It's important to realize that this article is by Eamonn Fingleton, who has been pushing a fixed idea for decades now: that Japan is secretly a terrifying power. He has written several books that touch (in whole or in part) on this theme:
I read Blindside back in 1996 and I thought his argument was interesting for that time. However, when you read him, it is important to remember that he has not changed his opinion in 20 years, and there are new facts to be accounted for. At that time he seemed certain that Japan would be the worlds #1 economy by the year 2000. His prediction was wrong, but he has not much changed his opinion: he still believes Japan is an important success story.
Japan suffered a long depression in the 1990s. That is not fiction. That is a fact. However, it is also true that some of the stagnation of the period 1990-2013 should be attributed to demographic change.
Paul Krugman offered a partial counter-argument to Eamonn Fingleton here:
Also, it is worth noting that for the last 20 years Fingleton has constantly harped on the fact that Japan has a trade surplus, sometimes a very large trade surplus, and he thinks this represents economic strength. Numerous economists have made the point that a large trade surplus can be a sign of economic weakness: perpetual insufficient demand at home in the domestic market. Fingleton has rarely taken this view into account.
Kyle Bass is pretty bearish on the Japanese economy; has been for several years. If he turns out to be right, the Japanese are in for a bad time. I get the impression that a lot of it is due in part to the demographics (lots of elderly, at least they are healthy).
Kyle Bass believes the Japanese will default, despite their ability to print their own currency. He was successful in shorting MBS, but his Japan fund has never been correct.
I hear you. Add in the loss of good employment, and the make-work in the public sector.
Per capita GDP doesn't help if there are not enough new entrants in the workforce to replace departing workers. With no immigration, there won't be enough people to carry the load.
I love Japan, and the deflation made it cheaper to visit, but it's a cultural attraction more than anything else.
Michael Crichton was excellent for identifying the latest "worry" that was making the US anxious (sexual harrassment, nano-technology etc) and writing a novel about them.
Rising Sun was written when a lot of people were worried that Japan would overtake the US as an economic power. We all know how that turned out. It's also why I'm sceptical when people talk about China being the next economic superpower.
I have no doubt China will become an economic superpower. They are investing heavily in the African continent and central and South America. Those are long term, strategic investments.
It's a little disturbing to think that autocratic China at least seems to be able to plan decades ahead, while free America is largely stuck in quarterly business cycles and two-year political cycles. An oversimplification in both cases to be sure, but our culture could definitely learn some things about being patient and thinking ahead.
If you look around a bit you'll find a lot of people who are rather bearish on democracy as practised in the first world west - professional politicians with no real world experience, being voted in by the cynical, uninformed masses, propagandised by bought and paid for mass media. Democracy has collided with the middle class and a free press concerned only with their own interests and come off second best - bitter, entrenched political paralysis at best. Like unions, it was a wonderful idea at the time, but now the cure is basically worse than the disease.
Frankly, the age of democracy is over, and we now have the age of the permanent civil service. The good news is, it is almost certainly an improvement. China, Japan and Singapore are run exclusively by their civil services (democracy in the latter two is an irrelevant sideshow), and they are run much better than most western countries, or at least with more long term strategy. In fact, pretty much everything wrong with Japan can be blamed on the idiot government trying to save face by not admitting reality. The USA would be pretty well served, IMO, by taking control of budget away from congress and giving it to - well, almost anyone. The GAO, maybe. The Fed, the SEC, the commerce dept, anyone, so long as they're not elected. Being accountable to the electorate turns out to be the worst idea ever for people who are actually trying to do their jobs. It means never being able to admit you're wrong.
I don't mind if they keep parliament/congress around for show but they're going to go the way of the Queen of England - a figurehead, kind of a sounding board for the people, a super-ombudsman. A hundred years from now we're going to look back and wonder how we ever could have been so mad to think that giving politicians the reigns of power could ever have been a good idea.
To the person who replied quoting the Economist about democracy in Japan, then deleted their comment - thanks for the link. Well yes, on a superficial level, I suppose democracy is kind of healthy in Japan. It sort of misses the point though.
