Different Western news media have picked up on a story that ran in The New York Times recently, suggesting that Japan goes from dynamic to disheartened. Still lingering in economic hardship, it seems that neither ballooning budget deficits nor a flood of easy money has been able to reverse the trend of Japan’s decline and stagnation.
For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.
Japan would appear a dark place indeed and according to the Times the Japanese themselves are anything but confident in what the future will bring. Their population is aging and their economy was recently overtaken by China’s.
Still, Eamonn Fingleton, an Irish journalist who has lived in Tokyo for many years and written numerous books on Japan’s economic success story back in the 1980s, has hope. The New York Times, he complains, has “completely misrepresented” the state of Japan’s economy. “This article is a highly selective pastiche of isolated hard luck stories plus quotes from propagandistic sources,” he lambasts. And there’s more.
Japan’s total economic output since the start of the 1990s, usually considered a “lost decade” for the country, did grow and massively so: up to $5.7 trillion last year compared to a mere $3.45 in 1991. Despite Chinese competition, Japan also multiplied its current account surplus more than threefold between 1989 and 2008. (America’s current account deficit ballooned sixfold in the same period, notes Fingleton.) “With per capita income nearly ten times China’s, Japan is almost alone among major nations in running a surplus on its huge trade with China; by comparison America’s bilateral deficit with China was $166 billion last year.”
Why does China buy so much from Japan? Because it has no alternative: although this is not obvious to the world’s consumers (nor, evidently, to the editors of The New York Times), Japan monopolizes the supply of many of the world’s producers’ goods — specifically the most advanced materials, components and production machines powering the world’s factories, not least China’s.
During the last two decades, Japan did experience an extremely low population growth — a cumulative rise of 3 percent compared to 23 percent for the United States. “The differing population experience is a fundamental factor in Japan’s apparently ‘disappointing’ GDP performance,” according to Fingleton. When Japanese GDP statistics are stated on a per capita basis as opposed to as national aggregates, Japan has kept pace with American growth.
What Fingleton leaves out of the equation is the enormous pressure which Japan’s aging population is exerting on the country’s pension regime. And Japan’s aging workforce is just part of a larger problem. The long-term effects of repeated short-term government interventions in the private sector during the 1990s are starting to be felt and not just in the shape of a mounting public debt that exceeds GDP twofold. Labor productivity has been impaired due to substantial labor hoarding in antiquated sectors of the economy while expanded credit guarantees, intended to counter tight credit, have had similar adverse side effects.
Discontent among Japan’s urban population with a government seemingly inept at handling the economy has been rising through the years which led to an historic defeat for the traditional ruling party last year. Since the new government has similarly been wrecked with upheaval and internal dissent, the average Japanese can’t be expected to have much confidence in the political establishment anymore.
The recession hit Japan hard and government stimulus hasn’t so far managed to lift the country out of anxiety and gloom even if the numbers say that it is back on a growth path. Japan is not doing so bad — and will remain one of the richest, most developed economies in the world for decades to come — but somebody may have to remind not just The New York Times, but the people of Japan as well.