{"id":2933,"date":"2009-04-13T08:17:49","date_gmt":"2009-04-12T23:17:49","guid":{"rendered":"http:\/\/www.debito.org\/?p=2933"},"modified":"2009-04-13T08:17:49","modified_gmt":"2009-04-12T23:17:49","slug":"economist-first-mention-of-japans-two-lost-decades-calls-into-question-efficacy-of-japan-inc-business-model","status":"publish","type":"post","link":"https:\/\/www.debito.org\/?p=2933","title":{"rendered":"Economist: First mention of Japan’s “two lost decades”: Calls into question efficacy of “Japan Inc” business model"},"content":{"rendered":"

\"Handbook<\/a>\"\\\"<\/a>\"Foreign<\/a>\"\\\"<\/a>\"\u300c\u30b8\u30e3\u30d1\u30cb\u30fc\u30ba\u30fb\u30aa\u30f3\u30ea\u30fc\u3000\u5c0f\u6a3d\u5165\u6d74\u62d2\u5426\u554f\u984c\u3068\u4eba\u7a2e\u5dee\u5225\u300d\uff08\u660e\u77f3\u66f8\u5e97\uff09\"<\/a>\"JAPANESE<\/a>\"sourstrawberriesavatar\"<\/a><\/p>\n

Hi Blog. A tangent in a sense, but macroeconomics affect us all, and it’s harder to keep our eye on loftier goals like human rights when people’s pocketbooks are emptying. This is the first mention I’ve seen in the press about Japan’s “TWO lost decades”. And I’m afraid I agree that this is not an overstatement. To me, it’s symbolic of the self-damaging “seesawing self-image” Japan tends to have of itself.<\/p>\n

That is to say, when times are going well, really well (like say 1960 to 1990), popular sentiment begins to tend towards a superiority complex, in that “We Japanese are harder workers and have an exceptional, unique society that is designed to grow and enrich itself perpetually” (unlike the hybrid mutt multicultural societies, whose factory workers are lazy and less intelligent, according to Japan’s contemporary premier politicians<\/a>). Then follows the arrogance and self-convincing which justifies staying the course: \u00a0After all, it’s “The Japanese Way”, after all. \u00a0 Of course, there ‘s little mention of other possible root causes for Japan’s phenomenal success, such as a lack of post-WWII war reparations, or preferential trade agreements, or markets overseas opened to nurture export-led countries away from the temptation of warmaking economies. And once Japan had (through hard work and perseverance) matured and reached its due, one might argue it has done quite poorly, compared to fellow mature economies in The Economist’s graphs below. For after all, if there’s no business model except a slavish following of “The Japanese Way”, what’s next for people sitting tight and waiting for the next ideological auto-pilot to take over?<\/p>\n

After now nearly two decades of bumbling about (and fortunately losing a lot of that unhealthy superiority complex, except perhaps towards the foreigners who decide to come here that it can pick on), one begins to wonder whether the “Japan Inc.” model of business was actually all that stand-alone successful. \u00a0There are plenty of other rich economies that are relatively resource poor (as in, probably most of the Western Europeans’ economies) yet still are outperforming Japan, so let’s not fall back on the shimaguni<\/em> excuses. I think the evidence is mounting that using the Americans as a economic crutch was the key to Japan’s postwar growth. Fine. \u00a0But if Japan wants to stick to the same “crutch economy” to power itself, it had better shut its uyoku up and get friendlier with China, because China is probably going to be the export purchaser of the future. Otherwise, consider the consumer-led economy being proposed by The Economist below.<\/p>\n

Sorry, random brain farts after a gloriously sunny week. Omatase: \u00a0Here’s the more substantial Economist article, already. Arudou Debito in Sapporo<\/p>\n

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\nJapan<\/strong><\/span><\/p>\n

The incredible shrinking economy<\/strong>
\n<\/span><\/p>\n

Apr 2nd 2009 | TOKYO
\nFrom The Economist print edition<\/strong><\/div>\n

http:\/\/www.economist.com\/finance\/displaystory.cfm?story_id=13415153<\/a>
\nJapan is in danger of suffering not one but two lost decades<\/strong><\/span><\/p>\n\n\n\n
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Illustration by S. Kambayash<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n
\"Illustration<\/td>\n<\/tr>\n
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TO LOSE one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan\u2019s economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan\u2019s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.<\/em><\/strong><\/span><\/p>\n