Japanese Govt, like that in Singapore and South Korea, is characterised by the extreme strengths of their bureaucracies. It would be fair to say that the Japanese Diet, their government, is basically a peer to the JR railway company or MOFA. Imagine if in the USG, all the departments basically operated at the level of the DoD or Dept of State - frankly at the same level as congress. Congress can declare war on the DoD, sure, but would only do so under the most dire circumstances. In practise they cooperate.
Well, in Japan, that's how it is. Basically, the government could probably, if it came down to it, fire the heads of the bureaucracies, but it won't come to that and never has. They are peers for all practical purposes. They are like competing departments in a large corporation. You might think that is a recipe for wastefulness and corruption, and you would be absolutely right, but in a crazy sort of way they keep each other honest, somewhat, and it's better than Fox News making all your decisions.
Don't get me wrong, I'm not some fanatical Japanophile - I don't even live there anymore. But man, at least they can get at least some stuff done. In the west we could not even dream of having a 50-year high speed rail plan. Just think about that. What does that say about us? Look, we're not a dystopia, but we're still basically coasting on past success. The car is still moving, but it's slowing down. Maybe we ran out of gas, or maybe we're so caught up in fight about which way to drive we can't even put our foot on the accelerator.
Corporations that lose the ability to invest in or even think about the long term go out of business. I don't believe countries are any different. We are going to have to change, radically, or we'll simply be taken over - it's only a matter of time.
Ehhhh honestly real talk is 'controlled' economies have some of the absolute worst economic horror stories. I mean China during much of Mao's run experienced staggeringly bad management.
Planning ahead is not difficult. Planning ahead accurately is very difficult. And adjusting your plans to take new information into account is even more difficult.
China's economic central planning has worked so well to date because they have had larger, more successful economies to plan against--the U.S. and Europe. They have focused on exports, infrastructure, and exfiltration of intellectual property, in the hope of creating the foundation for a strong domestic economy.
Whether it will work remains to be seen. The 20th century clearly taught the world that central planning cannot maintain a consistently strong domestic economy; innovation happens too slowly. China's greatest challenge will be the transition to a more open and permissive society that is capable of bootstrapping its own innovations. This could be a very difficult transition for them culturally. Central planners very rarely give up their control and power peacefully.
> while free America is largely stuck in quarterly business cycles and two-year political cycles
Key word here is "free". America's self-defeat will come from its misunderstood idea of "freedom" - really, just a self-centered attitude that hampers cooperation.
That's one of the advantages of a regime like China's: if you are fairly confident that you will stay in power for decades, then you have a certain "ease of mind" with which you can plan long-term.
Whereas in most democracies the party in power always has to worry about the next election.
Sure, you can plan long term, assuming you're relatively principled and are looking out for the interests of your country. But that kind of situation is an open invitation for personal enrichment, too. China has had relatively good economic leadership recently, but when that changes the lack of "the next election" can be a serious problem.
Today's champions are tomorrow's losers, that's the way it is...
Maybe in a few decades we'll all have to learn Mandarin if we want to start a successful business :-)
I don't believe that a country can become an economic superpower whilst still being an undemocratic dictatorship. If I had to bet I would say some sort of internal unrest or revolution would derail China's attempt.
Africa and South America are only long term, strategic investments to whoever controls oceanic chokepoints like the Panama canal, straits of Malacca, and other entries to the South China Sea, all of which are under US control since 1945.
Basing your evaluation of China on anything that happened or didn't happen with Japan is a fallacy. China should be evaluated on its own merits or demerits, and not in comparison with Japan.
For one, Japan never had more than 50% of the US population. For their GDP to have eclipsed ours, their average citizen would have had to produce and consume twice as much as the average US citizen. The Japanese are highly productive, but not that much.
China on the other hand has four times our population. It's an entirely different dynamic here, and somewhat uncharted territory. No comparison.
China's current rise is actually a return to historical norms. For much of history, China has been the wealthiest and most populous nation on earth. They just didn't have much direct contact with the West.
> It's also why I'm sceptical when people talk about China being the next economic superpower.
I'm not an expert in economy, just a Civilization V player :) but I think these examples are very different. China is, simply put, orders of magnitude bigger. Even at a lower efficiency, they could output so much more "stuff", in any field of activity.
At this point, the only way they could go down in flames (or stay crawling at a low level) is self-sabotage via shortsightedness, bad decisions, cultural taboos, etc.
