Japan Lacks Political Will to Save Ailing Economy

Yoshie Furuhashi furuhashi.1 at SPAMosu.edu
Fri Dec 15 00:03:55 MST 2000


Hi Henry:

>  >  JAPAN LACKS POLITICAL WILL TO SAVE AILING ECONOMY
>
>This article is standard Washington Concensus stuff.  It is both righ and
>wrong, both for the wrong reasons.
>It is wrong to say that Japan lack political will to save its ailing
>economy.  If anything, Japan has shown heroic political will to save the
>Japanese system.  Japan is tolerating a decade of negative growth in its
>own way to resist Us globalization.  Despite a decade of negative growth,
>the Japanese public has relatively little pain.  all the pain has been
>absorbed by the government and business - Japan Inc.  The Japanese cannot
>retructure their banks because they banks are not separate institutions
>in the economy.  The banks are major share owners of theri borrowers.
>The Bank of Japan, under US pressure pretends to be "independent".
>Theidea of an independent central bank is a very peculiar US notion.  In
>Japan, when things go wrong, the top suffer first and most. It is part of
>the culture. It is the opposit of the US ehere the bottom suffers first
>and most. If Japan were to take Larry Summers advaice, it will end up an
>a US financial colony.  The US ewant Japan to open its market.  The
>trouble is that Japan does not have a market to open.  The Japanese
>economy is a vertically integrated dsitribution system.  There is no
>market operating. Japan is out to protect Japan Inc to emerge after the
>coming collpase of the US economy which will marke the end of market
>fundamentalism.  In that sense, Japan shows great political will.

I agree that the article represents the standard-issue Washington Consensus.

The main qualification that I'd add to your commentary is that the
"political will" you speak of may be less the "general will" than the
result of default (= the absence of a clear program, be it of the
ruling class or the working class, with several governing elite
factions -- e.g., old patronage-happy politicians, amakudari
bureaucrats, younger neoliberal-minded policy wanks, etc.--
cancelling one another), though it does beat, as you note, submitting
to the American will, which may be best summarized below:

*****   The National Journal
November 18, 2000
SECTION: ECONOMY; Vol. 32, No. 47
HEADLINE: Wanted: A PM With Backbone
BYLINE: Bruce Stokes

...Steps Japan must take to right its tipping economy are clear. But
who will take those steps? The only way Japan can break through the
current ceiling on the economy's growth potential-estimated to be
about 2 percent to 3 percent-is by dramatically improving worker
productivity. That won't be easy. Workers in Japan's domestic
manufacturing and service sectors are 37 percent less productive than
workers in the United States, according to a recent study by the
McKinsey Global Institute, an arm of the business consulting firm
McKinsey & Co. But it can be done. McKinsey believes that Japanese
productivity can grow by as much as 4.7 percent a year for the next
decade, and that such an improvement would boost annual economic
growth to 4.2 percent, once the 0.5 percent yearly decline in the
work force is taken into account. This growth spurt would expand tax
revenues and ease the debt crisis.

The debate here is focusing on how best to achieve the needed
productivity breakthrough. Government and business leaders advocate
massive increases in spending on information technology-computers,
cell phones, and the Internet-in an effort to emulate recent
IT-driven productivity increases in the United States. The IT
Strategy Council-consisting of Japanese business leaders and
academics appointed to advise the prime minister-has recommended,
among other things, Internet connections for 40 million Japanese
homes within five years.

McKinsey researchers advocate a harder-to-swallow prescription:
incentives to encourage unproductive firms in the retail, home
construction, and health care sectors to close; extended unemployment
benefits for those who lose their jobs; and further deregulation of
domestically oriented business sectors to encourage
productivity-enhancing competition....   *****

Japan appears to have resisted the wholesale neoliberal restructuring
of the labor market & the destruction of the welfare state so far,
with middle-aged workers still protected by social & economic customs
& regulations, but there may be increasing hidden youth unemployment
(especially hitting young college-educated women hard):

The following article "Youth Employment and Parasite Singles" by Yuji
Genda in _Japan Labor Bulletin_ 39.3 (March 1, 2000) tells us that
increasing rates of unemployment are hidden under the cover of the
bogus theory of youths lazily & voluntarily becoming "parasite
singles" ("unmarried people who live with their parents even after
graduation from university, and depend on their parents concerning
basic living necessities," according to sociologist Masahiro Yamada,
_Parasaito Singuru no Jidai [Days of the Parasite Single]_, Tokyo:
Chikuma-shobo, 1999).

*****   ...The employment situation of Japanese young people has been
influenced by a major change in the unemployment rate among this age
group since the latter half of the 1990s.  The unemployment rate for
males under 25 years old has stayed around 10 percent for several
consecutive months.  The Japanese unemployment rate has now overtaken
that of the U.S., particularly for people in their 20s....

.... According to the Report on the Special Survey of Labour Force
Survey in February 1999 (Statistics Bureau, Management and
Coor-dination Agency), only 40,000 people who were unemployed but had
previously been employed, had a university-level education and were
aged between 45 and 54.  This figure accounts for a little more than
one percent of the total number of three million unemployed people.
Large proportions of the increased numbers of the unemployed are, in
fact, young people and people aged 65 and older....

