Japan’s ‘Lost 30 Years’ is often regarded in Korea as a symbol of economic failure. Words like population decline, economic stagnation, and real estate collapse come to mind. However, the actual situation in Japan differs from the image we commonly know. Some even argue that Korea’s current structural risks are greater. As global economic uncertainty increases recently, it’s time to reassess Japan’s case and consider what preparations Korea should make.
Source: ChatGPT
Japan’s ‘Lost 30 Years’: Misconceptions and Truth
- Industrial Restructuring After the Bubble Collapse
Japan experienced an economic downturn in the early 1990s when its real estate and stock market bubbles burst. While this period is called the ‘Lost 10 Years’ or ’30 Years,’ Japan has maintained its competitiveness based on productivity and technological prowess. As of 2020, it remains the world’s third-largest economy, excelling in various fields such as medical devices, robotics, precision machinery, tourism, animation, and content industries. The transition to high-value-added industries has also progressed. - Quality of Life Aspects
Despite experiencing a long-term recession, Japan’s quality of life has been maintained. Social safety nets such as elderly welfare, health insurance, and unemployment benefits are well-established. Life expectancy is among the highest in the world, and job stability and access to public healthcare are high. Compared to Korea, there is a difference in terms of stability.
Crisis Factors in the Korean Economy
- Household and Corporate Debt
Korea’s household debt exceeded 105% of GDP as of 2024, one of the highest levels in the world. During periods of rising interest rates, this could shock consumption and the financial system. Corporate debt is also a problem. According to the Bank of Korea in 2023, about 15% of all companies are marginal firms that cannot even pay interest for more than three years. These are concentrated in construction, shipbuilding, and food distribution sectors, and delayed restructuring could weaken industrial competitiveness. - Rapid Demographic Changes
In 2023, Korea’s fertility rate was 0.72, the lowest in the world. The working-age population is decreasing while aging is accelerating. After the 2030s, pension and health insurance finances are expected to face significant burdens. - Overheated Real Estate Market
Metropolitan area apartment prices have risen much faster than income growth rates. This has intensified housing inequality and social polarization, and those who purchased at peak prices now face financial risks. Some regions are now in decline amid recent interest rate hikes and economic slowdowns. This could potentially lead to a credit crisis.
Korea’s Unique Structural Problems
- Youth Unemployment and Dual Labor Market Structure
The perceived unemployment rate for those in their 20s exceeds 20%. The proportion of non-regular workers is high, and employment insecurity leads to postponement of marriage and childbirth. There are large gaps between regular and non-regular workers, large corporations and SMEs, and social mobility is difficult. - Social Safety Net and Pension Issues
The National Pension is expected to be depleted by 2055. Basic pension and health insurance finances are also turning to deficit. While welfare demands are rapidly increasing, fiscal preparations are insufficient. Although Japan has severe aging, they have gradually organized their welfare system over a long period, and this process continues today. - High Dependence on Exports
Korea is concentrated in semiconductors, automobiles, and shipbuilding, with exports accounting for about 42% of GDP. This makes it vulnerable to external variables such as supply chain changes or US-China conflicts.
Structural Differences Between Japan and Korea
- Domestic Market vs. Export Base
Japan has a domestic consumption-centered economic structure. Based on a population of 120 million, it has formed an extremely large domestic market, and regional economic zones have developed, making economic activities vibrant even in small and medium-sized cities. In contrast, Korea is centered on the metropolitan area with high dependence on export industries, making it sensitive to external shocks. - Small and Medium Enterprise Ecosystem
Japan has about 30,000 centenarian companies that have existed for over 100 years. They are connected to regional traditional industries and receive substantial government support such as low-interest loans and technology transfers. Korea’s vertical integration centered on large corporations makes it difficult for SMEs to be self-reliant. For example, Korean small parts manufacturers depend solely on orders from large corporations, making independent technology development or management difficult. In contrast, traditional manufacturers in Kyoto and ceramic companies in Kanazawa are growing with regional economies through their own brands and technologies. - Fiscal Capacity and Stability
While Japan has substantial debt, most of it is held by domestic residents, making it resilient to external shocks. Flexible responses such as central bank purchases of government bonds are also possible. Korea currently has a low debt level, but its capacity could decrease due to aging and increasing welfare demands.
Japan’s ‘Lost 30 Years’ cannot simply be viewed as a case of failure. Despite facing a crisis, they have maintained stability and quality of life. Korea now faces multiple crises: debt, demographic changes, real estate issues, labor market instability, and inadequate social safety nets. Considering the differences in economic structure, this could lead to a structural crisis rather than just an economic downturn.
Instead of mistakenly ridiculing Japan as ruined, we need to focus on how Japan managed its long-term recession after the bubble collapse. For Korea to move in a sustainable direction, multifaceted responses are needed, including structural reforms, youth job creation, strengthening social safety nets, and expanding the domestic market base.