Building a New Economy: Japan’s Digital and Green Transformation

Our understanding of the contemporary transformation of Japanese capitalism remains contradictory. On the one hand, there is general agreement that: (1) Japanese capitalism was once a high-performing and unique model at both micro and macro levels, classified as a non-liberal form of capitalism (Yamamura and Streeck 2003); and (2) it has undergone a process of “neoliberalization” since the 1980s (Lechevalier 2014). On the other, there is no consensus on where Japanese capitalism currently fits within the diversity of capitalism. Several theoretical and comparative factors contribute to this lack of agreement, as evaluations depend on the reference point (e.g. USA, European, or Asian forms of capitalism). Furthermore, the concept of capitalism as a framework for characterizing the Japanese economic system gradually fell out of use until Keidanren reintroduced it as “sustainable capitalism” in 2020, and Prime Minister Kishida promoted it as “new capitalism” in 2021.

Hugh Whittaker’s new book, Building a New Economy: Japan’s Digital and Green Transformation, makes a significant contribution to the characterization of contemporary Japanese capitalism from a comparative perspective and to understanding its future development.¹ The book offers an original theoretical framework, drawing on extensive knowledge of the Japanese economy. Whittaker’s main conclusion is that Japan can be understood as a third pole, distinct from both the Anglo-Saxon market economy and state-led, authoritarian economic systems like those in China. Furthermore, the book predicts that Japan is undergoing a process of renewal.

The proliferation of concepts such as Society 5.0, sustainable capitalism, new capitalism, DX (digital transformation), and GX (green transformation, as a response to the environmental crisis), proposed by the Japanese government as blueprints for the country’s socio-economic system in the 2030s, is indeed remarkable. This raises the question: is this trend a sign of intellectual and political dynamism pointing to the emergence of a new Japanese model, or is it a symptom of disorientation following decades of neoliberal reforms and the growing gap between official rhetoric, policy practice, and perceptions of decline and crisis (cf. Maslow and Wirth 2021)? Whittaker addresses this proliferation by offering a metaphor: “if DX and GX are the wheels of a cart, and Society 5.0 is the destination, capitalism is the cart itself” (105), suggesting that these initiatives are interconnected elements within a broader transformation of Japanese capitalism.

This book is not the only recent attempt to interpret the transformation of Japanese capitalism and envision its future trajectory (e.g. Schaede 2020; Katz 2024). However, what distinguishes Whittaker’s contribution is both its ambition and theoretical foundation. His analysis is not confined to Japan-specific issues but is informed by a deep and mature understanding of the Japanese economy. Whittaker’s theoretical framework allows him to move beyond the simplistic dichotomy of “Japan bashing” versus “Japan praising,” instead placing Japan in a broader historical and geopolitical context (11). At the core of his analysis is the understanding of institutional change, with the aim of exploring the future of capitalism, particularly as it plays out in Japan—a theme discussed by scholars such as Boyer and Yamada (2000), Dore (2000), and Yamamura and Streeck (2003) over two decades ago. Specifically, the book addresses several key, interrelated questions:

• - How should we interpret “new capitalism?” Is it merely an empty slogan promoted by a Japanese politician seeking to distinguish himself from his influential predecessor, or does it signify something deeper, possibly reflecting a new social compromise?

• - Will a new institutional configuration emerge? What will be the core institutions, and will they achieve institutional and ideational (ideological, motivational) coherence? As Whittaker asks, “Will (…) a new upskilling-productivity enhancement loop emerge which enables inclusive growth and a new social (and environmental) contract, as envisaged by ‘new capitalism’?” (15)

• - “How much will Japan’s new economy be the result of conscious design and state coordination—a new ‘developmental state’—and how much from trial and error, or market processes?” (15)

The answers provided in Whittaker’s book are cautious, complex, and convincing. They can be summarized as follows: “Japan is seeking to steer a path between market and state over-reach, aiming for a new balance of state-market-civil society relations, and promoting socially constructive rather than destructive forms of innovation. This may not be as dazzling as its postwar manufacturing-centered model, but it might offer hints on how to move beyond neoliberalism into a new era” (7). Whittaker’s analysis thus offers a unique update on the debates surrounding the transformation of Japanese capitalism, while also looking ahead. His focus is on post-“structural reform” Japan, where the effects of over thirty years of neoliberalism are still evident in public policy, corporate governance, and their impact on society and the economy. However, the dynamics at play have shifted, making it difficult to fully grasp what is unfolding as a result of these overlapping forces.

