Ed Dolan's Econ Blog

Growth and Quality of Life: What Can we Learn from Japan?

There is a growing concern that economic growth, as we know it, is coming to an end. Economists, who tend to view growth as good, are uneasy with that idea. Many environmentalists, who are more prone to focus on the downside of growth, view a steady-state economy more positively. Richard Heinberg, author of the book The End of Growth, sees a no-growth economy as a reality to which we must adapt whether we want to or not. In his view, whether the no-growth future works out well or not depends on how well we manage the transition. If we manage it well, we can maintain and even improve our quality of life without an ever increasing GDP. If not, he sees a much less pleasant future.

But rather than speculate about what a no-growth future might look like for the United States, why not see what we can learn from Japan, where a no-growth economy, or something close to it, has been a reality for a generation already. (The Japanese population peaked in 2008, but as of 2013, it is still about 2.5 percent higher than in 1992, so per capita GDP growth has averaged even less than shown in the chart.) What does the Japanese experience suggest about the linkage between economic growth and the quality of life?

Growth vs. quality of life

To answer that question, we need to do two things. First, we need a way of measuring the quality of life. Second, we need to distinguish between the effect on quality of life of a country’s level of income and the effect of growth per se. Putting these two things together allows us to formulate the following hypothesis:

If growth of income, independently from the level of income, is a necessary condition for maintaining a high quality of life, then slow-growing Japan should have a lower quality of life than other countries with comparable incomes but more rapid growth.

IMF data rank Japan as twenty-fifth in the world by per capita GDP at purchasing power parity, just behind France and just above the EU average. That puts Japanese GDP per capita at 70 percent of the United States. Although some other rankings put Japan a little higher or lower, all sources put the country safely in the top quartile by GDP per capita, but below the top decile. On the other hand, its recent average growth rate of 0.84 percent per year puts it in the bottom growth quartile. The question is, then, do measures of Japan’s quality of life more closely track its level of GDP, its growth rate, or neither?

There have been many attempts to quantify the quality of life. Because these efforts differ widely in their methodologies, we should look more than one. Here is how Japan stacks up according to some of the better-known quality of life indexes:

  • The Economist Intelligence Unit’s Quality of Life Index includes measures of material wellbeing, health, political stability, family life, community life, climate, job security, freedom, and gender equality. For 2005, Japan ranked seventeenth in quality of life out of 111 countries surveyed, compared with a rank of sixteenth for GDP per capita. It ranked well ahead of France and Germany in quality of life, and just four places behind the United States, despite being 15 places behind the U.S. in terms of income.
  • A similar index from ranked Japan thirteenth out of fifty-one countries for quality of life compared with a ranking of twentieth for per capita GDP. First-place rankings for low crime, safety, and quality of health care boosted Japan’s ranking on the Numbeo scale.
  • The Legatum Prosperity Index for 2012 placed Japan at the eighty-fifth percentile, or twenty-second out of 142 countries surveyed. That put it one place behind France and ten behind the United States. High rankings for governance, health, safety and security, and education helped Japan’s rankings on the Legatum index.
  • The UN Human Development Index, which combines scores for education, longevity, and income, places Japan at the ninety-third percentile, twelfth out of 165 countries surveyed. By comparison, the EU average on the Human Development Index ranks twenty-fifth.
  • On the OECD’s better life index (all indicators ranked equally), Japan scores twenty-second out of 36 member countries. As in other indexes, it scores high for health and safety indicators. It compares poorly on work-life balance (even worse than the low-ranked United States) and below average on subjective surveys of life satisfaction. It scores poorly on the OECD’s index of gender equality (thirty-third out of 36), although curiously, Japanese women report higher subjective happiness scores than men. To put these results in context, we should keep in mind that the OECD is an exclusive club of high-income democratic countries. Among OECD countries, only Greece, Portugal, and Italy have had slower average GDP growth since 1999.

This is only a sampling of quality of life indicators, but we can see a clear pattern: By many if not all measures, the quality of life in slow-growing Japan is higher, not lower, than the quality of life in faster-growing countries at with comparable levels of per capita GDP. The Japanese example suggests that growth is not a necessary condition for a good quality of life.

How well is Japan managing its transition to low growth?

Toward the end of his book, Heinberg spells out a default scenario that he thinks will unfold as growth comes to an end in an advanced economy. His scenario includes financial collapse, militarization, civil unrest, political repression, collapse of social services, and other ills. Clearly, Japan has avoided most of those troubles, at least so far, but that does not mean it has managed the transition to low growth perfectly.

For one thing, the Japanese labor market has not fully adjusted to slow growth. As the following chart from Japan’s Statistics Bureau shows, he country’s traditionally low unemployment rate has risen, especially for young people.