> China is, simply put, orders of magnitude bigger
Ah China, Like religion, a topic about which people who have no idea about are comfortable making grand, utterly wrong statements.
China's GDP is about 50% bigger than japans, its exports are about 2.5 times japans. The idea that china is too big to fail is ludicrous. It might be possible to argue though, that its too big to succeed
>It might be possible to argue though, that its too big to succeed
On the one hand it's already succeeded - second largest economy in the world and all that.
But from an economic development point of view, that's a very interesting question. Can China solve its development problems, which are numerous - development of the entire country not just the 30% of the population on the coast, governance of that unprecedented mass of people, and rapidly ramping environmental problems?
The difference between China and Japan relative to the US is about 1.2 billion people. It's really unlikely the Chinese won't eclipse the US in raw numbers, though coming out ahead in GDP/person is a much more dicey proposition.
>Numerous economists have made the point that a large trade surplus can be a sign of economic weakness
Exports are real costs, imports are real benefits. A trade surplus can help you keep net government spending low, but there's nothing positive about that in and of itself.
This is a good read about the real problems, lack of aggregate demand. Everytime government spending gets high enough to lift GDP, they pull the rug out from under the economy by raising taxes. A process they're looking to continue.
> Ordinarily, a decline in working-age population — and, thus, a decline in the
supply of workers — would tighten the labor market and cause the unemployment rate
to fall; in Japan’s case, however, the gradual rise in the unemployment rate and tepid job growth is occurring in spite of these demographic shifts, reflecting economic stagnation and weakness in aggregate demand.
We should maybe be a bit careful with competitive nationalist rhetoric. Japan has US military bases; it is in some loose sense an occupied nation. It's doing reasonably ok because we let it. (Imagine if the US had Chinese military bases, for "protection".) Japan is naturally kept from being too independent, but may be treated fine if obedient. (http://en.wikipedia.org/wiki/United_States_Forces_Japan)
On the dissident end, it's common knowledge that Japan's weakness has been overstated. Left Business Observer interviewed Fingleton (http://www.leftbusinessobserver.com/Radio.html#S130530), and Chomsky often mentions it.
The US worked very hard to restart the Japanese economy after WWII. To suggest that the US wants to keep them held down or "doing reasonably ok because we let it" is beyond silly. If a Japan in shambles was the goal, all the US had to do was just leave them alone after the war.
You repeat the self-serving propaganda of the US as a charity. ("We spy on you to protect you!") When you say "If a Japan in shambles was the goal", that is a non-sequitur, because I explicitly said Japan is "doing reasonably ok because we let it". So being in shambles would not be the goal.
This is an example of mechanically quoting arguments we're told to believe.
I think the common-sense notion is that forms of power are interlinked. (Economics means ability to produce; military means capacity to inflict violence.)
And when the economic sanctions in Iraq caused a US journalist to ask Madeline Albright, "We have heard that half a million children have died. I mean, that's more children than died in Hiroshima. And, you know, is the price worth it?" we see that economics can accomplish military objectives. (http://en.wikipedia.org/wiki/Sanctions_against_Iraq#Albright...)
a) I did not make such a prediction. For what it's worth, Hideyoshi Kase mentioned my initial common-sense reaction: "If United States withdraws its forces from Japan, we will spend the next ten years re-arming in various ways, including acquiring nuclear weapons". (http://en.wikipedia.org/wiki/National_security_of_Japan)
b) Japan has significant weaknesses, like historic lack of natural resources. I imagine it has enormous dependences, and not just on the US. (Dunno how the recent finds of rare earth metals changes this.)
We have military bases in Japan because the Japanese people want US military bases in Japan. It allows them to focus on their economy without worrying about their strategic situation. If they change their minds and ask us to leave, we'll leave. SO the idea Japan is doing reasonable okay "because we let it" is a bit silly. US and Japanese interests coincide, for the moment.
And yes, Japan has the most powerful navy in the Far East (aside from the US navy, of course) regardless of what they call it. But that's temporary - they'll be eclipsed by China over the next decade.
> If they change their minds and ask us to leave, we'll leave.
Now who's being a bit silly? :) If anyone could cite sources supporting such a strange position, presumably they would have by now.
