labour institutional nexus which was central to post-war Fordism was supplanted in the late 1970s to 1990s by a new monetary and financial configuration in many countries, accompanied by deregulation and the relative demotion of secure employment (Boyer and Saillard 2001). This happened partially in Japan, with the result of declining institutional coherence. The question addressed in this special issue is whether this partial monetary and financial configuration is persisting, or whether a new institutional configuration is starting to take shape, and if so, what are its contours.

The first two papers take up this question through the lens of corporate governance, and indeed show a continued trajectory of financialization and emphasis of shareholder interests rather than their curtailment, as ‘new/sustainable capitalism’ would have. It is possible to say, as Whittaker (2024a) does, that corporate governance and investor relations have become the key institutional nexus, and an axis of tension, as employment relations were in the post-war period. In the latter case these tensions resulted in considerable institutional innovation which was at the heart of ‘Japanese-style management’ and was an important factor in Japanese economic growth centred on manufacturing. Could the same happen again, with a creative resolution to these tensions?

The first paper, by Deakin and Buchanan (2024), gives a careful account of the evolution of Japan’s corporate governance over the past two decades, focusing in particular on the introduction of the Stewardship Code and Corporate Governance Code in 2014 and 2015, respectively, as ‘two wheels of the cart’ of corporate governance reform. These codes have undergone subsequent revision, and as the authors show, the direction of travel has been a shift from a principles-based, ‘comply or explain’ approach towards one which is rules-based and prescriptive, driven by the Financial Services Agency and the Tokyo Stock Exchange, and hence increasingly favourable to shareholder interests.

The original authors of the Corporate Governance Code expected that it would ‘contribute to the development and success of companies, investors, and the Japanese economy as a whole through individual companies’ self-motivated actions so as to achieve sustainable growth and increase corporate value over the mid- to long-term’. While increasingly prescriptive disclosure criteria have come to include diversity and ESG (environment, social, governance), Deakin and Buchanan argue that ‘by the time of the 2021 revision elements that seem designed to please investors were increasingly salient’. Drawing on studies from other countries, moreover, they question whether this will increase ‘corporate value over the mid- to long-term’, or contribute to the vitality of ‘the Japanese economy as a whole’. Employee interests, in particular, have become casualties. It is important to note, moreover, that despite alleging that ‘people’ are at the heart of his ‘new form of capitalism’, Prime Minister Kishida has maintained this direction of travel, indeed stating to investors at the New York Stock Exchange in 2022 that Japan will ‘accelerate and further strengthen corporate governance reforms in Japan’.

Evidence of the shift in corporate governance towards shareholder interests was provided to the New Form of Capitalism Realization Council for its first meeting in November 2021, as reported by Whittaker (2024b) in the second special issue article. Corporate profits of large companies capitalized at ¥1 billion or more doubled between 2000 and 2020, while labour costs and capital expenditure were flat but internal reserves trebled and dividends rose six-fold, the latter almost equalling capital expenditure. These figures do not include foreign direct investment (FDI), which increased more than five-fold over that time, returns from which now contribute significantly to Japan’s current account, nor do they include investment in intangible assets. However, investment in intangible assets also appears to have stalled, ironically in areas of past Japanese strength – organization innovation, and investment in human resources. These suggest a reactive, cost-cutting approach to corporate Japan’s competitive and balance sheet challenges.

The second half of Whittaker’s paper zooms out to a more macro-level perspective, asking whether the initiatives from Society 5.0, DX, GX, ‘new form of capitalism’ and ‘restoring the middle class’ are likely to make a difference to this picture, and ultimately to create a virtuous circle of growth and distribution, i.e. a new growth model. Without negating the possibility of this happening, he implies that this will be difficult unless the cross-currents in these initiatives – such as marketization of employment on the one hand and corporate commitments to invest in skills on the other – are acknowledged and addressed. At the same time, he draws attention to new developments in state–market relations, including a revival of the use of industrial policy instruments, albeit in a different form from those of the post-war developmental state, and the possibility of these being pulled in a new direction by geopolitics and security concerns, something that some of the later papers also hint at.

