Down but Not Out – Japan’s Economy in Recession
While Europe’s troubles continue making headlines Japan’s economy slipped back into recession in late 2012 with barely a mention. Why the difference? Perhaps the island economy shows no hope of recovery after twenty plus years of stagnation, its quiet fade into economic history a near certainty. That would be a decidedly misguided interpretation.
After the go-go years of the “Japan that could say no” (it never really did) and buying sprees in the U.S. including Rockefeller Center sold at a loss several years later, the land of the rising sun entered a period of relative economic darkness. That didn’t mean there wasn’t a ton of money circulating within and increasingly from Japan. Growth stalled but the country itself remained rich. Japan, still the world’s third largest economy is expected to keep its strong position with a solid $6 trillion in estimated GDP according to the IMF.
Economic stagnation is hardly news for Japan, but coverage has steadily declined largely eclipsed by China’s seemingly unending rise. Add to that the Kabuki-esque political drama where Prime Ministers enter and exit the stage with alarming speed (roughly every 1-2 years) and government paralysis casts a long dark shadow over growth. The latest major economic debate centered on a consumption tax while government debt has risen to over 200% of GDP.
Demographics don’t help either. Alexandra Harney in the New York Times details Japan’s rapidly aging population and its effect on future economic trajectory (spoiler alert – it doesn’t look good.) Unless there’s a baby boom, immigration increases dramatically to make up for the worker gap or productivity rises there will be a skills shortage.
An increasingly insular Japan also means robust debate has stagnated. In decades past the number of Japanese studying abroad rose considerably. These days it has been reduced to a trickle. Life, it turns out, isn’t so bad in declining Japan. Crime rates are low. The food is good, and public services abundant. A culture of perfectionism keeps the subways running on time and the streets clean. You’d be hard pressed to find more efficiently running cities anywhere else.
Japan’s middle class though has taken the slowdown exceptionally hard over the last several decades. Life-time employment, at one point an unbreakable social contract, has almost ceased to exist with replacement contract work yielding lower salaries and little to no benefits. Housing costs remain high and most singles, even well into their thirties, live at home with their parents to save on rent.
All this might change if a culture of entrepreneurship and an end to the slavish demands of late night corporate culture spreads.
A glimmer of sunlight has emerged with Rakuten’s founder Mikitani Hiroshi’s creation of an alternate industry lobbying group made up entirely of new economy companies. The Japanese Association of New Economy (abbreviated in Japanese to Shinkeiren) aims to bring innovative policy solutions focusing on the needs of small fast-growing companies. This is a marked departure from the strategy of Japan’s biggest, and most powerful business lobbying group Keidanren representing the country’s conglomerates.
Time will tell if the new group gains any traction with national level policies. If past is prologue they’ll need deep pockets to influence Diet members mostly concerned about occupying seats rather than planning for a brighter future.
For more Klein’s Commentary sign up for email updates (above) or connect via Twitter @brianpklein.
- How to Re-Shape Post Crisis Japan, Council on Foreign Relations Expert Series, April 13, 2011 (with David S. Abraham)
Photo: Tokyo in spring time. BK.