Look Back Before
You Leap

Although Japan remains ahead in environmental-protection and energy-saving technology, it could fall behind other countries unless it again redoubles its efforts in these fields.

It has been disappointing to witness the rather negative response from Japanese industry leaders to a mid-term greenhouse gas reduction target set forth in the plan worked out by Prime Minister Hatoyama Yukio to cut emissions by 25% compared to 1990 levels by 2020. Japan has achieved new technological advances in energy conservation and environmental protection with such contributions as hybrid vehicles. However, the energy efficiency (energy consumed per unit of output) of the Japanese economy as a whole has not significantly improved since the collapse of the economic bubble in the 1990s.

The reason that Japan now leads in these green technologies is not so much due to past economizing but more to great changes in the nation's economic and industrial structure and technological breakthroughs resulting in part from the alarm sparked by environmental problems and the oil shocks of the 1960s and 1970s.

In the years following the Tokyo Olympics in 1964, air and water pollution in Japan's major cities reached crisis proportions. The problem developed into a sociopolitical issue of such magnitude with debates in the national Diet becoming so intense that the session in 1970 was dubbed the "Diet session on the environmental pollution." Under public pressure, the government adopted stringent environmental regulations. Industry leaders mounted a vigorous resistance. They charged that investments to cut pollution would boost neither production capacity nor productivity and would only drive up costs. Japanese companies would be unable to stand up to intense international competition.

And yet, the anti-pollution efforts imposed by the regulations gave birth to environmentally friendly technologies and products. Another side benefit for the economy was the creation of a new growth industry in green technology. Gradually, these new green industries boosted productivity and led growth in the economy overall.

A considerable amount of progress has been made further to the oil crisis of the 1970s, and not just from past economizing. Energy-saving technology made rapid advances, and the structure of industry changed. The rapid drop in Japan's energy consumed per unit of output (signaling higher energy efficiency) following the oil crisis astounded the world. Japan overcame the energy crisis and made its economy lean and green. The transformation was lauded as a second Japanese miracle. Far from waning in competitiveness, the Japanese economy had become stronger.

There are horizons at which water changes into solid ice or vaporous steam, depending on the temperature. A drop from 30 to 10 degrees centigrade does not yield ice. Similar horizons exist in economics. During the oil crisis of the 1970s, there would have been only modest accumulated benefits from economizing efforts if oil prices had been rising about 10% each year. But then no technological leap forward would have been produced, and inflation would likely have continued to plague the overall economy. But with oil prices abruptly rising four-fold and oil in shorter supply, the oil "crisis" crossed a horizon and became an oil "shock" and resulted not in economizing but in a leap ahead.

Over the three years between 1974 and 1976, about 20% of all Japan's private nonresidential capital investment was in pollution prevention. In the years when this investment was most intense, more than a fourth of the Japan Development Bank's loans financed investments in pollution prevention. Japan's economy contracted in 1974 in a recession caused by the oil shock. But under pressure from a Japanese public dead set against pollution, business firms kept up aggressive pollutionprevention investments. The time has come for the Japanese to recall the experience of the 1970s and make a new leap ahead.