Germany and Japan as Newly Declining Countries (NDCs)

This article reviews the structural problems of the political economies of Germany and Japan, their reduced competitiveness, industrial “hollowing-out” of corporate emigration, and their banking crises following past capital misallocations. To this, policy responses have been grossly inadequate as Japan resorted to massive public works programmes and Germany to an expanded welfare state—both entirely debt financed and unsustainable. These policy choices were the result of vested interests embedded in cartelized political structures and conformist public cultures, with growing tendencies towards collusion and corruption. Germany's and Japan's problems are compounded by societal value changes of an eroding work ethic and the rise of a hedonistic individualism, as evident, inter alia in catastrophic demographic data. As the political class and societies at large are still in a denial mode in both countries—after the September 2005 elections in Germany more so than in Japan—the much needed structural reforms are unlikely to be undertaken anytime soon.