If that turns out to be true, Japan\u2019s economy will have grown at an average of 0.6% a year since it first stumbled in 1991 (see top chart). Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere. <\/em><\/strong><\/span><\/p>\n\n\n\n
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Was Japan\u2019s seemingly strong recovery of 2003-07 an illusion? And why has the global crisis hit Japan much harder than other rich economies? Popular wisdom has it that Japan is overly dependent on exports, but the truth is a little more complicated. The share of exports in Japan\u2019s GDP is much smaller than in Germany or China and until recently was on a par with that in America. During the ten years to 2001, net exports contributed nothing to Japan\u2019s GDP growth. Then exports did surge, from 11% of GDP to 17% last year. If exporters\u2019 capital spending is included, net exports accounted for almost half of Japan\u2019s total GDP growth in the five years to 2007. <\/em><\/strong><\/span><\/p>\n

Exports boomed on the back of a super-cheap yen and America\u2019s consumer binge. Japan did not have housing or credit bubbles, but the undervalued yen encouraged a bubble of a different sort. Japanese exporters expanded capacity in the belief that the yen would stay low and global demand remain strong, resulting in a huge misallocation of resources. <\/em><\/strong><\/span><\/p>\n

As foreign demand collapsed and the yen soared last year, Japan\u2019s export \u201cbubble\u201d burst. Total exports have fallen by almost half in the past year. Japan\u2019s high-value products, such as cars and consumer electronics, are the first things people stop buying when the economy sours.<\/em><\/strong><\/span><\/p>\n

Richard Jerram, an economist at Macquarie Securities, argues that the worst may soon be over for industrial production. This year, output and exports have fallen by much more than the drop in demand, because firms have temporarily closed plants in order to slash excess stocks. For instance, Japan\u2019s vehicle production in the first two months of 2009 was 50% lower than a year before, but global car sales fell by only 25%. <\/em><\/strong><\/span><\/p>\n

Mr Jerram reckons that the inventory rundown is coming to an end, which will lead to a short-term bounce in output as factories reopen. If so, car output in June could be around 50% higher than in March (but still down by 25% on a year earlier). This means that GDP growth might turn positive in the second quarter even if foreign demand remains weak.<\/em><\/strong><\/span><\/p>\n

Unfortunately, the economy is likely to totter again as the second-round effects of tumbling profits and rising unemployment squeeze investment and consumer spending. According to the latest Tankan survey of the Bank of Japan (BOJ), in March business sentiment among big manufacturing firms was the gloomiest since the poll began in 1974. Manufacturers say they plan to cut investment by 20% this year. They are also trimming jobs and wages. The seemingly modest unemployment rate of 4.4% in February understates the pain. The ratio of job offers to applicants has declined to only 0.59, from around one at the start of 2008, and average hours worked have also fallen sharply. Average wages (including bonuses and overtime pay) went down by 2.7% in the 12 months to February. Household spending fell by 3.5% in real terms over the same period; department store sales plunged by 11.5%.<\/em><\/strong><\/span><\/p>\n

The weakening domestic economy has prompted the government to man the fiscal pumps. A stimulus of 1.4% of GDP is already in the pipeline for 2009, and a further boost of perhaps 2% of GDP is expected to be unveiled in mid-April. The package is likely to include measures to strengthen the safety net for the unemployed and so ease concerns about job security. There will also be new infrastructure spending. Much of the expenditure on public works in the 1990s is now considered wasteful, so this time the focus is meant to be on projects that boost productivity, such as an expansion of Tokyo\u2019s Haneda airport. Better crafted stimulus measures which raise long-run growth are also less likely to spook bond markets concerned about the government\u2019s vast debt.<\/em><\/strong><\/span><\/p>\n

So long as the extra measures are not delayed by an early election (which must be called by September), Japan\u2019s total fiscal stimulus in 2009 could be the largest among the G7 economies. But it would not be enough to prevent a sharp widening of the output gap (the difference between actual GDP and what the economy could produce at full capacity). This had already risen to 4% of GDP in the fourth quarter of 2008, and it is likely to approach 10% by the end of 2009, twice as much as in the 1990s downturn (see bottom chart, above). <\/em><\/strong><\/span><\/p>\n

