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Paper short abstract

Conventional wisdom blames Japan's low growth on institutional failure. I argue the opposite: its institutions are efficient in delivering capitalist performance - a high profit rate and socioeconomic stability - without growth. I conceptualise this as a "stagnation mode of regulation".

Paper long abstract

Conventional analyses frame Japan’s stagnation since the 1990s as a crisis of "failed" institutions. In the media, narratives of a "Japanese disease" or of "three lost decades” have flourished. This paper offers an alternative, and original, perspective on Japan's stagnation. Deploying a Regulation Theory framework rooted in Marxist political economy, I argue that the health of a capitalist system should not be assessed through its capacity to deliver growth, but through its capacity to reproduce core capitalist social relations, that is to sustain a high profit rate and tame socioeconomic contradictions and antagonisms. If economic growth is conducive to jointly sustaining the profit rate and socioeconomic stability, it is not indispensable. By this measure, Japanese capitalism since the early 2000s performs relatively well despite low growth.

Empirically, I show that Japan’s profit rate has recovered from the 1990s and even surpassed from the second part of the 2010s the level it achieved during the high growth era. Simultaneously, socioeconomic instability remains contained. For instance, bankruptcies and financial instability lowered after the 1990s, while labor conflicts and public debt risks remain low.

This performance stems from an institutional reconfiguration since the 1990s, characterized by pragmatic neoliberal reforms layered upon collaborative social compromises inherited from the "company-ist" post-war era. This enables to skew the distribution of income towards profits to sustain the profit rate in low growth conditions, without triggering social conflict and instability. Public deficit-based concessions to social groups hurt by stagnation also contribute to sustain stability without redistributing income away from profits. Overall, the institutional system of the Japanese economy appears largely coherent and efficient in balancing capitalists’ needs for profitmaking and stability under the constraint of low growth. I conceptualise such a regime smoothing capitalist reproduction without growth as a “stagnation mode of regulation”. This concept enables to emphasize, within a unified framework, the functional dimension of various stylized facts of the contemporary Japanese economy including intensified labor and economic dualism, centralization of capital, sluggish productivity growth, the winding down of cross-shareholdings, the low level of accumulation, expansionary monetary policy, and public debt.