Let's take another example: "The current government of Cuba regards the U.S. presence in Guantánamo Bay as illegal and insists the Cuban-American Treaty was obtained by threat of force in violation of international law." (http://en.wikipedia.org/wiki/Guant%C3%A1namo_Bay) Of course the US does what it wants, because it's the military superpower. We don't ask people nicely if we could invade them, nor would we respect their votes on the matter.
As for Japan, Okinawans want the US military off their land. (http://en.wikipedia.org/wiki/Okinawa_Prefecture#U.S._militar...) Does the US hold votes, asking them if they wish to be occupied? Do we ask which other prefecture would prefer us to occupy them?
In any case, that's all besides the point. Even if your claims were 100% correct (and there's areas I agree with), the point still stands: "It's doing reasonably ok because we let it". (When you consider social dynamics, people often choose subordination to gain protection.) You're arguing a point I haven't made.
>Now who's being a bit silly? :) If anyone could cite sources supporting such a strange position, presumably they would have by now.
There's nothing strange about that position. The Japanese derive enormous benefit from the US presence. We left the Philippines when the Philippine government asked us to do so, and we'd leave Japan under the same circumstances. Do you really think we'd go to war with Japan to maintain bases there? That's preposterous.
>As for the US, Okinawans want the US military off their land.
So what? Okinawa isn't an independent country.
>In any case, that's all besides the point. Even if your claims were 100% correct (and there's areas I agree with), the point still stands: "It's doing reasonably ok because we let it". You're arguing a point I haven't made.
We "let" Japan do things to the same extent we "let" other countries do things. The only real stick we have with the Japanese is the threat to leave and take our money and protection with us.
The Philippines is a perfect example: "But, while Mt. Pinatubo provided a visible excuse to abandon the air base, U.S. officials were increasingly coming to view the facility as too expensive, as well as unnecessary in a time of tight budgets and easing post-Cold War tensions. Philippine political hostility to the continuing U.S. military presence and acrimonious negotiations with Philippine officials also made retention of the facility less attractive." (http://articles.latimes.com/1991-07-18/news/mn-3381_1_clark-...)
Dick Cheney said, "We have made a decision ... that we simply do not want to go back in and try to reuse Clark Air Force Base. The cost of doing so would be several hundred million dollars. It's in an area that is still threatened by continuing eruptions by the volcano."
> So what?
Indeed, "so what?" is our common reply to people's wishes to get our military off their land, as with Cuba's Guantanamo Bay and the Middle East in general.
I already mentioned one obvious alternative to occupying Okinawa against its residents' wishes. But as usual, "so what?" is the response.
> We "let" Japan do things to the same extent we "let" other countries do things.
Yep, ask people in the Middle East, Cuba, etc. (That's it from me, given that I cite evidence rather than merely repeat vague snatches of politics we can get from propaganda sources. I wish others would show us the same respect.)
No it isn't. We would not have left Subic Bay unless they asked us to.
>Indeed, "so what?" is our common reply to people's wishes to get our military off their land
It's not "their land". It's Japanese land, and people in Okinawa don't get to make that decision for the entire country. The country of Japan wants us to be there, and we'd leave if they didn't.
Places in Japan have NIMBY sentiment. Go figure.
>Yep, ask people in the Middle East, Cuba, etc...
The Cubans made a deal with us for a long lease in Guantanamo. When the lease is up we'll leave.
We never had any intention of staying in Iraq or Afghanistan, and we wouldn't have been in either country if the locals had kept to themselves. We were invited into Qutar and KSA.
It is not true that anyone can create a blog of Forbes.com. Their bloggers are all approved by the Forbes editorial staff, and the blog will be killed if it fails to meet standards for timeliness and quality.
Adjusting for working age population shows a similar trend. And if data doesn't work for you then there's a ton of other signs that the economy is not doing well:
- Interest rates have been stuck against the zero lower bound
- Stock market is 1/4 of what it was at it's peak
- Property values have still not recovered in major cities
- Debt as a percentage of GDP has ballooned to over 200%
Now with that being said - if I had to choose a country to spend two lost decades in, it would be Japan. Local savers have allowed them to issue debt at very low interest rates which has been able to cover shortfalls. And there is signs that Abenomics is taking hold.