... According to Yamada's calculations, based on figures from the
national census, unmarried people aged 20-34 who live with their
parents, the so-called parasite singles, total no less than 10
million.  The number of such single people is most probably
increasing across the country....

... International comparisons show Japan has the highest ratio of
single young adults living at home with their parents.  Where main
sources of financial support in the advanced countries are concerned,
post-adolescent young people in Sweden depend on the government,
while their counterparts in the U.S. depend on no one in particular.
In Japan's case, classified as unique, young people continue to rely
on their parents....

... Let us look at changes in the employment structure in the 1990s
from a different viewpoint of trends in unemployment.  Figure 1 shows
the ratios by age, of regular employees in the labor force.  While
employment patterns are said to have diversified, the ratio of
regular employees to the total labor force rose, although slightly,
from 1991 to 1998.  In terms of age groups, however, the ratio for
workers under 30 has fallen.  Regular employees make up less than
half of the teenage labor force, while the ratio of regular employees
for people aged 20-24 has declined by nearly seven percent.  On the
other hand, all age groups of 30 or older saw an increase in the
ratio.  In particular, the ratio for people aged 55-59 increased by
seven percent....

... There is one indication pointing to a change in labor demand:
namely, trends in the ratio of newly graduated workers taken on by
large companies.  This ratio is a barometer of how willing large
companies - employers who generally offer higher wages - are to hire
new employees.  The tendency for large companies to engage the
younger generation is weaker.  Compared with the rate for the
generation born in the latter half of the 1950s, that for the
generation of teenagers in the first half of the 1980s is lower by
more than 10 percent.  The rate for people aged 20-24 exceeded 20
percent for a lengthy time, but it now has fallen far behind the rate
for the generation born in the first half of the 1970s.  These trends
imply that the employment situation for young people has been
deteriorating due to a substantial drop in labor demand from large
companies....

... Japanese companies, particularly large ones, are seeing a rapid
aging of their employees.  The ratio of employees 45 years old or
over among full-time males at firms with 1,000 or more employees
soared from 22 percent in 1979 to 36 percent in 1998....

... Although seniority is gradually losing its importance in Japanese
firms, in large firms in particular, it continues to play a major
role in determining wages.  While the seniority wage system is
maintained, the further aging of employees will result in a
substantial rise in labor costs.

While employment adjustment of middle-aged and elderly employees
avoids the rise in labor costs, it involves many other costs to firms
as well.  Dismissal of employees makes it impossible to recover the
large outlay on human resource investment via on-the-job training.
Thus, even if business performance is deteriorating, the more a firm
values training and education of its human resources, the more it
makes efforts to avoid employment adjustment.  Moreover, even if a
firm is obliged to resort to labor shedding, it has to do so under
legally strict conditions*.  OECD Employment Outlook 1999 cites Japan
as one of the countries with the strictest regulations on dismissal
(OECD, 1999, p. 58).  The "reputation effect," or the fear that
employment adjustment on a large scale might lower their social
reputation, and complicate future employment of a competent labor
force, is a constraint on Japanese firms.  Consequently, it is
rational for firms, from an economic common-sense view, to keep
already-hired workers in their jobs, in spite of soaring labor costs.

A remaining possible means of realizing an optimal level of
employment during poor business performance is employment adjustment,
by means of enhancing labor mobility between firms, including
transfers and farming-out of employees.  Until the mid-1990s, copious
demands for labor from small- and medium-sized firms enabled large
firms with excess labor to adjust employment levels by promoting the
transfer of workers to such smaller firms.  The recession of the late
1990s, however, unlike those preceding it, has substantially reduced
labor demand, even from small- and medium-sized firms.  Consequently,
in order to cut down the employment level, large firms have no choice
but to hold back employment of young people.

However, scarcity of job openings for young people due to these
reasons does not necessarily lead to an immediate fall in employment
levels.  As any standard textbook of economics states, even when the
demand falls, if the price is flexible enough for the change in
demand, then a certain level of supply is secured.  The labor market
for Japan's young people is, however, far from that kind of ideal. In
fact, when labor supply and demand are close, that is, during a
seller's market period, a certain degree of wage adjustment is
observed, such as a rise in the initial salary for newly-hired
employees.  In contrast, when supply diverges widely from demand,
that is, during a buyer's market period, a downward adjustment of
wages is not seen (Ishikawa, 1991, Chapter 6).  As a result, in
response to excess labor supply, quantitative adjustment alone is
deployed, not wage adjustment - a typical situation described by
Keynesian economics....

