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The government's quixotic quest to make games a pillar of the Japanese economy

In 1948, the parliament of occupied Japan passed a law called the Businesses Affecting Public Morals Regulation Act. It was designed to keep kids out of grown-up establishments like brothels, casinos, and bars. Thirty-seven years later in 1984, lawmakers modified the act to include a new den of vice: the video game arcade.

The legislation was music to the ears of schools and parent-teacher associations, which had long framed arcades as a moral scourge on par with gambling or drinking, certain to corrupt the nation’s youth. “The image of video games was so bad back then,” recalled Konami founder Kagemasa Kozuki in a 1999 interview, “that I couldn’t bring myself to tell my children what my job was.”

Contrast this history to a pair of headlines from last week. Film company Toei and Hello Kitty creator Sanrio independently announced the launch of games companies, adding to the long list of Japanese entertainment giants that now make them. Sony, of course, has been at it for decades. So too Kadokawa. Toho launched their initiative last year. Even Parco, a department store chain, has leapt into the fray.

On the one hand, it makes a certain sense. Games are big business -- by some estimates, half a trillion USD globally. Still, It Sucks to Work in the Video Game Industry. Sales are slumping and layoffs are rampant. So what’s with this sudden flurry of interest in the C-suite?

Enter the game industry’s biggest booster at the moment: the Japanese government. Yes, the same one that tried (and, obviously, failed) to keep kids away from games a few decades ago. A Ministry of Economy, Trade, and Industry working group recently published a plan to expand the game industry from its current 3.4 trillion yen ($21 billion USD) to 12 trillion yen ($75 billion USD) by 2033.

They plan to achieve this through tax incentives and subsidies, music to the ears of executives. And the free money isn’t limited to the big guys. In March, the government expanded its start-up business support fund to include indie game developers, offering grants of up to 10 million yen for projects intended for the international market.

How times change. Amusing as this flip-flop seems from a historical perspective, it is a demonstration of the Japanese government’s commitment to increase exports of entertainment content as a whole, also encompassing anime, manga, movies, and music. As of 2023, the most recent year for which statistics are available, Japan exported 6 trillion yen worth of content abroad. The government wants to more than triple that to 20 trillion by 2033. That’s equivalent to $125 billion USD. It would put content on par with automobiles as a source of economic power, making Japan a true fantasy-industrial complex.

Now, the big question is: will it work? Can bureaucrats make video games more popular and profitable for Japan?

I’m going to cut to the chase and say “probably not.” I’ve worked in and around the game industry for decades, and I know how difficult it is to predict what’s going to hit. It’s a labor intensive, mercurial, fad-based sort of world — a scary sort of thing to hitch one’s star to individually, let alone nationally. You could argue that by supporting the industry as a whole, the government is hedging their bets. And that it makes a lot of sense for bureaucrats to fixate on video games, because their sales account for something like 60% of the total content pie.

But there’s a fundamental problem with focusing on game exports: Japan’s most successful game franchises were made purely for Japanese audiences.

This isn’t limited to games. As I wrote above, Japanese creators traditionally haven’t have much of a grasp, let alone much of an interest, in how foreign fans consume their work. As I expanded upon in the follow-up “Super Galapagos,” this isn’t an Achilles heel. It is key to why the world loves stuff from Japan. The very fact that content is made for Japanese consumers makes it feel all the more authentic to foreign ones. So it doesn’t make a lot of sense for the Japanese government to fund projects of any kind that are designed for global audiences.

And there’s an even bigger challenge to building a Japanese fantasy-industrial complex, in games or any other field of entertainment. One that can’t be solved by throwing money at it: demographics. Japan is so famed for its youth cultures — music, manga, anime, games, toys — that it’s easy to forget the nation is also one of the oldest in the world.

Mirroring society as a whole, the ages of Japanese creators tend to skew quite high. The average age of a Nintendo employee is over 40; Mario creator Shigeru Miyamoto is still going strong at 70; Hayao Miyazaki won his second Oscar at 83; Sanrio founder Shintaro Tsuji stayed at the helm until the age of 92.

Of course, there are younger folks coming up the ranks to replace them. But the cold, hard math is that by 2050 young Japanese will be a demographic minority in their country, outnumbered by the elderly. This means Japan is poised to lose one of its greatest assets as a pop producer: the kids who served as a society-sized incubator for trends. Most of Japan’s biggest hits were “tested” on Japanese children before being unleashed on the world.

None of this is to say that subsidizing games or the content industry is a bad thing. Indie makers in particular can use all the help that they can get, and if saying their product is destined for the global market, well, duh. But is that money being spent well? Is giving it to corporate executives the smart move? Or should the government focus its efforts on improving the lives of the people who actually make the content, often in terrible working conditions?

The game industry will almost certainly grow over the next decade. Humanity’s desperate need for entertainment and escape is, if anything, accelerating. But how much responsibility can the Japanese government claim for it? Even if the numbers hit the official targets, I suspect that will be due less to subsidies than to unforeseen X-factors — such as how Japan’s tourism boom is less due to the government’s promotional schemes than it is a super-weak yen.

One thing is for sure: game makers no longer have to worry about a government driving customers away from their businesses. And Kagemasa Kozuki, who hid the fact he worked in games from his own children? He’s worth $3.2 billion today, the seventeenth wealthiest person in Japan — and a symbol of how video games transformed from a moral panic into a pillar of Japanese society.