Logically, there is no reason why a slow-growing economy should have more involuntary unemployment than a growing one. Two things make the rising unemployment rate is especially problematic for Japan. One is the fact that an aging population means that there are fewer people of working age per retiree. By itself, that would suggest that jobs would be getting harder to fill and unemployment would be falling. The other odd thing about rising Japanese unemployment is the fact that a poor life-work balance is one of the few major negatives in the Japanese quality of life picture. It would seem that some adjustment is needed to move away from a situation where some people are working crazy 14 hour days while others have no jobs at all.

In addition to its labor market problems, Japan has not yet found the right combination of monetary and fiscal policy to bring its economy back to an acceptable equilibrium. Increasingly desperate efforts to reignite the growth engine are leading to developments in monetary policy, exchange rates, and public debt that many observers believe to be unsustainable. (For more on Japan’s macroeconomic and demographic problems, see Japan’s Looming Singularity by Ed Hugh, posed to Economonitor on February 12.)

Environmentalists find grounds to criticize Japan’s performance as well. They would like to see a greater use of sustainable energy and lower carbon emissions as part of the transition to a comfortable zero-growth future, but the country is not doing well in that regard. In fact, since the Fukushima nuclear disaster, it has become even more dependent on imported fossil fuels. The OECD rates Japan’s air quality below average and falling.

Finally, although many of the international rankings cited above give Japan high quality of life scores, the Japanese themselves do not always do the same. A white paper from Japan’s Cabinet Office shows a steady decline in subjective life satisfaction, as measured by the simple question “Are you satisfied with life, or not?” The same white paper reports that 60 percent of the working-age population feels stressed every day. Income, budget, work, and study are the most common sources of stress, far outweighing more personal stress factors like health, relationships, or caring for family members. There is a strong negative correlation between the amount of personal time people have and their level of stress. Logically, all of this suggests that less time spent generating GDP would improve the quality of life.

The bottom line

When all is said and done, what do we learn from Japan’s experience with near-zero growth? It seems to me that we can see a glass that is half empty, if we want, or half full. Certainly the transition to a low-growth economy has not been ideally managed. The Japanese themselves do not appear to be pleased with their status as the world’s leading no-growth nation, and in some respects, they appear to be less pleased as time goes on. If there were a simple “start” button to get Japan’s GDP growing again, a referendum on whether to push it would undoubtedly draw a majority vote of “yes.”

On the other hand, Japan’s experience seems to tell us that the end of growth does not mean the end of everything. Even without growth, Japan seems to have a better handle on many of life’s pressing problems, including health care, longevity, public safety, and personal security than does the faster-growing and wealthier US economy.

I do not share Richard Heinberg’s alarmist view that the Great Recession marks a permanent and fundamental break from the past, so that economic growth as we know it is over and done with, starting right now. On the other hand, many mainstream economists do see U.S. growth rates slowing in coming decades. Heinberg is surely right to maintain that, as we face that prospect, we should think about how to manage the transition from “growth as we know it” to something that continues to improve the quality of life without the unwanted side effects of personal stress and environmental degradation. More on that in a future post.

Thanks to Sarunas Merkliopas who served as research associate for this post

53 Responses to “Growth and Quality of Life: What Can we Learn from Japan?”

JohnFebruary 15th, 2013 at 1:47 pm

I have lived in Japan off and on since 1989. I am making plans to leave and (hopefully) never come back, except to visit. While many things look good, they only look good on paper. People here are not what I would call happy and I think their not knowing about the world outside of Japan is the only thing that makes them tolerate it. Japanese who have lived abroad show much more discontent. In addition, the country has been coasting on the energy from the good years but that is coming to an end. The country was a one trick pony (ok, two, cars and electronics) but everyone else has learned the trick. They have nowhere to go so they stand patiently.

Jason DusekFebruary 16th, 2013 at 12:22 pm

> While many things look good, they only look good on paper.

Could you say more about that? Long lives are long, fast trains are fast. What are we missing, those of us looking in on all this from abroad?

Bryan WillmanFebruary 17th, 2013 at 12:49 am

I suggest a broader view – though of course history is not reassuring.

I suggest that the high workloads yet high unemployment in Japan, comparable parts of the malaise in the US, and other such issues, all in the face of huge opportunity are a sign.

Perhaps a sign of maturity (no more big gains) in various resources and technologies. But perhaps more likely a sign of the ongoing dysfunctional attributes of human organization.

Bryan WillmanFebruary 17th, 2013 at 12:51 am

Part – II – so I think that solving such deep issues as "if there are children in Africa who have not learned to read, how can there be unemployed teachers in the US?" and "in a vigourous capitalist economy, why is there very more than frictional unemployment?" will also inform the question of "growth" on both a national and world basis.