TL/DR: Worker productivity in Japan is high and has risen like all other western countries. Other factors, like lacklustre respons to zombie banks, must explain "lost decade".
I look at the Penn World Table.
In:
* Real Income per Population,
* Real Income per Employed Population, and
* Real Income per Employed Work Hour
Japan has lagged the USA pretty consistently. That is consistent with all other major economic countries. In the '90s Japan actually outperformed on the Income per Worked Hour.
That means there are still 99 problems left for the Japanse economy, but worker productivity ain't one.
Still zombie banks and government reponse to zombie banks might have created a consumption crisis (just as, for example in the Netherlands at this moment, consumers must pay for increasing bank buffers), but I would venture that corporations have retained profitability through the crisis.
Japan didn't grow compared to it's neighbours. But that's catch-up growth for Korea and China. You can't blame Japan for already being first-world in 1990.
Stock market isn't a good indicator for welfare of general population. Japan just might have been overvalued, or other countries overvalued. Property markets have gone beserk pretty much first worldwide, only in Japan first. Another pointer that we are just mimicing their banking crisis.
Also, he mentions (low) cost of borrowing as a key point to his thesis, but my understanding is that the cost of borrowing for Japan is heavily influenced by domestic savings.
IIRC, a lot of the money "borrowed" are the contents of the postal savings accounts (or whatever they are) of elderly Japanese who are extremely conservative investors. I have further seen it commented that there will be complications when that sect of the population switches to net withdrawls as they near end of life or pass on inheritance, etc.
It's always hard to tell what's really happening behind the GDP growth figures when comparing countries. The population of US and UK are currently increasing around 0.7% a year, while Germany is around 0%. That's a lot of additional GDP growth for both UK and US, even when excluding the fact that immigrants are at their prime working age and usually more beneficial for the GDP than an average citizen. This has a fairly big impact on what's seen on the news. Since depression is defined as two consecutive quarters of negative growth, it's much easier for countries like US and UK to avoid "official" depression, and much easier for news outlets to talk about the "stagnating old Europe" or such; and of course, at the same time the living standard of an average German might be increasing and that of a UK/US citizen decreasing.
Absolutely, personally I dislike how it's the single most powerful figure for decisionmakers. There have been many alternative measurements developed for measuring overall progress of an economy, but unfortunately they haven't taken much foothold.
The problem is not so much GDP, as it is to measure the economy in one float. So GDP is a somewhat good measure, if you want a quick handle on production capacity, for standard of living something like purchase parity median income is better, but tells you nothing about relative strength of exports, etc...
If we stick to "economics" without even going to "well-being," I think median net worth is the best bet. But you know, governments find it easier to "book" corporate profits as part of GDP and call it a day.
On the more economic side, you have something like the Misery Index and its extensions (http://www.cato.org/publications/commentary/misery-mena). Obviously composite indexes like these have their flaws too, but overall they are more comprehensive than GDP alone.
I take it a lot of the rhetoric from Middle England has to do with dey tukk ur jerb from bad EU countries like mine so can't see the populace being happy with the same old policy.
I cannot see several administrations plus the upper echelons of corporate Tokyo agreeing for two decades to "pull the wool over the world's eyes".
But I also can see that Japan is not a basket case, and indeed is doing well for a world in recession.
So, the question I have is what is the meme - presumably there is some lie that Japan tells itself, that means when a variety of people speak they agree "our economy is in bad shape, we have lost a decade" even if on many measures its not true.
As a Brit, our government would love Japan's growth rates or export levels. But we tell ourselves memes, about a special relationship with US, about European bureaucrats, about recovery being linked to house prices - well, I think we do, but its like a fish trying to describe the colour of water.
Interested in hearing from some Japanese fish, as it were.
I can only speak from the people I've met personally, but:
Older people are worried that all of Japans 'gijyutsu' is going to China now (which literally means, art, or craft, but basically they mean, all making-new-stuff skills are going to china now). Especially the retired folk seem really concerned about it.
Young people complain like crazy they can't get decent jobs.
I think you'd be hard pushed to find someone who are generally speaking positive about the Japanese economy over there.
I certainly didn't encounter anyone (Japanese) who was positive about it when I was there (a year ago now), or met anyone who has been here since.
