Japan Then, America Now ☀
As for Keynesian policy, though, argument stands. I’m an Austrian. It’s not the money supply - it’s what you’re spending the money on. Keynes failed in Japan because they built useless public works projects. Keynes is failing in America because we handed the money out to dying automakers and failed banking institutions to prop up debt-strapped consumer industries. That’s my perception, ymmv.
Is Japan really a model of economic failure?
The sense that Japan is doing badly is enormously greater abroad than it is here in Tokyo. We in Japan know we’re living in what is obviously one of the richest countries in the world.
Some of the most important measures of all, and some of the most culture-neutral measures of wealth, show that Japan is No. 1 in the world. To wit, life expectancy. The Japanese live five years longer than Americans. They’ve increased their life expectancy by one year in the last 10 years. And historically, the nation that has the highest life expectancy has been widely regarded as the richest nation in the world.
There are many other statistics about how well the Japanese economy is doing that are being ignored. Look at penetration of mobile phones in Japan, much higher than in the United States. Mobile phones are much, much more sophisticated than in the United States. When I see a mobile phone in the United States, it looks like a brick. Those in Japan are the size of a toffee bar and have more capability than American cellphones. Take a dozen other indicators — travel abroad. In the first nine years of the 1990s, the number of Japanese citizens traveling abroad on vacation increased by more than 60 percent. Vacation travel overseas is a classic luxury. An improvement of that sort is indicative of a major improvement in economic well-being.
That article and supporting data is a bit dated (2001) though. Here is the same author (Eamonn Fingleton) with an economic look at Japan circa 2005.
Japan, by contrast, is a useful benchmark. One important fact ignored by the American media is that Japanese industrial wages are now among the world’s highest. Not only are they far higher than in China (between four and 15 times higher, depending on the region of China), they are actually 20 percent to 30 percent higher than in the United States. Yet Japan’s export industries have not only survived but thrived.
The largely untold story of Japan’s extraordinary manufacturing successes in recent years should inspire a radical reappraisal of fundamental American economic assumptions. Certainly Japan’s trade performance stands as a stunning rebuke to those who hold that high-wage nations can no longer compete in manufacturing. Their argument has fostered an utterly unwarranted sense of inevitability about America’s manufacturing implosion. The damage already done can be gauged from the fact that, at 5.7 percent of the gross domestic product, Am erica’s current account deficit last year was proportionately the second-worst of any major economy in history. It was exceeded only by Italy’s 7.7-percent deficit in 1924 — hardly a happy precedent, considering that Benito Mussolini seized dictatorial powers in January 1925.
Here are a few statistics that put Japan’s true economic standing in perspective:
* Measured at market exchange rates, Japan’s GDP last year came to $5.1 trillion — three times China’s $1.7 trillion.
* Japan’s current account surplus last year, at $171 billion, was more than two and a half times China’s. Even more impressively, that Japanese surplus was more than three times what Japan earned in 1989, the last year of the Tokyo financial boom. (Owing to higher oil prices, among other factors, the Japanese surplus may dip as low as $145 billion in 2005. But that would still be a nice contrast with the last time oil prices seriously cramped Tokyo’s mercantilist style; in 1980, after all, Japan incurred a deficit of more than $10 billion.)
* Japan makes most of the high-tech components and materials in China’s vaunted exports to the United States. In fact, Japan’s knowledge-intensive and capital-intensive factories are using China (as well as dozens of other nations) as an export pipeline to the United States. Judged by where the added value is really created, Japan is still a far larger source of U.S. imports than China, despite the higher dollar value of exports from the latter.
How can all this be reconciled with accounts of a perennially ailing Japan? It can’t, of course. The truth is that Japan is no basket case and never has been. Strange as it may seem, for many years Japanese leaders have — for very Japanese reasons — been assiduously exaggerating their nation’s weaknesses and u nderstating its strengths.
Perhaps the biggest surprise is how rich Japanese consumers have become. Their affluence is immediately obvious in the way they dress. Already considered the world capital of fashion by such style mavens as Suzy Menkes and Amy M. Spindler, Tokyo was recently pronounced “the coolest city on the planet” by the editors of GQ magazine.
