Jonah, you raise some good points about Jim’s post on Eamonn Fingleton’s claims that Japan’s economy is stronger (and larger) than either reported or realized. The concept of a government scheme to under-report growth is hard to believe, though whether there are different official accounting standards at play is another question that could lead to different growth/consumption/investment outcomes being reached.
I’m not an economist, either, but have been a Japan watcher for over 20 years, and I think there’s something to Fingleton’s overall argument that Japan probably hasn’t shrunk or weakened as much as traditionally reported. The questions I think we should be asking aren’t about statistics, but rather about what accounts for the stability we see in Japan during an extended period of supposed economic stagnation. My evidence is anecdotal, but comes from multiple visits per year. Seems to me, the strengths of Japan’s economy aren’t from trade figures but more intangibles that are social in nature. From basic goods and services to domestic production, public works (admittedly, often wasteful), and government administration, Japan continues to hum along with few interruptions. Its shift to value-added components production in the global supply chain replaced lots of full-assembly production, but also maintained skilled employment levels around the country. Perhaps most important, Japanese citizens never gave up on their economic (or political) system, the way that happened in the Soviet Union and may one day happen in China.
That’s not to ignore all the problems and weaknesses in the system. The obstacles to entrepreneurship are too high, which means many of Japan’s small and medium enterprises remain too tied to larger corporate groups. Foreign direct investment is woefully low, thanks to suspicion of foreign ownership, and of course agricultural subsidies keep the country’s farming sector completely inefficient. Most damaging of all may be that much of the system is running on inertia. That’s just to name a few. We need a real economist to weigh in here, but the social effects of Japan’s economic strengths and weaknesses are ultimately the most important thing. Its strength so far in maintaining enviable standards of living (even with wage stagnation) may be due to Japan’s corporatist model’s past success, but the big argument is whether that model remains viable in the 21st century. On that score, Fingleton may have put his finger on something, just not what he thinks he has.
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