It'd be pretty interesting to see some japanese news paper / blog sentiment analysis work and see how wide spread that goes in general. You could probably use kanji as a pretty decent marker (negative words tend to make common elements, etc). hm...
tl;dr Japanese stock market was way overvalued so it had to crash but industries have grown since then. Japanese officials were complicit in spreading the story that they are in a bad shape so that trade barriers on import don't have to be lifted. Per capita, they are doing just fine.
Strange he didn't mention women entering the workforce when he talked about demographics and the US increasing workforce, just about every article I have read about Nippon's economic stagnation does.
Perhaps because it is too taboo to suggest the feminist revolution was unnecessary, that we could have achieved both economic success and personal wellbeing without it, as Japan had apparently demonstrated.
So we continue to perpetuate the myth that Japan is on the verge of death - I even recall a UN committee calling for "urgent" gender equality to stave off economic disaster - it was the "only way" Japan could regain growth.
> Perhaps because it is too taboo to suggest the feminist revolution was unnecessary, that we could have achieved both economic success and personal wellbeing without it, as Japan had apparently demonstrated.
tl;dr -- whether "lost decades" is a misnomer or not, evidence on the ground suggests something is going on, and it doesn't seem to be good.
Some anecdotes from someone who has lived and worked in Japan on and off for about half of the past two decades:
- The quality and quantity of jobs available to young people have dropped precipitously. Twenty years ago, university graduates from good schools seemed to have a choice of offers from high-prestige jobs (the one's they were after) like banks, megacorps, airlines, etc. These days, you see some good graduates selecting from much farther down the prestige chain (e.g., small, local corp., cram school teacher, etc.) with fewer choices (if any).
- The overall quality of students seems to be lower in schools that have the same prestige. Even Todai and Kyodai students, while still impressive, don't seem to be what they used to be socially, intellectually, or academically. This isn't really directly related to the economy, but the universities are the feeders into the economy.
- The corporate folks seem to complain that the quality of applicant has dropped over the past two decades, and the quality has sometimes dropped (they say) to a point below a threshold of acceptability. As such, they do not hire, hire temps, or hold their nose and hire. Some of this is certainly hubris, but none of it bodes well for the workers, the corporations, or the economy.
- The number of small businesses seems to have dropped precipitously. The most obvious is bars/snacks and restaurants (e.g., once popular nightspots now seem dead even on their busiest nights), but the number of small support businesses (e.g., small light industrial shops, distributors, etc.) seem to have decreased as well. Some of this is due to legal changes that took away legally-mandated middlemen, but other parts of it seem to be due to lack of demand.
- Everyone is worried about money and jobs.
- The famous savers of Japan seem to be mostly the folks in their 50s and higher (maybe 40s), but the folks in their 30s and younger seem to be mooching A LOT off of these savings and not really saving as much on their own.
- There is a massive generational gap between people who came of age before the bubble crashed and those who came of age after. The older folks seem to think that the younger people are lazy and just need to be more disciplined, and the younger people think the older generation just don't get the new economic reality. This tension is ripping the social fabric of Japan and seems to create a lot of inefficiencies.
- The velocity of money seems a lot lower. If folks are interested, I can give some examples in a follow-up post.
Twenty years ago, middle class workers went out quite a bit more often and quite a bit more luxuriously than they do now. Some examples:
- The typical end-of-year party (bounenkai) 20 years ago at a some small-sized (20-30 people) organization I knew and/or worked at would cost about $150-$400. These days, it's more like $50-$100.
- After a big party in the 90s, you would frequently go to a second, third, and fourth parties. Now you often only go to one or maybe even to none. Total cost per person for these big parties and after-parties were often in the $500-$1000 range.
- There number of "big" parties used to be much higher 20 years ago than they are now. As a simple example, some places that used to have 3 or 4 a year now only have 1.
- There used to be a lot of parties throughout the year -- maybe a small party for a small win like reaching a milestone in a project, maybe a small and wild off-the-hook party for a promotion (e.g., kachou, buchou, etc.). These are largely gone or toned down significantly.
Note that these are for middle class folks, which is basically all of Japan. Multiply these seemingly small figures by the multitudes of small offices and organizations throughout Japan. This guts the service industry. As I mentioned before, the number of bars, snacks, and small restaurants seems to have fallen precipitously. Those closed shops are a big reduction of unskilled or semi-skilled jobs and a reduced velocity of money.
