Vol.3 No.5, 12 February 2003

Japan's Phoney Slump

Here's a contribution by MArgaret Legum which is neither about South Africa nor about New Economics but which says a lot about how we are brainwashed into accepting the economics of free markets and globalisation as the only road to economic success. In many of our earlier SANE Views we have shown that this is far from the truth in South Africa, and in very different ways it clearly is not true for Japan either.



By Margaret Legum

As everyone knows Japan has been in a 'slump' for the past decade or more. Which goes to show that the cosy mercantilist version of capitalism practised there produces worse results than the American-led free market model. Really? It seems neither of these is true - rather the reverse.

In an article for the British magazine Prospect, Tokyo-based writer Eamonn Fingleton questions both of them. He also suggests that the Japanese have encouraged these myths, and the Western establishment and financial press have generally swallowed them. His work is supported by that of Doug Stuck of the Washington Post.

First, the facts. The Japanese economy is the most income-equal of the developed countries. This is important. It has in fact thrived over the past ten years. Japanese consumers are probably the richest in the world. About 2.2 million more households now own a car than a decade ago. Domestic sales of sophisticated electronic equipment rose by 17.6% in 2002 alone. Household ownership of video cameras grew 136% in the 11 years to 2001; while mobile phone subscribers increased from nearly zero in 1993 to 67 million in 2000. Every household has a colour television, 90% has a microwave oven, 40% a computer and 39% a set of golf clubs.

Unemployment has ranged from 4.5% to 4.9% - roughly similar to that in the States. The number of Japanese holidaying abroad rose from just over 8 million in 1989 to 14.6 million in 2000 - a rise of 79.9%. In terms of life expectancy Japan surpassed Sweden and Switzerland in the 1990s to lead the world, having added 1.5 years to average life expectancy.

The Japanese work less hard than the Americans to achieve higher incomes, more savings and better health than the Americans. The average working week is five hours shorter than Americans'. They also pay less tax - less than 20% compared to 26%. Yet health care is virtually free; and nearly every ward in the cities has a public swimming pool and playgrounds. The rate of heart attacks is a third of that in the US, the divorce rate half, the crime rate one-third and murders are one sixth of the American. Homelessness is rare in Japan where they also read twice as many books per capita as do Americans.

Why is this? Why is an economy that is supposed to be in a recession producing the goods for its people? Doug Stuck thinks that 'Japan's public and corporate officials have largely resisted the route so often urged by the US to cut their losses, cut their workforces, and let companies go bankrupt. Japan balks at the US model wherein highly paid CEOs rescue a struggling company by throwing thousands of its employees out of work. Instead, workers keep their jobs while the companies limp along. It may be inefficient capitalism, they say, but workers have jobs.'

The result is that the financial sector of the economy - the owners of capital - do less well in Japan than under the US model; and it is strains in that sector that are of interest to the conventional economic establishment and the financial media. But Japanese financiers take a longer, and less speculative, view of their investment. They have continued to invest heavily in capital-intensive industry and in infrastructure. A record 2.2 million square meters of new office space will be completed in 2003 in Tokyo - more than was contained in the Twin Towers. Tokyo's sewerage system has been transformed in the past decade.

This means that, during this period of 'recession', Japan has overtaken the US in terms of high technology, including components for the supercomputer industry, and optical fibre networks, which demand large reservoirs of highly sophisticated proprietary know-how. Japan makes the purest silicone in the world - a vital component for supercomputers.

Why has Japan managed to defy the conventional wisdom that an economy must put the financial sector's interest above all others? Essentially it is because Japan manages her economy - both trade and investment - to suit her own long-term interests. Notoriously she defies the rules about opening her trade in sectors where she is not competitive. She does not rely on foreign investment; indeed for decades Japan fiercely resisted American attempts to open Japan's financial markets to foreigners. The result is a benign circle of expansion in which Japan has become an exporter of capital. Its net foreign assets have nearly quadrupled in the past twelve years.

The current account trade surplus totalled $987 billion in the 1990s - 2.4 times the total for the 1980s, when Japan was regarded as the 'unstoppable juggernaut' of trade. The yen, you may be surprised to hear, far from declining against the dollar, has risen by 19% since the Tokyo financial crash. The savings rate was 14.9% of GDP in 2001, which means Japan accounts for nearly 30% of all new savings in the OSDC group of rich countries. Government debt, widely described as 'out of control', fell from 6.0 to 1.6% of GDP between 1993 to 1998. Only 6% of government debt is owed to foreigners; while the US borrows abroad $4 billion a day to finance its debt.

Why, then, do the Japanese collude with the 'slump' idea, constantly bemoaning its own failures. Fingleton suggests a number of reasons. Chief among them is that 'the myth has brought Tokyo's trade bureaucrats a full decade of undeserved peace': they have been able to resist demands for reduction of trade barriers. 'For Japanese economic planners the benefit of the basket case story has been its effect in cooling the West's once dangerous anger over Japanese trade policies'.

Fingleton also suggests that 'bad-news propaganda' is something of a traditional Japanese weapon. 'In the 1930s the Japanese military let it be known that Japanese soldiers couldn't shoot straight and that Japanese tanks were made of paperů' Whatever the reasons - including poverty-pleading when asked for aid, and for second world war victim compensation - it is time we looked behind the smokescreen for some tips about how to grow an economy.

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