The third paper takes up some of the same issues, while shifting the focus from corporate governance to innovation. The ‘lost decades’ represent a crisis, Lechevalier (2024) affirms, but a crisis of what? Adopting a Régulation perspective, in which institutional dissonance is the norm rather than the exception, he argues that it is not a crisis caused by a lack of structural reform, as many ‘mainstream’ economists would have it, as there has been significant reform. However, this has resulted not just in a loss of institutional coherence, but a loss of balance, coordination, and inclusivity in the economy, already pointed out in Lechevalier (2014). Abenomics restored some policy cohesion, but it failed to restore coordination, and maintained a neoliberal trajectory. As well, the innovation system suffered from trying to emulate the Silicon Valley model, when it should have been following the logic set out by Society 5.0, of addressing social needs rather than technology-push in pursuit of competitiveness.

Next, Lechevalier agrees that Society 5.0 on the one hand, and ‘sustainable capitalism’ and ‘new capitalism’ on the other, point broadly in the same direction at an ideational level, but institutionally there are tensions within and between them, mainly because Society 5.0 has not freed itself from neo-Schumpeterian innovation, and new capitalism from financialized, shareholder capitalism, which has undermined state capacity to bring about change through the financial system. Digital transformation consequently proceeds fitfully along a neoliberal trajectory. The contradictions can be addressed, he argues, if the government – and Keidanren – actually commit to placing care (elderly care, child care …) at the centre of Japan’s innovation system, turning this into a stakeholder model of innovation, complemented by a stakeholder form of capitalism. This would create a distinctive, human-centric ‘anthropogenic mode of development’.

The following papers venture further into Japan’s innovation system, and the role of the government in its transformation, after first situating these as a response to global environmental, health and humanitarian crises. Arimoto (2024), whose career has spanned a wide range of roles within Japan’s Science and Technology Agency (STA) and related institutions, as well as METI and the Cabinet Office, asserts that STI has become more central in government policy as a result of these crises, but echoing Lechevalier, that it needs to shed its neoliberal economic focus to address them. This simultaneously requires the joining up of policies across ministerial jurisdictions, in the form of ‘mission-oriented innovation policy’ (MOIP), a process that was accelerated under the Fifth STI Basic Plan (2016–21) which introduced the concept of Society 5.0, and further under the revised STI Basic Law of 2020 which replaced the 1995 S&T Basic Law, and its implementing Sixth STI Basic Plan (2021–26).

Arimoto describes in further detail the Strategic Innovation Programme (SIP), a precursor to these developments introduced in 2014, and more briefly the Moonshot Programme of 2020, both under the direction of the Cabinet Office, which has come to play a key coordinating role for MOIP. Based on his direct involvement, he describes the SIP-adus (autonomous driving for universal services) project which required collaboration across ministries and regional entities, as well as a pro-active approach to legal reform based on a ‘public-private intelligent transport system roadmap’. Such projects further need an adaptive approach of continuous learning and adjustment mechanisms, rather than relying on static post-project evaluation, as well as mechanisms to encourage stakeholder participation. The transition to MOIP in Japan, Arimoto concludes, is a work in progress – which will be reflcted in the forthcoming 7^th STI Basic Plan (2026–30) – and requires new forms of intelligence and boundary bridging, human resource development, and international collaboration.

The next paper focuses on environmental policy, which Nakai (2024), who moved from the Finance Ministry to the Ministry of Environment following the triple earthquake, tsunami and nuclear disaster in 2011, became Vice Minister and had a large role in shaping the policies he describes. Nakai first sets a context of simultaneous global crises, of the environment, infectious diseases and species extinction, which threaten our own survival, before giving an overview of the evolution of Japan’s environmental policy. The latter depicts a shift from seeing environmental protection and economic growth as trade-offs, to insisting on the need for an integrated approach to the environment, economy and society. This was developed in the wake of the triple disaster, leading to the Fifth Environmental Basic Plan of 2018, in which environmental policy would be aligned with ‘new growth’ and vice versa. One concrete expression was the ‘Green Growth Strategy’ of late 2020. Another was the Regional Decarbonization Roadmap of 2021, which seeks to achieve carbon neutrality in the civil sector in 100 localities by 2030.

