What Japan Can Gain from Sound Innovation

In Japan, four decades of economic success have been followed by more than two decades of stagnation. Genuine economic growth in any country is derived from labor, land, capital, and innovation. An aging society limits the returns from labor, and Japan is short of natural resources. The returns from capital would improve with reduced public borrowing from the domestic private sector, but this has proved very difficult politically. Innovation may be the most promising route to revitalization. Innovation for a specific technological goal, such as space flight, can be led by the government; innovation that drives sustained economic growth cannot. This kind of innovation requires tumult; it requires non-performing firms to fail and new firms to easily replace them. Growth is what Japan needs -- and it can only be led by firms that must innovate to survive.