Are we ready for Ja­pani­sa­tion of the world econ­omy?

The coun­try has served as a lab­o­ra­tory for test­ing so­lu­tions to the eco­nomic and so­cial chal­lenges that de­vel­oped coun­tries now face. Abe’s mantra now is to go all-in on glob­al­i­sa­tion — the po­lar op­po­site of Trump’s eco­nomic pop­ulism

Gulf News - - In Focus -

hinzo Abe has once and for all earned his stripes as a great tac­ti­cian. For the third time in five years, he trig­gered early elec­tions to re­in­force his hand as Prime Min­is­ter and, once again, it was a win­ning move. Tak­ing ad­van­tage of the ris­ing re­gional ten­sions since the sum­mer, pro­voked by North Korea’s mis­siles and nu­clear test­ing, he turned ap­par­ent weak­ness into a strength.

It’s also the way he’s spin­ning his eco­nomic strat­egy, Abe­nomics, a mix­ture of mon­e­tary and bud­getary stim­u­lus, and re­forms. “Ja­pan may be age­ing. Ja­pan may be los­ing its pop­u­la­tion. But these are in­cen­tives for us,” he told vot­ers and the rest of the world.

Like his grand­fa­ther Nobusuke Kishi, who was the prime min­is­ter be­tween 1957 and 1960 and in­vested a lot in bring­ing the 1964 Olympic Games to Tokyo, Abe threw him­self into the or­gan­i­sa­tion of the 2020 Olympics in the Ja­panese cap­i­tal, ca­su­ally dis­miss­ing the safety con­cerns after the nu­clear disas­ter of Fukushima in 2011.

And while Fanuc, the world’s big­gest in­dus­trial ro­bot man­u­fac­turer, is about to re­place Toy­ota as the sym­bol for mo­bil­ity, the Tokyo Olympics will serve as the show­case for the “so­ci­ety 5.0” that Abe­nomics aims to pro­mote. Be­yond Ger­many’s in­dus­try 4.0, it seeks to mo­bilise the in­ter­net of things, big data and ar­ti­fi­cial in­tel­li­gence to “meet the so­cial chal­lenges Ja­pan is faced with be­fore other coun­tries”, as Abe likes to re­peat.

De­spite “two lost decades”, ac­cord­ing to the fa­mous slo­gan brought up ad nau­seam, could it be that the Ja­panese econ­omy has be­come the lab­o­ra­tory where the an­swers to the eco­nomic and so­cial chal­lenges fac­ing de­vel­oped coun­tries are be­ing tested?

The West, par­tic­u­larly the United States, is still strug­gling to look with seren­ity at the ar­chi­pel­ago, torn be­tween envy and stig­ma­ti­sa­tion. Dur­ing the pres­i­den­tial cam­paign, Don­ald Trump, los­ing his tem­per, asked, “When did we beat Ja­pan at any­thing?” in ref­er­ence to the Asian na­tion’s con­sid­er­able trade sur­pluses. The em­pire of the Ris­ing Sun is still the big­gest in­ter­na­tional cred­i­tor, ahead of China.

Amer­ica’s ob­ses­sion with Ja­pan is not new. Without even go­ing as far back as Pearl Har­bor, Ja­pan’s suc­cesses have al­ways been looked upon with trep­i­da­tion. Ezra Vo­gel’s best-seller Ja­pan As Number One, pub­lished in 1979, had al­ready put it bluntly: Was Ja­pan, whose gross do­mes­tic prod­uct per capita had just over­taken that of the United States, about to over­take Amer­ica?

The fear turned out to be un­founded. Though he’d in­ves­ti­gated for sev­eral years, the Har­vard pro­fes­sor hadn’t fore­seen the Ja­panese shrink­ing birthrate, nor China’s thun­der­ous en­try into the fore­front of glob­al­i­sa­tion. When the fi­nan­cial bub­ble burst a decade later, in 1989, it sounded the death knell for Tokyo’s am­bi­tions. The dis­as­trous over­val­u­a­tion of the yen after the 1985 Plaza Ac­cord, then the fi­nan­cial crash of 1998, fol­lowed by the bud­get cri­sis and the soar­ing of pub­lic debt in the 2000s and fi­nally, from 2011, the Fukushima disas­ter and the con­tin­ued de­mo­graphic de­cline: Each decade has been ex­ces­sively chal­leng­ing.