Inheriting new greenhouse gas reduction pledges by the Suga administration in 2021, the succeeding Kishida administration assembled a GX (green transformation) Implementation Council, which formulated a ‘Basic Policy for the Realizing of GX’ with a 10-year roadmap for sectoral transformation and green technology development. Central to this is ¥20 trillion of public investment to be raised through ‘GX Economy Transition Bonds’, which in turn should leverage ¥130 trillion or more of private sector investment, incentivized by ‘pro-growth carbon pricing’ measures. Nakai’s vision, and presumably that of the Ministry of Environment, is for a three-layer or stage transformation, to a carbon neutral society; to a circular economy; and to a ‘nature-positive, nature-revitalized, decentralized society that co-exists with nature’. Although Japan has much to do to achieve this vision, continuity in policy and its integrated approach make it a promising GX agenda worthy of serious attention.

The hefty sums envisaged in the Basic Policy for the Realizing of GX, as well as other initiatives linked to Kishida’s New Form of Capitalism, including child and family policies designed in part to raise the birth rate and slow population shrinkage, heighten the need for effective and efficient public expenditure, which is already under strain. The sixth paper, by Akai (2024), analyses the implementation of evidence-based policy making (EBPM) in central ministries in Japan, the role played by the Council on Economic and Fiscal Policy, and by the Committee for the Promotion of Integrated Economic and Fiscal Reform since 2017. EBPM has ‘three arrows’ – not to be confused with those of Abenomics – namely setting of key performance indicators (KPIs) for policy objectives; evaluation of policy measures; and administrative review of individual projects, using PDCA (plan, do, check, act) cycles.

To secure ¥150 trillion of GX investment, for example, four pillars have been established – upfront investment support using GX Economy Transition Bonds; investment incentives through pro-growth carbon pricing; new financial instruments; and an international and diffusion strategy – each of which requires various types of KPI, including KPIs to measure just how public spending is actually inducing private sector investment, and whether or not ¥150 trillion actually improves industrial competitiveness as well as decarbonization, and so on. Each pillar has different tiers of increasing specificity. There is a concern underlying Akai’s presentation, that although Japan has devoted considerable energy to EBPM (no doubt in parallel with the growth of MOIP, described by Arimoto, which crosses ministerial jurisdictions), it still has far to travel on this journey.

The special issue next turns to ‘people’, allegedly at the heart of Society 5.0 and new capitalism, but realistically more in rhetoric than reality. Long touted as Japan’s biggest asset, people have in fact become its biggest challenge, and not just in terms of a declining and ageing population. Two articles which address the roles of women in particular highlight this. Nagase (2024) critically examines family and gender equality policies, which are undergoing change from a (male) breadwinner employment and social model. Behind this change are stubbornly low birth rates, but also changing attitudes of younger generations: the value attached to marriage and having children has decreased, while a higher proportion of women expect to work throughout their adult lives. Social welfare policies introduced in the 1980s no longer fit social realities.

Abe’s ‘womenomics’ and work-style reforms failed to bring about fundamental changes to employment and work–life balance. ‘Regular’ long-term employment still imposes long working hours and other restrictions on shared family life, while increasing female labour force participation has been disproportionately in ‘non-regular’ employment, with lower wages and limited advancement prospects, and as such is socially wasteful. After considering these, Nagase turns to the tax and welfare policies that impede change, particularly those which grant full time housewives and women earning under ¥1.3 million annually public health and pension coverage through the contributions of their spouse, creating a disincentive for women to earn above this ceiling, and likewise for employers, who avoid paying premiums themselves. Attempts to reform the system in 2000–2001 failed, and of the current options being considered, Nagase favours reducing such treatment of housewives when their children reach a certain age, and incentivizing employers to increase hourly wages of non-regular employees but including the latter in employee insurance.

