3 September 2015

The Japanese economic puzzle


Welcome to Tokyo. The luxury boutiques are bustling, the traffic is constant and the crowds are still just as dense. But in accordance with unwritten social codes internalised for centuries, no one jostles. Some may occasionally, accidentally brush past others, but this is rectified with endless apologies. There is no litter, and everything is spotless, from the spaces to the people. Poverty has no place here. The only breach of civility – which is also part of the social code – is committed by Japanese salarymen. These big-business executives drink heavily in the bars around Roppongi after work, before leaving tipsy, but sensibly so. The city calls it a night at 9pm, and everyone is fresh-faced at work by 8am the following morning. This rhythm is replicated across Japan, the most consistent, courteous country in the world. Even anti-conformism is codified. The extravagant, madcap outfits and behaviour stop at the first job for young men, and at (early) marriage for young women.

Nothing suggests Japan might be in a crisis, despite the fact its economy has been stagnant for 20 years. If we judge the economy based on the traditional GDP calculations, how is it that the Japanese remain so prosperous, apparently content, and with employment for all who desire it? It should be noted that the unemployment rate has never been more than 3.5% over the last 20 years, and many enjoy life-long careers in large companies. Can we put this paradox down to Japanese debt, which is one of the highest in the world and twice as high as the country’s annual production? The good life, but on credit? This explanation doesn’t add up, as the Japanese owe this debt to themselves: they invest their savings in government bonds. Japan has very little debt on the global market, and is hardly in danger of going bankrupt. But the Japanese are rather ashamed of this perpetual zero growth compared with the rest of the world, a sort of “loss of face” so difficult to swallow in many Asian cultures.

This shame even led them to elect Prime Minister Shinzo Abe, who promised a return to the booming growth of the 1980s. His government has spent the last two years obliging the Central Bank to produce surplus currency to stimulate consumption. Economists are familiar with this “stimulus”, and even more so with its side effects. Growth under “Abenomics” increased by 2% for two years, before tumbling back to 0% this year. How many Vuitton bags were purchased by Japanese women, and how many golf clubs for their husbands? With the end of the spending euphoria came a return to old habits, frugal comfort and saving for retirement. We can observe two constants in the Japanese non-growth: solid, unchanging employment figures and an excellent industrial sector. The latter made itself felt around the world four years ago, when a tsunami halted nuclear energy production and exports. Factories from the United States to Europe and China ground to a halt, useless without the highly sophisticated parts only Japanese companies were capable of manufacturing. The names of these companies are little-known, they are often modestly-sized, family-owned, and enjoy no competition in their fields. One trivial example is that 99% of bikes around the world are equipped with a Shimano derailleur.

We still cannot understand why Japan is rather successful in reality, despite struggling on paper. But we may be searching in the wrong places. Instead of deploring zero growth, perhaps we should look at income per capita. As the Japanese population has been decreasing by 1% for a number of years, on an individual level the economy’s zero growth actually means a 1% annual increase in each person’s wealth. While the last 20 years have been dismissed as “wasted” in Japan, income per capita has increased at the same rate as in the United States and Europe. As the population decreases, the increase in productivity and innovation – and not the workforce – have “pushed up” this growth. This is the opposite of the United States, where a growing population is one driving factor in development.

As a result, the Japanese have not been that affected by the global crisis, instead they have adapted to it. However, there is real risk – comparable with the situation in Germany – that this relative loss of global power will play straight into the hands of neighbouring countries such as China and South Korea. Abenomics was supposed to quiet this justified fear, but has been in vain. If Abenomics were to produce sustainable results, the Japanese would have to accept solutions out of line with their customs: importing agricultural products to the great displeasure of domestic rice farmers, accepting inter-company competition similar to the American model instead of functioning through age-old agreements between business chums, and especially increasing the workforce by hiring more married women and opening the borders to immigration.

Japan is currently closed to foreign workers, with the exception of Filipino women for jobs in the service sector, and a handful of highly-qualified Chinese citizens. The government also tolerates illegal Iranian, Turkish and Pakistani dock workers in the ports of Osaka and Nagasaki, but all others are immediately identified and deported. And when the Japanese see the social and political complications produced by immigration in Europe and the USA, they can only conclude that it’s better to stick together. For better or for worse, but together. Is Japan a post-modern economic model, preaching prosperity only to the point of happiness? That is certainly the view held by many Japanese intellectuals. Let us say rather that the term “model” is not appropriate, but that this Japanese “experiment” should not be measured using statistics. The cultures of different peoples are far too underestimated by quantitative-reliant economists.

Guy Sorman is a contributing editor of City Journal, a French public intellectual, and author of many books, including Economics Does Not Lie.