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Can Japan's low productivity problem be solved?

Sunday, March 31, 2024

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Japan's productivity problem is legendary. Amongst the G7, it isn't just the least productive - it earns that title by some margin. What's more, while other economies have sped onward, Japan has gone into decline.

Yet, amongst this never-ending bad news, there is some hope.

OECD figures suggest Japan's productivity is about 65% of the levels the rest of the G7 enjoy. It's been in steady decline since 2015, although there are signs that this underperformance may have bottomed out. The $ per hour worked is rising and keeping track with the mean. We're at a steady 65%.


The population is declining, and with fewer people in the workforce, that number should rise as we have to do more with less. We're already seeing it with robots in the workplace and moves to improve processes that the rest of the G7 have long since digitized.


From the statistics I've found and my models, if Japan is to hit the GDP predictions for 2030, we need to improve productivity by 3% per year.


(And this is where I see hope and opportunity)

We can do better for an inefficient economy that's oddly willing to embrace innovation once it gets behind it.

To hit the 2022 average for the G7, Japan would need almost to double that 3% figure to 5%. This isn't a big ask when you consider how inefficient the Japanese economy is.

Reaching the dizzy heights of a likely 2030 average means productivity has to grow at 10% annually. That is a significant challenge, though I think it's OK to aim big. After all, getting bigger improvements during Business Transformation programs isn't uncommon.


In recent weeks, I've been sifting through reports on what people work in which bits of the economy, then applying basic process innovation to their likely work tasks. It's early days, though I don't think doubling productivity over the next 7-8 years is as scary as it might look.

Japan will still need immigration and keep workers on for longer to tackle short-term gaps. Setting up for the longer term will require Japanese management to look for ways NOT to replace these retiring workers but to REDUCE or REMOVE their work so the remaining workforce can be more productive.

My experience from the Business Process Re-engineering era and initial research suggests this is possible. It will be a challenge, and those happy to be big fish in shrinking ponds are the greatest threat to advancing Japan's economy. But if Japan can successfully tackle these attitudes (and quickly), I can see no reason why, by 2030, the idea of Japan as the productivity laggard of the advanced economies is over.

My name is Ross Hori

I'm a freelance writer, designer and photographer. By day I create articles, features and reports. At night I take photos and write fiction.

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