Are We Ready For The Japanization Of The World Economy?
Having experienced its economic collapse a generation earlier than the 2008 crisis, Japan has become a laboratory for making the most out of meek growth.
TOKYO — Shinzo 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 aging. 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 prime minister between 1957 and 1960 and invested a lot in bringing the 1964 Olympic Games to Tokyo, Abe threw himself in the organization 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 mobilize 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, and particularly the United States, are still struggling to look with serenity at the archipelago, torn between envy and stigmatization. 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, with net foreign assets worth $3.2.
America's obsession with Japan is not new. Without even having to go 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 GDP 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 globalization. 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.
A pioneer in non-conventional ways to fight deflation
"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.
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 "non-conventional methods' to fight against deflation, long before the Federal Reserve or the European Central Bank. Its assets purchases have reached unprecedented proportions worldwide (26% of the money emitted by the state), as has Japan's public debt (250% of the GDP), 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 "Japanization of the global economy" since the financial panic of 2008.
This reactivity can also be found inside Japanese companies themselves, whose profits have grown by 60% 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 of the 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, Shinzo Abe decided in October 2015 to set a fertility rate goal of 1.8 children per women (it currently stands at 1.45).
Elderly survivors of the 2011 Tsunami — Photo: MrHicks46
The country is experiencing a spectacular rise in longevity, so much so that the government recently created a multi-generational council whose mission is to "design a society for centenarians." The starting hypothesis is that a child born in 2007 has a 50% chance to live up to 100.
The immediate, conjugated effects of a longer life and the fall in the birth rate is devastating, especially regarding 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 in work 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 one 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, professor at the University of Tokyo.
A model for efficiency?
Shinzo Abe prefers instead to bet on robotization and "society 5.0," even if the aging of Japan will lead to ghost cities. The village of Nanmoku, located 100 kilometers from Tokyo and said to be the oldest in the country, has lost half of 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 full-size 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 VAT from 8% to 10% in 2019, is still ongoing. During the recent legislative election campaign, Shinzo Abe offered to use part of the windfall to reinforce the education system, already the best performing in the world according to the OECD. 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," Professor Shinohara laments. Still, it doesn't stop the rise of "non-regular" 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 METI (Ministry of Economy, Trade and Industry), the symbol of Japanese state planification since the end of World War II, 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 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% of its financial surpluses come from its foreign investments.
Japan is going all-in on globalization, the polar opposite of Donald 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.