Foreign and Defense Policy, Asia

Japan’s power is hidden in plain sight?

Hard on the heels of our debate over Eamonn Fingleton’s assertions about the under-reported, or ignored, strength of Japan’s economy, he published a long op-ed in yesterday’s New York Times doubling down on his argument that Japan’s power is hidden in plain sight. Fingleton reiterates his claim that we under-report Japan’s strength by ignoring such key metrics as life expectancy or energy production and consumption, and adds that we possibly consistently over-report American economic growth. Japanese policymakers, in Fingleton’s view, have leaped on perceptions of Japan’s weaknesses to deflect demands that they further liberalize the economy; they have been mimicked by Japanese businesses in explaining away poor returns. Fingleton sees the so-called era of stagnation since 1990 rather as one of great success and vindication of the quasi-statist, semi-managed economy that marks Japan.

There’s much I agree with in Fingleton’s analysis, as I wrote earlier on this blog. Living there for over two years through the supposed trough of the late 1990s, and traveling there regularly during the 2000s, I never felt a sense of doom about the micro-economic picture. People lived well, restaurants and shops were full, and Tokyo continued to grow up and up, with far more skyscrapers dotting the skyline there now than a decade ago. Fingleton is right, I think, that the system has somehow provided an increasing standard of living for Japanese citizens, even while macroeconomic indicators have been largely flat.

Easing the pressure on families, consumer prices have stagnated for years, leading to many economists’ warnings of deflation. And stagnation hasn’t reversed prior bad conditions, as prices for necessities such as rice and gasoline remain far higher in Japan due to protectionism and inefficient markets than in other countries. However, cities are now dotted with 100-yen shops (the equivalent of our Dollar Stores) that stock an increasingly large and impressive selection of household goods, foodstuffs,  school supplies, and the like. These have no doubt exerted a general downward pressure on consumer prices, and lightened the budget burden on many families.

Yet Fingleton makes some radical, if not astounding, claims in his NYT piece. Most startling is his assertion that Japan’s demographic decline is the result of a conscious, post-World War II national policy to relieve the population burden on a defeated and starving nation. From a historical perspective, it is true that late-19th and early-20th century Japan saw a population spike, doubling from around 35 million in 1870 to almost 70 million on the eve of the Pacific War (starting in 1937). During these decades, the Japanese government had pushed an emigration policy, to Hawaii and southern Pacific islands as well as to colonized Manchuria, particularly as a way to off-load poor rural farmers. Fingleton seems to assert that memories of population pressure led to a conscious decision to have smaller families, both because the country was no longer expanding abroad, but also because of fears of food security.

I think Fingleton misinterprets the demographic issue, especially since overpopulation was a cause of pre-war overseas expansion, and not that colonialism drove Japanese birthrates higher. Secondly, during periods of high growth in the 1950s-1980s, demographic trends stayed largely stable, just when one would have expected a jump in birthrates due to increasing economic conditions. Why? Well, some explanation may be provided by long-standing social complaints about lack of living space, small houses, traffic congestion, high consumer prices, etc. It is well documented that the government’s economic policy during the period of high growth privileged, indeed almost mandated, export-oriented production that kept prices for consumer goods high. This would have negative effects on the rational calculations of those having children. Indeed, even today, UNESCO surveys show that Japanese are consistently the least-satisfied with their daily lives of surveyed societies.

Moreover, let’s even stipulate that Fingleton’s demographic analysis is correct. That is not the same as saying that Japanese collectively made the right choice. Unique historical conditions, along with a strong work ethic and highly educated work force, allowed Japan to jump-start its economy in the 1950s. Those clearly no longer hold, and Japan may find that its unofficial one-child policy is leading to an untenable situation that it now cannot solve. Fewer workers, lower educational achievement, aversion to blue-collar work, etc., may all prove to have been a drag on the economy that accounts for low macroeconomic trends over the past decade and will become more of a problem in the future.

An issue that Fingleton does not address, moreover, is the clear unbalance in Japan’s economy. It may be strong, but not everyone is sharing equally. Anyone who travels throughout Japan knows that the countryside has been dying for decades. Schools are closing, post offices are deserted, some areas are so underpopulated that they can’t support grocery stores and must rely on “marketmobiles” that visit once or twice a week. The demographic crunch is particularly clear in the countryside, where the elderly vastly outnumber the young. Japan has a few nodes of major economic activity, but the rest of the country lags far behind. This, by the way, is due in part to the lack of balanced infrastructure development: Japan may have roads and bullet trains to nowhere, but few airports or major roads capable of handling cargo that could spur local production.

So if there is indeed growth in Japan that is under-appreciated by the West, there is at least as strong an argument to be made that it is not balanced and may not be sustainable. I’ve written and talked about Japan’s strengths, but worry that many of them are driven more by inertia and a willingness by Japanese to accept economic inefficiencies and trade-offs that Americans, for example, would likely not put up with (one reason being the sphere of legislation granted to individual states that doesn’t exist in Japan), than they are by a conscious policy to hide the very performance that brought Japan respect and global admiration.

One thought on “Japan’s power is hidden in plain sight?

  1. Fingleton is right. He deeply understands Japan. And, he might as well even research Japan’s situation from 2000 to 2008. He might as well consider the crucial affection/ moral-hazard to japan’s society, brought by Fujio Mitarai, Hiroshi Okuda and Fujio Chou, who were the successive chairmen of Nippon Keidanren.

    And, he might as well focus on the skill of Japanese Embedded Software Engineers and itstremendous impact on Japan’s industries.

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