Tokyo correspondents held a reunion at the OPC in March at which I was a speaker, and, as the Number 1 Shimbun has reported, I was less than flattering about recent coverage of Japan. On the principle that it is as well to be hanged for a sheep as a lamb, I offer more detail:
MYTH 1: Japanese consumers are on strike
All talk of a consumer strike to the contrary, Japan’s consumption rate has actually risen over the years. This is implicit in the fact that the household savings rate fell from 15.3 percent in 1989 to 3.1 percent in 2007. Savings and consumption are, of course, opposite sides of the same coin; other things being equal, every yen by which the savings rate falls is an extra yen of consumption.
If Japanese consumers were really on strike, sales of consumer durables would surely be hit. Yet the Japanese have consistently been among the world’s earliest adopters of succeeding generations of such goods, including advanced mobile phones, large flat-panel screens, high-definition video, laptop computers, and digital cameras. They are also buying far larger and better equipped cars these days.
Meanwhile Paris-based fashion arbiter Suzy Menkes says the Japanese are the world’s best dressed people. Thanks to increasing consumption of ever more sophisticated healthcare services, they have added nearly two years to their life expectancy since the 1980s. Then there is the Japanese approach to food. If Japanese diners are really such scrooges, how could Tokyo have 11 Michelin three-star restaurants, versus four in New York?
MYTH 2: The Japanese economy has suffered a “deflation disaster”
There has been deflation but it has not been a disaster. All but forgotten these days, there is more than one kind of deflation. The true precedent for Japan’s current price pattern is not the 1930s, but rather the 1880s and 1890s — decades when the U.S. went from a rural backwater to the world’s most successful economy. The trend was driven by a huge productivity leap in the steel industry. A resulting 90 percent cut in steel prices rippled through other industries and precipitated widespread cuts in consumer prices. Japan’s falling prices are similarly driven by a huge leap in manufacturing productivity, particularly in the fundamental materials, components, and capital equipment driving the digital revolution. In key categories – silicon wafers, laser diodes, and so-called LCD steppers, for instance — Japan is so efficient that it has become the world’s dominant or even sole supplier.
MYTH 3: The Japanese employment system is breaking down
This story has been a mainstay of misinformed Japan coverage since the 1960s. Of course it seems to make sense: Once one employer reneged on lifetime employment, rival employers would surely follow.
Correspondents, however, make a crucial mistake in taking the term “lifetime employment” literally. There has never been a time when the general run of jobs was guaranteed for life. The system has always been based on what scholar Ronald Dore has termed “flexible rigidities.” Although the system aims to provide stable employment, employers can and do lay off workers in the face of, for instance, permanent changes in demand.
Lately we have heard much about temporary workers. Supposedly they are a new factor but, as recorded by the author Mamoru Iga, they were already common in the boom year of 1986. Even in those days no more than 20 percent of workers enjoyed full long-term job security.
Of course, a question remains: why don’t Japanese employers cut loose from all “rigidities” and embrace Anglo-American hire-and-fire? Even in recessions, solvent employers are under regulatory pressure to avoid mass firings and if they pressed ahead they would be cut out of the loop on, for instance, lucrative government contracts. Japanese executives avoid discussing Japan’s stable employment system because any frank explanation might provoke demands from governments and labor unions abroad for similarly stable employment in corporate Japan’s foreign subsidiaries.
Myth 4: An aging Japan is facing a demographic disaster
A large part of the aging “problem” is simply that the Japanese are living longer. In the past six decades, Japanese have increased their life expectancy at birth by nearly 30 years and now outlive Americans by five years.
Japan’s low birthrate is not a problem but a solution. The Eugenic Protection Act of the late 1940s legalized abortion on demand and promoted sterilization and other forms of birth control to counter the overpopulation problem which plagued Japan in the 1930s. Today’s low birthrate is not without disadvantages and certainly there will be a dearth of worker-age Japanese citizens in coming decades. But corporate Japan’s hiring catchment area is hardly limited these days to the home population.
Myth 5: Japan’s government finances are out of control
As officially stated, Japan’s ratio of public debt to GDP is one of the world’s highest. It does not follow, however, that the government’s finances are out of control. Much borrowing is applied to investment rather than consumption. Thus Tokyo is the largest holder of U.S. Treasury bonds. Basically it is borrowing from Japanese savers to finance overconsumption in the United States. If Japan’s debts really spooked financial markets, Japanese interest rates would long ago have rocketed. In reality they remain among the world’s lowest.
Myth 6: The Japanese government builds a lot of “bridges to nowhere”
Actually as one of the world’s most densely populated nations, Japan suffers a general shortage of roads and bridges. Thus new roads and bridges virtually anywhere serve a useful purpose in relieving the pressure on existing extremely jammed infrastructure. The bridges-to-nowhere story got started when a British magazine in 1998 wrote about the opening of the magnificent Akashi Kaikyo bridge, but it failed to notice that the bridge forms one of only two road crossings between Honshu and Shikoku. The 4.1 million residents of Shikoku don’t think they live “nowhere.”
Eamonn Fingleton is an OPC member and the author most recently of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).