“Ja­pan has al­ready ex­per­i­mented with all the chal­lenges the world is now fac­ing,” notes Ha­jime Takata, chief econ­o­mist for the Mizuho Re­search In­sti­tute, one of Ja­pan’s three mega­banks along­side Tokyo Mit­subishi and Su­mit­omo Mit­sui.

Three mega­banks

Ja­pan in­deed had to face a stock mar­ket cat­a­clysm 10 years be­fore every­body else, which forced it to pro­foundly re­struc­ture its fi­nan­cial sec­tor, and left it rel­a­tively un­scathed from the sub­se­quent 2008 global eco­nomic cri­sis. The Fi­nan­cial Ser­vices Agency, which was es­tab­lished in 1998 in­de­pen­dently from the Fi­nance Min­istry, was charged with deal­ing with the is­sue of the gi­gan­tic amounts of bad debt ac­cu­mu­lated by fi­nan­cial in­sti­tu­tions. The 20 or so banks of na­tional stature had to make way for the three cur­rent mega­banks.

Sim­i­larly, the Bank of Ja­pan (BOJ) was a pi­o­neer in us­ing “non­con­ven­tional meth­ods” to fight against de­fla­tion, long be­fore the Fed­eral Re­serve or the Euro­pean Cen­tral Bank. Its as­set pur­chases have reached un­prece­dented pro­por­tions world­wide (26 per cent of the money emit­ted by the state), as has Ja­pan’s pub­lic debt (250 per cent of the gross do­mes­tic prod­uct), with the great ad­van­tage, how­ever, that it’s ex­clu­sively owned by Ja­panese peo­ple. What’s more, the BOJ in 2001 was the first cen­tral bank to cut its in­ter­est rates to zero.

“Ja­pan is the leader in cri­sis re­sponse,” Ha­jime Takata de­clares. The an­a­lyst doesn’t hes­i­tate to talk of a “Ja­pani­sa­tion of the global econ­omy” since the fi­nan­cial panic of 2008. This re­ac­tiv­ity can also be found in Ja­panese com­pa­nies them­selves, whose prof­its have grown by 60 per cent over the past five years. “It’s the most bril­liant as­pect of the cur­rent eco­nomic land­scape,” read a re­cent note from the prime min­is­ter’s Cabi­net Of­fice, which has the fi­nal say on eco­nomic pol­icy.

Ja­panese ac­tivism is at its most au­da­cious when it comes to de­mo­graph­ics, and for good rea­son. If the pop­u­la­tion con­tin­ues to de­crease by 885,000 peo­ple per year, Ja­pan will have 40 mil­lion in­hab­i­tants fewer in 2060 than now, a drop of one-third, ac­cord­ing to the Na­tional In­sti­tute of Pop­u­la­tion and So­cial Se­cu­rity Re­search. Faced with this prospect, Abe de­cided in Oc­to­ber 2015 to set a fer­til­ity rate goal of 1.8 chil­dren per woman (it cur­rently stands at 1.45).

The coun­try is ex­pe­ri­enc­ing a spec­tac­u­lar rise in longevity, so much so that the gov­ern­ment re­cently cre­ated a multi­gen­er­a­tional council whose mis­sion is to “de­sign a so­ci­ety for cen­te­nar­i­ans”. The start­ing hy­poth­e­sis is that a child born in 2007 has a 50 per cent chance of liv­ing to 100.

The im­me­di­ate, con­ju­gated ef­fects of a longer life and the fall in the birthrate are dev­as­tat­ing, es­pe­cially for the ac­tive pop­u­la­tion. Ac­cord­ing to the prime min­is­ter’s Cabi­net Of­fice, the work­ing-age pop­u­la­tion (15 to 64) de­creased by 3.9 mil­lion be­tween 2012 and 2016. And yet, the number of peo­ple ef­fec­tively work­ing has grown by 1.85 mil­lion. This mir­a­cle hap­pened first of all thanks to a strong in­crease in fe­male em­ploy­ment. There is now a big­ger pro­por­tion of Ja­panese women work­ing than Amer­i­can women. As for men, re­tirees are re­turn­ing to work, so much so that one-third of those aged 70 to 74 are now work­ing.

