I recently found the very interesting New Deal 2.0 blog, thanks to this post by Marshall Auerback. I find the content in itself - mostly an overview of recent Japanese monetary policy - fairly interesting. But what really intrigues me is that this is billed as "What Happened to Japan" - that is, a kind of definitive statement of the last 20-odd years of disappointment. Auerback provides enough economic data to make this a convincing claim, at least for a blog post - but only if you accept the centrality of central banking to macroeconomics.
I, of course, have a tendency to see things in a different light. I don't have ready to hand the stats that would back my assessment up (disdain for math being essential to my intellectual identity), but the ideas that surface again and again when I talk to Japanese people or read about the situation is that the economy has been crippled as much by cultural problems as economic policy. Paramount among these is the inflexibility of the Japanese labor market, especially for educated young people. I spoke last night to a guy in his mid-40s who lamented the fate of Japanese now entering their thirties, who had had the bad luck to graduate from college at a low point among low points. I cited to him some statistics I'd heard recently saying things were rough for low-ebb graduates in the States, too, who needed 20 years on average to match the earning power of those lucky enough to graduate at high tide.
"Well, that would be great!" he marvelled. "In Japan, if you get stuck on that lower rung, there's no way out, at all." He described what he saw as the lingering power of privilege and luck, rather than skill and performance over time, in determining who was hired and retained by prestigious Japanese firms. As years go by, the sometimes ineffective, entrenched workers, who are keeping jobs from potentially more skilled or educated people continuing their part-time work as convenience store clerks, weaken their companies from within. He also described the lack of immigration keeping educated and talented Japanese in "3D" jobs - Dangerous, Dirty, and Dull . . . though interestingly he sort of couched this as a good aspect of a low-immigration and egalitarian society. This is not to mention, of course, the persistent love of Japanese corporate culture towards inefficient overwork for show.
Like I said, I don't have empirical evidence to back up these claims, except to the degree that my conversations with Japanese workers are that. It's at least a widely spread perception, though, that Japanese corporate culture, and the system of social sorting more generally, is broken. Now, everyone hates their jobs, I know, but the real clincher here is that the people I talk to are eager to move to the U.S. because they perceive both work and daily life there are easier - and these are people who have lived in the U.S. and seen its complexity up close, and are well aware of the problems of social inequality.
I don't mean to suggest Auerback is wrong - I know enough economic history to grant the importance of central bank policy. I just think it's interesting to compare my drastically different perspective.
3 comments:
Wow, spot on. I completely agree.
David,
Enjoyed your insights and think there is much merit in what you say. I didn't mean to suggest that central banking policy determined all in Japan. There is certainly a cultural dimension, although I would ascribe the cultural elements less to the workers and more to the nature of Japanese government policy formulation. The notion of "nemawashi" or consensus-building, is very important in the country, as you know from living there. Once there is widespread consensus on a course of action, the Japanese can move very quickly. But when there isn't consensus, there is a "deer in the headlights" phenomenon and you get paralysis. I used to see a lot of this when I was living in Tokyo in the 1980s and early 1990s.
The country's policy makers are truly bewildered by what is happening right now and there is no consensus on an appropriate way forward. In the meantime, you have this Chinese juggernaut, which is effectively hollowing out the country's manufacturing basis (whilst Tokyo burns in the metaphoric sense) and is amply motivated to do so for a variety of historical reasons, which I have elaborated in my analysis.
The scary thing is that we're next, although our policy making elites don't quite see it yet.
As far as China goes, it is creating a huge potential global discontinuity with its current form of predatory mercantilism. The ratio of fixed investment to GDP has risen to over 50% but that is because the authorities have directed the allocation of resources to raise it. In effect they have had recourse to capital deepening in order to maintain the growth rate given the slowing in the growth of productivity augmented labor units. You can do that for a while, but it represents an ever increasing departure from the growth equilibrium.
What happens in these situations in that people don't realize the emergence of a new equilibrium until the capital deepening becomes unsustainable. Then there is a fixed investment bust and a deep recession and the economies come out of it with a much lower economic growth rate and a much lower ratio of fixed investmetn to GDP This is what happened in Japan from the 1980s to now, and what happened to the tigers from the early 1990s to now.
It is also occurring in the US, which is why the pressure being directed against Beijing and its currency policies are continuing. I think it's a disaster waiting to happen and Japan is truly the canary in the coal mine, as I argued in that analysis.
Marshall,
Yeah, like I said, I totally agree with your analysis - in fact, I have little choice but to, since I'm no kind of economist. And of course, it's silly to argue for anything but a top-down formula for most of this stuff. But I'm glad you cite the necessity of consensus as central to the government's failure, since this is something that penetrates every level of society, and compounds the policy problems in millions of discrete, tiny moments that have (as far as I can see) no direct relationship to long-term policy agendas, and more to do with cultural mores. The poster child for this, I think, is the Livedoor scandal. I also have had a lot of interesting conversations with entrepreneurs who complain endlessly about roadblocks to what they want to do, both official and otherwise, about which I'll be posting more soon. While the fiscal side of things is clearly vital - probably more important than the subtler things I'm talking about - the question of how people think is what really fascinates me.
Post a Comment