Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, points to eight characteristics he feels contributed to Japan’s inexorable decline: stock market and property crashes; zombie banks; deflation; zero interest rates; political stalemate; poor demographics; and a high debt-to-GDP ratio.
I'll go out on a limb and claim the root cause is poor demographics. If you are involved in economic development, then you should be reading blogs such as Demography Matters. Latest post dealing with "declining dependency ratios and migration:
That same [report] on South Korea did suggest that certain relatively medium-term improvements might be sustainable; the numbers and proportions of immigrants and immigrant descended people necessary to sustain either the peak population of South Korea or the peak working-age population of South Korea seems possible. South Korea is more open to immigration than neighbouring Japan, at least, and the movement of people from Vietnam, China, and the Philippines associated with marriage-driven immigration could contain the seeds for a broader migratory movement. South Korea might come to emulate a Canada that is enacting something very much like those policies right now, you could say. For those policies to work, though, you need a labour force that is permeable to people of diverse backgrounds at every level.
Dealing with more immigration poses its own set of challenges. There is also the prospect of encouraging more births and sparking a baby boom. All the policies on the table are easier said than done. I think we are approaching the challenges with the wrong framework.
We are using an industrial mindset to deal with a knowledge economy. Population growth equals economic growth. In a knowledge economy, quality (e.g. educational attainment of workforce) trumps quantity. This is the way forward emerging from the ravaged Rust Belt. Even there, struggling cities are slow to catch on to the Pittsburgh Paradigm.