But are such ef­forts ten­able in the long run? “The use of for­eign work­ers (cur­rently lim­ited to 1 mil­lion peo­ple) will be a ne­ces­sity, even though opin­ion polls show a strong op­po­si­tion to it, for fear that it might in­crease crim­i­nal­ity,” says Naoyuki Shi­no­hara, a pro­fes­sor at the Univer­sity of Tokyo.

‘So­ci­ety 5.0’

Abe prefers in­stead to bet on robo­ti­sa­tion and “so­ci­ety 5.0”, even if the age­ing of Ja­pan will lead to ghost cities. The vil­lage of Nan­moku, lo­cated 100 kilo­me­tres from Tokyo and said to be the old­est in the coun­try, has lost half its in­hab­i­tants over the past 20 years. Of the 1,963 re­main­ing in­hab­i­tants, half are over 70 and the school has just 24 pupils.

Ja­pan has be­come, be­cause of cir­cum­stances, a full­size lab­o­ra­tory for meek growth. But is it a model for ef­fi­ciency? The de­bate sur­round­ing the bud­get con­sol­i­da­tion, which is ex­pected to trans­late into a rise in value added tax (VAT) from 8 per cent to 10 per cent in 2019, is still on­go­ing. Dur­ing the re­cent leg­isla­tive elec­tion cam­paign, Abe of­fered to use part of the wind­fall to re­in­force the ed­u­ca­tion sys­tem, al­ready the best per­form­ing in the world ac­cord­ing to the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment. But em­ploy­ers, who are gen­er­ally among his sup­port­ers, would rather see the fo­cus placed on re­duc­ing pub­lic debt.

On the so­cial front, the life­time em­ploy­ment sys­tem per­sists. “Trade unions are op­posed to any form of flex­i­bil­ity that would al­low com­pa­nies to gain in ef­fi­ciency, and pre­fer in­stead to com­pro­mise on wages,” Shi­no­hara laments. Still, it doesn’t stop the rise of “non­reg­u­lar” po­si­tions, which rep­re­sent one-third of the to­tal number of jobs, without caus­ing any stir among trade union­ists.

Po­lit­i­cal and ad­min­is­tra­tive in­sti­tu­tions too are very con­ser­va­tive. Ja­pan’s Min­istry of Econ­omy, Trade and In­dus­try (Meti), the sym­bol of Ja­panese state plan­i­fi­ca­tion since the end of the Sec­ond World War, is still as in­flu­en­tial as ever. “The Meti hasn’t evolved a lot, only the en­vi­ron­ment has changed,” one of its di­rec­tors ex­plains. “Our pri­or­ity now is to in­cor­po­rate our small and medium-size busi­nesses into the in­ter­na­tional pro­duc­tion chains.”

Trade agree­ments not only in the Asia-Pa­cific re­gion, but also with the Euro­pean Union have in­deed be­come a pri­or­ity. It’s only log­i­cal for a coun­try with a shrink­ing do­mes­tic mar­ket, where 80 per cent of its fi­nan­cial sur­pluses come from its for­eign in­vest­ments.

Ja­pan is go­ing all-in on glob­al­i­sa­tion, the po­lar op­po­site of Trump’s eco­nomic pop­ulism. And, once again, it’s a par­a­digm of a suc­cess­ful re­al­is­tic in­te­gra­tion. Proud of its cul­ture, Ja­panese so­ci­ety has un­der­stood that “for things to re­main the same, ev­ery­thing must change”. Strangely enough, the fa­mous quote from the Ital­ian novel The Leop­ard sounds like a per­fect Pa­cific haiku. Jean-Pierre Robin, a colum­nist at Le Fi­garo, writes on eco­nom­ics. Le Fi­garo/

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