[Interesting side note: There were no shortage of owners of small/tiny bars who made $X00,000 annual incomes in the 90s. These low-prestige jobs clobbered the typical salaryman wage, but most "smart kids" were not willing to start bars because it was largely stigmatized. For some reason, jobs at "normal" bars were grouped with jobs at "hostess" bars.]
Also note that a lot of times these modest expenditures are not being made due to limited finances -- a lot of these people have really stable jobs and make really good money. Rather, it seems like there is a perceived need to be more frugal. Perhaps this is due to social pressures, perhaps this is due to irrational fears, perhaps it's just more efficient.
This is one of my favorite anecdotes about Japan that does a good job of exemplifying some of the changes that have happened in Japan over the past two or three decades.
Before my time in Japan, maybe up to some point in the 80s, alcohol distribution was heavily regulated. I am not sure how the regs worked, but during the regulation period, there were about 7 or 8 hands touching a beer between the time it left the factory and the time it reached the consumer. Each of these hands took a cut. After deregulation, it dropped to about 2 or 3 hands, although the prices didn't really seem to change. If I recall correctly, this delayering was made due to clamoring by "the West" that Japan's market was insulated, overregulated, protected, inefficient, etc. All of these claims were pretty much true.
The rest of the story that largely went untold at the time in western media (even in relatively informed higher brow publications like The Economist), was that this "inefficiency" effectively served as a social welfare net for the country in some obvious and not-so-obvious ways. Specifically:
- Each of those layers of distribution created direct jobs. Some of these jobs were still needed after deregulation but in fewer numbers (e.g., delivery guys, warehouse folks, logistics managers, etc.), but some were not (e.g., most management positions that could be REALLY good for social connections but not actually needed to get the alcohol from one place to another).
- Each of those layers were socially obligated to do some business with companies farther down the chain. A simple example is that a mid-level distribution company would make sure to hold their enkai parties at a restaurant/bar that is a client of a client of theirs. The owner of a typical bottom-level liquor distributorship (I have befriended a few) would visit 1-3 of their clients for a drink and maybe some food each night for 3-5 nights a week. It was an expected part of greasing the wheels of the economy.
The loss of these layers, a often times the loss of the high-touch layer of distribution to discount "wholesalers", meant that the money cycled fewer times in the economy.
Liquor distribution may seem like an obvious example, but this type of delayering has happened throughout the economy, and the backscratching patronage has decreased along with it. Without getting into a discussion of velocity of money, I would say that this has had a pronounced negative impact on the economy because the money just isn't cycling as much. Unfortunately this is sometimes happening by design.
For those economically inclined, I don't want to suggest that the inefficient alcohol distribution system should have stayed in place. Maybe it should have, maybe it shouldn't have -- that actually gets into a tricky discussion about the weak or non-existent welfare programs in Japan and how this leads to an inability to deconstruct and reconstruct some areas of the domestic economy. My main point is that I don't think anyone had a right to be surprised that the domestic economy took a long and big hit when a high-velocity system was replaced with a low-velocity system with no other social or political changes made to pick up the slack.
http://www.amazon.com/s/ref=nb_sb_noss_1?url=search-alias%3D...
I read Blindside back in 1996 and I thought his argument was interesting for that time. However, when you read him, it is important to remember that he has not changed his opinion in 20 years, and there are new facts to be accounted for. At that time he seemed certain that Japan would be the worlds #1 economy by the year 2000. His prediction was wrong, but he has not much changed his opinion: he still believes Japan is an important success story.
Japan suffered a long depression in the 1990s. That is not fiction. That is a fact. However, it is also true that some of the stagnation of the period 1990-2013 should be attributed to demographic change.
Paul Krugman offered a partial counter-argument to Eamonn Fingleton here:
http://krugman.blogs.nytimes.com/2012/01/09/japan-reconsider...
Also, it is worth noting that for the last 20 years Fingleton has constantly harped on the fact that Japan has a trade surplus, sometimes a very large trade surplus, and he thinks this represents economic strength. Numerous economists have made the point that a large trade surplus can be a sign of economic weakness: perpetual insufficient demand at home in the domestic market. Fingleton has rarely taken this view into account.