By Paolo von Schirach
October 8, 2013
WASHINGTON – Every sensible observer should wish Japan’s Prime Minister Shinzo Abe complete success is his mighty attempt to kick-start his country back into economic vitality. Japan is an Asian country that long ago adopted Western values. It is a democracy. It still is a major economic power. It is a positive force in the international political system.
But I think that Abe’s efforts will fail. They will be defeated not by economics, but by the predominant traditional culture that is acting now like an ineffable suicidal drive, leading Japan towards self-inflicted demise. The real fight is not about changing the economy; but about transforming the culture. Sadly, I do not think this can be done.
Shinzo Abe came back to power with a bold agenda: flood the economy with cash, devalue the currency, cause some inflation. The idea is to beat deflation and the economic paralysis that it caused. And, sure enough, things are moving. The stock market is roaring ahead. Major exporters seized the opportunity of a depreciated currency to push their products abroad. There is buoyancy in the economy. GDP recently grew by 4%, a record among tattered G 7 economies.
On top of that, Abe was rewarded politically through a major victory that gave his party total control of the parliament. Last but not least, Abe forced reluctant domestic constituencies to join the Trans-Pacific Partnership trade talks as a way to engage Japan more deeply in this vast regional market.
Social relations are more important
So all is well, except for one thing. And this is unfortunately the main issue, the most crucial piece of the puzzle. The Japanese economy is still tied up by an impossible web of rules and social norms that make it slow, inefficient and brittle. For example, there is no US-style labor mobility. In fact there is no labor mobility. And this means a two tier labor market. Since firms have a hard time firing, they do not hire permanent workers. Therefore there is over reliance on often mediocre and poorly trained temporary staff. This means more flexibility for employers; but also diminished economic performance. Not to mention the social unfairness. Older workers with secure jobs get nice salaries and full benefits. Temporary help get low pay and almost nothing else.
By the same token, despite Abe’s intentions, agriculture lobbies are ferociously protectionist. Inefficiency seems to be of no concern, if the gain is social stability maintained by preserving unproductive small farmers.
Finally, with the lowest fertility rates in the developed world, (1.39 children per woman), Japan is well on its way to becoming a large geriatric ward, a society of old people, often living alone and therefore demanding more costly social services and special care. And there is no chance that the population gap will be filled by immigrants. The Japanese do not welcome foreigners in their midst.
This horrible demographic trend is having and will have negative consequences. The working age population is shrinking, and this is bad for the economy. Besides, fewer people paying taxes means greater difficulties in managing Japan’s gigantic national debt, now at 230% of GDP. Given these dynamics, the only way to shrink the debt would be to grow the economy at an unprecedented pace, so that more corporate revenues would allow debt repayment. Quite frankly, I think this is impossible.
Japanese culture works against economic performance
In the end, despite Abe’s heroic efforts, it comes down to this. Can Japan kick its traditional culture and time-honored ways that privilege relationships over performance and efficiency? Will the Japanese give up the comfort of established traditions in order to favor a new dynamism that is likely to be disruptive? Will the Japanese start having babies again?
I see no sign of that. Japan remains an insular country, unwilling to make big changes. We should praise Abe for trying hard; but he will be defeated by the established culture still cherished by his fellow Japanese.