The following paper addresses another conundrum, of the low proportion of women in STEM (science, technology, engineering and mathematics) university courses, and subsequently STEM-related careers. Yokoyama et al. (2024) situate this in a context of Japan’s declining research capacity, low proportion of STEM students – male and female – per se, lower proportion of women than men entering university, and declining population, raising the stakes for addressing the issue of women in STEM. They explore reasons behind the low proportion of women in STEM through a series of surveys, which they summarize. Japanese female school students score well in international tests like TIMSS and PISA, and as well as Japanese boys in primary school, but divergence in maths scores begin to appear during middle school. These are linked to characteristic and gender stereotypes attached to subjects and occupations – ‘logical thinking’ and ‘mathematical ability’ are associated with masculinity, ‘understanding the needs of society’ with femininity, and so on. Physics, Yokoyama’s own field, is strongly associated with masculinity. The surveys also show that gender stereotypes and views on equality held by girls and their mothers in particular matter.

Changing social attitudes is no easy matter, and in the late 2010s a number of Japanese universities began to introduce womens’ quotas for STEM courses based on different entry criteria. There was a surge in 2023, including leading universities like Tokyo Institute of Technology, Tokyo University of Science and Nagoya University. Womens’ universities have also started introducing new STEM-related departments. Affirmative action has brought familiar debates, about reverse discrimination and stigmatization of women, including those entering through the normal route, while quotas sometimes remain unfilled. On the faculty and leadership side, targets for increasing the proportion of women are being announced, and the University of Tokyo made headlines in 2021 when women became a majority of its Board members. Further change will require significant stakeholder commitment to create a ‘multi-layered information environment with a focus on gender equality’.

The third article to focus on ‘people’ addresses Japan’s surprising lack of investment in human resources. Nakata (2024) first notes Japan’s declining population and declining births – from late marriage and non-marriage, or marriage avoidance – which means fewer children and youths in education. He also shows, however, that entry rates into higher degrees (masters and doctorate level) are comparatively low in Japan; that indirect labour costs, and specifically training costs (or investments) of Japanese companies are lower than counterparts in comparative countries, and have declined since 2000; and that public expenditure on education as a proportion of GDP is low in Japan.

Worryingly, while higher education costs for families have increased, income inequality has also increased. Japan experienced the highest growth of income share of the top quintile, and biggest drop in the lowest quintile of comparator countries between 2000 and 2018, and similarly for the fourth and second quintiles, meaning that the ability of lower income families to put their children through higher education has decreased. In the corporate sector, Nakata argues that changes in financial markets have forced employers into a short termist, cost-cutting stance, and that digital transformation and increased job changing have reduced incentives to invest in training, while long working hours leave workers with little appetite to invest in themselves. Kishida’s policies, moreover, are time-limited and overly targeted, and sometimes contradictory. Greater consistency and coordination of people-related policies is needed. As is a clear target: ‘Attention should be focused on Japanese workers, not their employers, and on young people, not their parents’ (or grandparents). Opportunities should be provided regardless of economic background, giving talented youth the opportunity to contribute to society.

Kishida’s new capitalism and Keidanren’s sustainable capitalism both aspire to restore the vitality of the middle class, in principle addressing some of the issues raised by Nakata. This is taken up in the final article on ‘people’ by Zou (2024), who focuses on the ‘new trinity’ labour market reforms proposed by Kishida, so-called because they have to be tackled together. The trinity consists of reskilling and upskilling; promotion of job mobility; and job-based (as opposed to ‘membership-based’) employment. The first is self-evident, although who funds reskilling and upskilling is not. Increasing job mobility addresses the concern that many workers are trapped in ill-suited or low-productivity jobs with little incentive to move. Job-based employment – and reskilling – will supposedly make it easier for them to do so, since it will be skills that are rewarded, not seniority or length of service. The combination, then, will improve the allocative efficiency of labour markets, improve productivity, improve worker satisfaction, as well as reduce the discrimination against women as described by Nagase.

