February 20, 2014 12:00 am JST

Fading Japan

YASUO OTA, Nikkei senior staff writer

TOKYO -- Time was when Japan was so much more economically powerful than any other Asian nation that many reports on the region's economy excluded the Land of the Rising Sun. This was the only way to ensure accurate analyses. But the term "Asia except Japan" is seen far less frequently these days.

     The reason is simple -- Japan is no longer seen as an exceptional economic power.

Abe delivers a speech at the annual meeting of the World Economic Forum in Davos on Jan. 22. © Reuters

     It was this view Prime Minister Shinzo Abe last month tried to challenge in his speech at the annual meeting of the World Economic Forum in Davos, Switzerland.

     But were Japan not in dire straits, it would not have had to implement the controversial Abenomics policies that many see as a reckless bet on untested economic theories.

     Japan's current standing in the world is clearly illustrated in the World Economic Forum's Global Competitiveness Report 2013-2014.

     The country was overtaken by China in terms of gross domestic product some time ago. But now its dollar-denominated GDP stands at just around half of China's, thanks to the Abenomics-engineered weaker yen. What is more, according to the WEF report Japan now ranks third in Asia, after China and India, in GDP on a purchasing power parity basis.

     Unfortunately, Japan's decline is not limited to the economic scale. It has slipped dramatically in the area of economic competitiveness as well. In his Davos speech, Abe declared that Japan will fully deregulate its electricity market by 2020. As it stands now, Japan sits 34th in the world for quality of electricity supply, a key indicator of the fitness of a nation's economy. Hong Kong is No. 1, the report shows.

     The Japanese prime minister also told his Davos audience that he endeavors to make Japan the easiest country in the world for foreign companies and individuals to conduct business. There is a long way to go before realizing such a goal.

     Japan is 88th in the world when it comes to the number of procedures necessary to start a business. Other Asian countries, including Bangladesh and Nepal, require fewer hoops to jump through.

     As for the country's capacity to attract talent, Japan came in 80th, falling behind China, Bhutan and Vietnam.     

     One of Abe's stated goals is to boost the participation of women in the labor market. Policies toward this end are badly needed; Japan ranks 90th in the ratio of women to men in the labor force, a component of the global competitiveness index. Laos, Myanmar and a lot of other Asian countries are ahead of Japan in this metric.

     Many Asian countries have been reforming their economic structures and enhancing competitiveness. Japan, meanwhile, has been dragging its feet. As a result, Singapore and Hong Kong in recent years have been consistently ahead of Japan in overall global competitiveness.

     In his Davos speech, Abe proudly declared his government has proven wrong the notion that Japan is incapable of carrying out certain reforms. His government, after all, decided to tackle major reforms late last year.

     Even these future "major reforms" will not catapult Japan to the front of the global competitiveness index; they would merely be a starting point in narrowing the yawning gap with the rest of the world.

     The areas in which Japan has fallen behind are already abundantly clear. The challenge for Abe's government is to actually execute bold reforms, not to draw up a blueprint for them. But in his Davos speech, Abe made it sound as if he thinks the job has been completed merely by making a decision to carry out reforms.

     The Abe administration last year listed deregulated online sales of over-the-counter drugs as a pillar of its economic growth strategy. But the looser rules have so far been applied to only a portion of OTC drugs.

     "The fact the prime minister gave a good speech in proper English in itself has significant meaning," one Japanese business leader who accompanied Abe to Davos said.

     But what Japanese politicians must focus on now is not international public relations. They must break down the status quo and get rid of the rigid regulations and murky customs that have long defined the deep-seated partnership between business interests and bureaucrats.

     Interestingly, Japan appears 33rd in the WEF report's ranking of public trust in politicians.

     Among Asian countries, Japan is ninth. This means Japanese politicians command less public confidence than their counterparts in Taiwan, who from time to time engage in fistfights in parliament, and in China, where corrupt politicians are a serious national problem.