Whittaker’s core interpretation is that changes in the Japanese economy are driven by three institutional logics or spirits of Japanese capitalism: financialized capitalism, the new developmental state, and communitarian capitalism. This framework is one of the book’s major contributions, as the dialectical idea of balanced (or controlled) disequilibrium presents a compelling alternative to the mainstream concept of equilibrium. Based on this analysis, Whittaker outlines four possible scenarios for Japan’s economic future: Renewal, Maturity, Conversion and Imitation, and Decline, with a preference for the “Renewal scenario, tempered by a combination of the others” (177).

Whittaker’s contribution is also empirical, drawing on government statistics to track the evolution of key macroeconomic variables during the first two decades of the 21st century. This is well summarized as follows: “Between 2000 and 2020 labour costs of large firms (…) declined (…), as did (domestic) capital investment (…). On the other hand, operating profits almost doubled (…), as did cash and deposits (…). Internal reserves almost trebled (…), and dividends rose sixfold (…), almost equalling capital investment. Investment in employee education and training, already low by international comparisons, declined further” (104, emphasis in the original). Whittaker’s original empirical contribution is also reflected in detailed case studies, such as those on Toshiba and Hitachi.

At a more theoretical level, Whittaker’s ambition is to deepen the understanding of the forces driving institutional change. From this perspective, he takes seriously Japan’s twin ambitions of DX and GX. Notably, globalization, once a dominant theme, is now less emphasized as a key issue requiring institutional change. Furthermore, the direction of this change is shaped by concerns about inequality. As Whittaker observes, “Japan is attempting to build a new economy by 2030 (...) It is to be constructed through digital and green transformation, and a ‘virtuous cycle of growth and distribution’” (7).

The period analysed in Whittaker’s book is also shaped by the legacy of Abenomics. While Abenomics may have helped Japan curb deflation—through greater policy coherence via its “three arrows” strategy—it did not establish a new growth model (Shibata 2020). The question remains: will a new socio-economic model emerge from the current dynamics? As demonstrated by the French Régulation theory (Boyer 2005), such a transformation would require coherence at the level of the economic system. This is where the term “new capitalism” becomes particularly relevant. According to Whittaker, its main contribution is twofold: first, it highlights the necessity of consistent institutional linkages between the micro and macro levels to create a “virtuous cycle of growth and distribution;” second, it aims to reintegrate capital, labor, and management to serve the public interest. Despite criticisms of its intellectual shortcomings or Prime Minister Kishida’s perceived lack of conviction, the value of the concept lies in the effort to reassemble the socio-economic framework after years of neoliberalism, which destabilized the old model without fully establishing a new one.

Several specific aspects of Whittaker’s book also warrant attention, particularly his analysis of corporate governance, which is arguably the strongest part of the book. Whittaker convincingly demonstrates that corporate governance reforms and ESG (environmental, social, and governance) dynamics will have significant, yet currently unpredictable, effects that will ultimately reinforce the centrality of corporate governance at the company level. He explains how “corporate governance and investor relations have become the central institutional axis of Japanese capitalism at the company level, and employment and industrial relations have been correspondingly downgraded” (118). This shift introduces tension, for example, within the Japanese government itself. At the heart of current debates is the reevaluation of Japan’s stakeholder vision in building a new economy.

The book also raises several issues that warrant further discussion. The first concerns the capabilities of the “new developmental state.” Whittaker may underestimate the extent of the Japanese state’s decay after years of neoliberalism, which has destabilized its role within the broader institutional architecture (Lechevalier et al. 2019). Second, the book may underplay the significance of conflicts within Japanese society and capitalism, despite their prominence. These include tensions between capital and labor, as well as internal conflicts within social categories or around seemingly “consensual” issues such as digitalization (Kümmerle and Waldenberger 2024). Understanding these dynamics may be essential for grasping the potential emergence of a new social compromise, likely to be shaped by the dominant social bloc.

Despite these questions, this is an exceptionally well-written book that is poised to become a key reference for Japanese capitalism for decades to come. It offers a unique combination of first-hand sources and deep knowledge of Japan, paired with a theoretical framework that situates developments in a broader context. Whittaker demonstrates an impressive ability to move between macro and micro levels, offering a comprehensive analysis that captures the complex interplay of movements and counter-movements. The resulting analysis is neither deterministic nor simplistic while maintaining an engaging readability. This is a highly significant work on Japan and Japanese capitalism, authored by a scholar at the height of his intellectual powers. Whittaker is a true thinker, consistently in dialogue with other perspectives, as evidenced by his engagement with the French Régulation theory and his intellectual connection to Ron Dore. In sum, I highly recommend this book.

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