In theory at least. After describing potential contributions of the ‘new trinity’, and the enabling legislation on unemployment benefits, pensions and tax, Zou proceeds to highlight the ‘challenges’, including the obvious one of why employers would boost their training – or promote side-jobs for employees – and at the same time countenance higher labour turnover. ‘Job-based’ wages and employment remains ambiguous but seems to resemble the shokumu kyū (pay for the job done) which was rejected in the 1960s. Workers are not necessarily as interested in career development as the model assumes, and an information infrastructure resembling the Danish system would need considerable development and investment. On a more optimistic note, Zou sees a bigger role for labour market intermediaries, pointing out that employment agencies in Japan are already attentive to worker needs. A new model may yet emerge from Japan.

The final article extends this optimism into the realm of digital transformation. Kümmerle and Waldenberger (2024) reject the tendency to frame data regulation regimes as a US market-driven and Chinese state-driven bipolar divide, or even a tripolar divide, adding the EU’s rights-driven approach. Japan, they argue convincingly, has created a fourth, consensus-based type, reflecting Japan’s approach to regulation in general, and avoiding the dangers to democracy of surveillance capitalism (Zuboff 2019). They advance their argument by first looking at domestic ‘information banks’ in which individuals deposit data with intermediaries which then lend it in aggregated form to third parties to derive value from it. The transactions involve a high degree of disclosure and consent, and the ‘value’ can be pecuniary or social, for example for use in medical research or regional projects. Elements of a market-driven and rights-driven approach are combined.

Their second example elevates the consensual approach to the international sphere, as Data Free Flow With Trust, unveiled by Abe at the World Economic Forum in 2019, in which Abe proposed that certain types of data should be put under careful national protection, while other types should be allowed to flow freely across borders. The concept gained traction in 2021 by emphasizing the opt-in of like-minded countries. Kümmerle and Waldenberger cite this as an example of Japan’s ‘neo-middle-power diplomacy’. Their third example of consensual governance is Japan’s approach to the COVID-19 pandemic, in which obligatory lock-downs were avoided through the use of self-restraint and a distinctive approach to data which preserved the ‘privacy first’ principle, contributing to the country’s low mortality rates. They identify key features of Japan’s approach to data as ‘soft regulations, multi-stakeholder involvement and consensus orientation’.

Conclusion

Kümmerle and Waldenberger’s article allows us to see some of the other, more critical contributions, in a different light. The consensual approach they identify can also be seen in proposals for the ‘agile governance’ of Society 5.0, in which multiple systems interact with each other through interoperability, with input from multiple stakeholders based on a hierarchy of ultimate goals, core values and concrete objectives (METI 2021; Whittaker 2024a). It can also be seen in the Basic Policy (and Plan) for the Realization of GX, and the ‘pro-growth carbon pricing’ measures outlined by Nakai. Indeed, in his historical study of energy markets in Japan, Samuels (1987) identified ‘reciprocal consent’ – as opposed to top-down industrial policy – as a key characteristic. Relatedly, Whittaker’s article describes the quest for consensus over shared wage and price increases through the Partnership Construction Agreement. That is not to say that consensus can always be reached, and ‘consensus’ does not always apply to out-groups, but it is the preferred modus operandi of governance.

Some of the more critical contributions in this special issue point to contradictions in Japanese policies, institutions and reforms, including:

• In corporate governance, promotion of shareholder-favouring policies by the Financial Services Agency and Tokyo Stock Exchange while the government and Keidanren claim this has gone too far, and needs to be reined in;

• In innovation, advocating a social-needs orientation while continuing to fund competitiveness-oriented technology-push;

• Advocating ‘people-centred’ Society 5.0 and rebuilding the middle class while continuing to allow dualization of the labour market and failing to address the causes of growing inequality;

• Expecting employers to fund reskilling and upskilling while at the same time promoting job mobility.