This gaping economic hole is again putting downward pressure on prices. By late summer consumer prices could be more than 2% lower than a year before\u2014a faster decline than during Japan\u2019s previous bout of deflation. The risk is that deflation will squeeze profits and hence jobs, thereby further depressing demand and prices. The BOJ cut interest rates to 0.1% in December and it has introduced several measures to keep credit flowing, such as buying commercial paper and corporate bonds, as well as shares held by banks, which boosts their capital ratios. In contrast to the 1990s, bank lending is still growing. <\/em><\/strong><\/span><\/p>\n

The BOJ has also stepped up its purchases of government bonds, but after its experience in 2001-06, the bank remains sceptical that such \u201cquantitative easing\u201d can lift inflationary expectations and spur demand. One big difference is that the previous episode of quantitative easing coincided with stringent budget-tightening under Junichiro Koizumi, the then prime minister. The budget deficit was reduced from 8% of GDP in 2002 to 1.4% in 2006 (which partly explains why domestic demand was weak). The combination of fiscal expansion and government-bond purchases by the BOJ should work better. <\/em><\/strong><\/span><\/p>\n

The OECD predicts that public-sector debt will approach 200% of GDP in 2010, so the scope for further fiscal stimulus will be limited. Nor can Japan rely on exports for future growth; to the extent that it had enjoyed an export bubble, foreign demand will not return to its previous level. Japan needs to spur domestic spending.<\/em><\/strong><\/span><\/p>\n

One possible option, which the government is exploring, is to unlock the vast financial assets of the elderly. Japanese households\u2019 stash of savings is equivalent to more than five times their disposable income, the highest of any G7 economy, and three-fifths of it is held by people over 60 years old. Gifts to children are taxed like ordinary income, but if this tax were reduced, increased transfers could boost consumption and housing investment since the young have a much higher propensity to consume. In theory, this could give a much bigger boost to the economy than any likely fiscal stimulus.<\/em><\/strong><\/span><\/p>\n

Of course, one reason why the elderly are cautious about running down their assets is concern about the mismanaged pension system and future nursing care. Services for the elderly should be among Japan\u2019s fastest growing industries and create lots of new jobs, but they are held back by regulations which restrict competition and supply. Deregulation of services would not only help to improve the living standards of an ageing population, but by helping to unlock savings might also drag the economy out of deep recession. <\/em><\/strong><\/span><\/p>\n

Japan\u2019s second lost decade holds worrying lessons for other rich economies. Its large fiscal stimulus succeeded in preventing a depression in the 1990s after its bubble burst\u2014and others are surely correct to follow today. But Japan\u2019s failure to spur a strong domestic recovery a decade later suggests that America and Europe may also have a long, hard journey ahead.<\/em><\/strong><\/span><\/p>\n

ENDS
\n<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The Economist (London): To lose one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan\u2019s economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan\u2019s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.<\/p>\n

If that turns out to be true, Japan\u2019s economy will have grown at an average of 0.6% a year since it first stumbled in 1991 (see top chart). Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere…<\/p>\n

Japan\u2019s second lost decade holds worrying lessons for other rich economies. Its large fiscal stimulus succeeded in preventing a depression in the 1990s after its bubble burst\u2014and others are surely correct to follow today. But Japan\u2019s failure to spur a strong domestic recovery a decade later suggests that America and Europe may also have a long, hard journey ahead.<\/p>\n

COMMENT: I think the evidence is mounting that using the Americans as a economic crutch was the key to Japan’s postwar growth. If Japan wants to stick to the same “crutch economy” to power itself, it had better shut its uyoku up and get friendlier with China, because that’s probably going to be the export purchaser of the future. Otherwise, consider the consumer-led economy being proposed by The Economist in this article.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[43,4,31],"tags":[],"class_list":["post-2933","post","type-post","status-publish","format-standard","hentry","category-bad-business-practices","category-japanese-government","category-tangents"],"_links":{"self":[{"href":"https:\/\/www.debito.org\/index.php?rest_route=\/wp\/v2\/posts\/2933","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.debito.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.debito.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.debito.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.debito.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2933"}],"version-history":[{"count":0,"href":"https:\/\/www.debito.org\/index.php?rest_route=\/wp\/v2\/posts\/2933\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.debito.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.debito.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.debito.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}