Put another way, while demographics are certainly a powerful force, I worry more about ill conceived political and social constructions.

jack strawFebruary 17th, 2013 at 3:56 pm

Deflations actually are/were quite normal "back in the day" (prior to World War II). There is nothing "odd" about them…they are easily recogniziable…and should be avoided at all costs. The easiest trap to fall into the the one us Americans are falling into…namely "bailing out the Government is what is needed." Actually there is no bigger growth destroyer than Government (via taxes…though regulations are a good thing actually…but the size of Government indeed does matter) so while it is not surprising that deflations have not spread from Japan to Europe (given the connection between political and financial capitals) it is surprising that it has spread to the USA given the separation of politics from economics. Clearly however as commodity prices truly do start deflating "from whence demand" AND AT WHAT PRICE does indeed become the question.

DWhiteFebruary 18th, 2013 at 4:27 pm

"Actually there is no bigger growth destroyer than Government (via taxes…though regulations are a good thing actually…"
But doesnt the government spend all that tax money? It is either spent on things, promoting growtth in the industries providing those things, or on people who then spend on things. I would say government does not destroy growth but has an influence on where it might occur.

RonFebruary 19th, 2013 at 11:01 am

The reduced growth in the U.S. seems to have generated much of the chaos in the Congress. They don't seem to know how to the government in a more competitive, global economy.

antiplannerFebruary 19th, 2013 at 2:05 pm

One lesson of history is that the societies that economically grow the fastest are the ones whose social values become dominant. If you have social values that are not universally shared and you accept a slow-growth economy, your values will be displaced by some other society that grows faster. I value both political and economic freedom; if we accept slow growth, we are liable to lose political freedom to those societies today that are growing rapidly but discourage political freedom.

Ed Dolan EdDolanFebruary 19th, 2013 at 8:09 pm

That is an argument that I used to hear a lot back in the 1960s with reference to the Soviet Union. The first book I read on the Soviet economy showed crossing lines, a fast-rising Soviet economy starting low and a slower-growing US economy starting higher. Supported Khruschev's notion that they would "bury us" economically and politically. Didn't happen, freedom won that round. Don't overestimate the power of unfreedom.

McWattFebruary 21st, 2013 at 8:37 pm

Japan destroyed the U.S. manufacturing industry with unfair competition and the illegal importation of underpriced goods. I lived it in my industry and watched it in all the others. The Japanese government funded all export companies with billions of yen at 2% interest while we were borrowing at 16-18%. China is the new Japan and now it's time for the Japanese to suffer the same fate as us.

"it's called progress McWatt, deal with it."

SLOWGROWTHMarch 11th, 2013 at 6:30 pm

The beauty of capitalism supposedly is the fact that there is a reset button, bank ruptucy. Governments have their national banks, they just make more money the system just goes on. _The infamous 1 per cent are the ones that will lose all their money as they should, a regular jubilee would inject some predictability into the system.

chris forenMarch 13th, 2013 at 6:58 am

Two things strike me about this article:
a) Japan might be dealing relatively well with no growth because it is relatively egalitarian. There are not the big gulfs between rich and poor. A less equal society such as the UK (where I live) is likely to handle low/no growth less well.

b) There is a big difference between an economy that has low growth by design and a failed growth economy (eg Japan, UK). It's a bit like the difference between a helicopter and an aeroplane: the former can stay in the air without having to move forward; if the latter stops going forward then it crashes.

We're going to have to get used to the idea of low or no growth: you can't have infinite growth from a finite planet.

Ed Dolan EdDolanMarch 13th, 2013 at 11:45 am

You make two excellent points

a) Growth can help make inequality more tolerable in a country where a rising tide is lifting all boats. In a country where nearly all the gains of growth go to the top of the income distribution (as in the US recently), I wonder if growth doesn't make inequality even less tolerable. Where to you see the UK in that regard?

b) I totally agree. I will try to do more posts on the no-growth issue, and when I do, I may shameless plagiarize your airplane-helicopter comparison.

QuestorApril 13th, 2013 at 7:11 pm

Growth in and of itself is not the problem…it is the accepted type of growth that is important, but few people are looking at the economy this way. Accumulation of things/money is only a spur to growth…right now, the aim of that growth is manipulative power. When skills, and personal attainments become the aim of growth after a certain success level of personal power over one's situation (manipulative power), and society learns to celebrate these skills and personal attainments above manipulative power, it will create a situation of contentment within economic maintenance of a society, as opposed to the consistant persuit of money as a measure of maniputive power. Status and rank as won by skill and personal attainment must begin to be incorporated into the attributes of wealth, as opposed to mere money/buying power. The world must move past mere survival techniques as the measure of economic growth. Once one has reached a comfortable level of existence, the addition of money as wealth accumulation must be set aside as the point of an economy. The actual quality of life must be measured by something other than purchasing power alone.

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