In the main, these represent a conflict between the maintenance of neoliberal approaches to economic management and the adoption of a post-neoliberal Society 5.0 approach which is coordinated through visible hands (based on consensus, balance between cooperation and competition, and pragmatism). But it also seems to represent a preference for not posing contradictions and tensions as such, and creating room for negotiation to reach consensus. Corporate governance is an example; the Stewardship and Corporate Governance Codes were presented in terms of shared investor and management interests in growing ‘corporate value’ over the medium term, despite underlying tensions. Doing so may create space for a creative resolution of tensions and the creation of a new model, in much the same way that employment (capital-labour) tensions were defused in the post-war period to create ‘Japanese-style management’, which proved highly competitive, and at the same time built a large middle class.

Likewise, conceiving of green and digital as ‘two wheels’ of economic transformation, and the insistence on not seeing environmental protection, economic growth and social wellbeing as trade-offs, creates space for negotiated consent, and thence commitment and durable policies. This stands in stark contrast to the way Brexit, for example, was handled in the UK, and the UK’s flip-flopping over environmental policy, indicative of a trade-off stance between green transformation and economic (especially fiscal) health, as well as the social polarization over reproductive rights and other social issues in the US. From this admittedly optimistic view, the contradictions and tensions identified in the articles of this special issue are not a reason to dismiss Japan’s efforts to forge a new direction; on the contrary, as several of the authors suggest, they are reason to take Japan seriously. If, as Lechevalier notes, crisis and conflict are normal states of an economy, and growth regimes ‘emerge from the (constructed or much more often along an unexpected fit) alignment between different institutions’, perhaps the Japanese approach offers a better chance of achieving this, especially when crises we are facing such as climate change and environmental degradation are so complex. Similarly Japanese pragmatism may lack ideological purity, but it also avoids ideological polarization and accompanying culture wars.

But, and this is an important caveat, simply asserting that people are at the centre of an economic model, or that an innovation system is oriented towards social needs, does not make them so. Japan is facing a crisis of social sustainability. Its post-war economic growth which propelled a rapid demographic transition has now turned into rapid demographic ageing and population decline. This is not unconnected with the roles of women in Japanese society, and the conflicts identified by Nagase and Yokoyama. Nor is it unconnected with the growing role of foreign labour in Japan, and immigration, for which Japan is still ill-prepared. If Japan can turn these tensions into a positive-sum outcome, for women and non-Japanese, and Japanese society and economy, it will be truly noteworthy, and relevant for other countries which are grappling with intense socio-economic tensions which have crystallized into open political and social conflict. Here, as Nakata indicates, pragmatism in the form of temporary or restricted budget and policy measures needs to be significantly stiffened, which will require not just stakeholder engagement, but real political leadership as well.

We hope that this special issue will help to update views on the evolution of the Japanese economy and capitalism, and stimulate reflection on similar challenges faced by other countries.

Acknowledgement

The authors would like to thank Chris Rowley for his encouragement in this project, and Fangmiao Zou for help in preparing the articles.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

D. Hugh Whittaker

D. Hugh Whittaker is Professor in the Economy and Business of Japan and Director of the Nissan Institute of Japanese Studies at the University of Oxford. His new book is called Building a New Economy: Japan’s Digital and Green Transformation (Oxford University Press, 2024).

Yoshifumi Nakata

Yoshifumi Nakata is Professor of Strategic Human Resource Management at the Graduate School of Policy and Management as well as the director of Research Institute of STEM at Doshisha University, Kyoto. His research interests focus on relation between work environment and engineers/software engineers’ performance.

Notes

1. Japanese names in this special issue appear with the surname first and given name last, except for the names of the authors of the articles following the title.