... Among wage determinants of middle-aged and elderly employed
workers, the factors based on seniority have been changing only
gradually, as is obvious if one compares the age-earnings profile of
the employed with that of the self-employed.  Figure 2 shows the
results of estimations for age-earning profiles of self-employed
merchants and artisans, and of white-collar employees in nonpublic
sectors (Genda and Kambayashi, 1999).  In Japan, the earning profiles
of the self-employed, as well as those of the employed are based on
seniority.  Reflecting the accumulation of experience, business
incomes increase according to age, up to around 50.  However, from
1989 to 1994, as an effect of changes in the market environment,
growth in the seniority component of earnings among the self-employed
underwent a severe slowdown.  On the other hand, seniority wages of
employed workers, protected by various schemes within their firms,
are not so badly affected. The seniority wage system has not yet, as
widely believed, been eliminated.

The reality is that the mechanism of long-term employment called
"lifetime employment" is gaining ground among middle-aged and elderly
people. Statistics prove this claim.  They show that the average
tenure of middle-aged and elderly workers within the same firms is
becoming longer.  The proportion of life-time employees in their 50s
- employees who have continued to work for the firm they joined
immediately after graduation from university - increased from the
1980s through the early 1990s (Chuma, 1997).  The government also
aims at extending the mandatory retirement age up to 65 as a measure
for employment of the elderly (see Appendix, p. 11)....

...Concerning social security schemes, tax exemptions for income and
health insurance are applied only to those with dependants.  With
regard to the Doctrine of Abusive Dismissal concerning adjustment
dismissal, no one has ever cited even the possibility of
reconsidering the current situation (Araki, 1997).

Judging from these factors, one may conclude that the vested rights
of Japan's middle-aged and elderly workers are protected, not by the
labor unions, as are their European counterparts, but by combined
elements of various social and economic systems....

... There is little opposition to such vested rights given to
middle-aged and elderly people; if anything, present-day Japanese
society is heading towards maintaining the status quo, or even
encouraging the tendency....


...Notes:
*The Doctrine of Abusive Dismissal - case laws concerning the right
of firms to dismiss, especially in cases of adjustment dismissal
require firms to satisfy the following four requirements when they
carry out dismissals: (1) they should face a compelling and
unavoidable necessity to carry out the dismissals; (2) they should
have made every effort to avoid the dismissals by, for example,
reducing overtime work, suspension of mid-career hirings, transfers,
farming-out of workers to related companies, suspension of new school
graduates, terminating employment of temporary and part-time workers,
and soliciting early retirements; (3) they should consult with the
union and employees for dismissals, and (4) they should establish
reasonable standards and apply them fairly when selecting the persons
to be dismissed.

References:

Araki, Takashi. "Changing Japanese Labor Law in Light of Deregulation
Drives: A Comparative Analysis." Japan Labor Bulletin 36.5 (1997):
5-10.

Chuma, Hiroyuki. "Keizai Kanky-o no Henka to Ch-u-k-onens-o no
Ch-oki-kinzokuka" (Changes in the Economic Environment and
Lengthening Tenure among Middle-aged and Elderly Workers), Eds. H.
Chuma and T. Suruga, Koy-o Kank-o no Henka to Josei R-od-o (Changes
in Employment Practice and Female Workers). Tokyo: Tokyo University
Press, 1997.

Genda, Yuji. "Japan: Wage Differentials and Changes since the 1980s,"
Ed. T. Tachibanaki, Wage Differentials: An International Comparison.
London: Macmillan Press, 1998.

Genda, Yuji, and Kambayashi, Ryo. Declining Self-employment in Japan.
mimeo, 1999.

Genda, Yuji. J-ugy-oin no K-oreika to Koy-o Kikai no Gentai: 90
Nendai ni Okeru Daikibo Jigy-osho no Koy-o Hend-o (Graying Employees
and Declining Employment Opportunities: Job Flows at Large-sized
Establishments in the 1990s), Institute of Social and Economic
Research, Osaka University, Discussion Paper No. 477, 1999.

Ishikawa, Tsuneo. Shotoku to Tomi (Income and Wealth). Tokyo:
Iwanami-shoten, 1991.

Organisation for Economic Co-operation and Development. Employment
Outlook. Paris: OECD, 1999.

Ohtake, Fumio, and Okamura, Kazuaki. "Sh-onen Hanzai to R-od-o
Shij-o: Jikeiretsu oyobi Tod-ofuken Panel Bunseki" (Juvenile Crime
and the Labor Market: A Time-series and Cross-section [by prefecture]
Panel Analysis). Ky-oto: Nihon Keizai Kenky-u Sent-a (Japan Center
for Economic Research), 2000.

Yamada, Masahiro. Parasaito Singuru no Jidai (Days of the Parasite
Single). Tokyo: Chikuma-shobo, 1999.

[The full article with figures is at
<http://www.jil.go.jp/bulletin/year/2000/vol39-03/05.htm>.]   *****

However, I've also found an article that presents a much gloomier
picture of unemployment horrors than above: Nobuhito Kishi, "Lies,
Damned Lies: The Real Story of Unemployment in Japan," at
<http://www.nira.go.jp/publ/review/96winter/kishi.html>, a link to
Sogo Kenkyu Kaihatsu Kiko [National Institute for Research
Advancement].

Yoshie





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