As UCLA management professor Sanford Jacoby points out, Japan’s prosperity is also abundantly apparent on its roads, which are full of late-model cars, and in its electronics stores, which are constantly packed with free-spending males. Indeed, the Japanese are so wealthy that the most advanced new products — from the latest game machines to the most spectacular new flat-screen TVs — are often laun ched in Japan months or even years before they reach the United States.
“Japan is a very affluent country with an income distribution much less unequal than in the States,” says Jacoby, author of a new book on Japanese corporate governance. “Those in the bottom two-thirds of the income distribution enjoy a higher quality of life than their U.S. counterparts. As for the upper one-third, they, too, benefit from Japan’s high level of public services, as well as the security that comes from a stable, cohesive society.”
Even in the late 1990s, when commentators abroad were performing daily last rites for the Japanese economy, the palpable prosperity on the ground there stunned visiting Americans. Nathanial Gronewold, a University of Minnesota graduate who st udied economics in Hiroshima in 1997 and 1998, recalls: “My time in Hiroshima went down in the record books as two of the worst years for Japan’s economy. But the affluence I witnessed in and around Hiroshima was a stark contrast to the scores of empty sto refronts and offices in downtown Minneapolis, which was supposed to be booming at that time.”
Although Japan’s real-estate crash in the early ’90s has received plenty of attention, the construction boom Gronewold witnessed was no local phenomenon. As mea sured by the architectural Web site skyscrapers.com, 80 skyscrapers were built in Tokyo in the ’90s, versus just 49 in the ’80s (with skyscrapers being defined as buildings rising at least 115 feet). In Osaka, the total was 56 versus 18; in Yokohama, 19 ve rsus none. London’s total, by comparison, was 33 versus 28. New York actually registered a decline: Only 103 skyscrapers were built there in the ’90s, versus 257 in the ’80s.
There are still more ways to measure how well Japanese consumers have been doing:
Car-navigation systems. With 3 million systems sold annually, Japan is by far the largest market for these invaluable gadgets, which use satellite signals to pinpoint a car’s position, suggest routes, and provide alerts on traffic jams.
The Internet. As reported by London-based Total Telecom magazine, Japanese Internet connections are now not only the fastest in the world but also the cheapest, and Japan now leads the world in so-called FTTH (fiber to the home).
Mobile phones. Japan came from nowhere in the early ’90s to establish a lead of 25 percent over the United States in the rate of mobile-phone ownership. Japanese mobile-phone networks now lead the world in service quality. By 2003, according to the Virginia-based consulting firm TMG, nearly 2 9 percent of the Japanese population enjoyed Internet service on their mobile phones. Such access was then still almost unknown in the United States.
Health care. Since 1990, Japan’s excellent universal health-care system has cut infant mortality by more than one-quarter, to just 3.28 per 1,000 live births. At roughly half the American rate and a mere one-seventh of China’s, that is nearly a world record. And even though the Japanese have been eating more unhealthy Western food, they are living longer th an ever. They now live four years longer on average than Americans, and almost a decade longer than the Chinese.
Any comparisons between U.S. (circa 2008) and Japan are fraught with peril, according to Fingleton.
Of course we have been told that advanced nations no longer need to look to manufacturing for their comparative advantage. Supposedly, services now provide advanced nations with their most attractive and appropriate economic opportunities – and no nation is supposedly more productive in services than the United States. The trouble for those who advocate postindustrialism is that America’s trade record is screaming that that it is not enough. The fact is that while Japan’s trade surplus has nearly quadrupled since 1989, America’s trade deficit has multiplied sixfold. At more than 5 percent of gross domestic product in recent years, America’s current-account deficit represents the worst trade performance of any major nation since Italy in 1924. How bad things were in Italy in 1924 should be apparent from the fact that in January 1925 Benito Mussolini seized dictatorial powers to sort out the mess.
Basically the difference between Japan in the 1990s and the United States today therefore is trade. Japan continued to boost its exports and improve its trade surpluses through the worst of its financial difficulties. The United States by contrast is burdened with a vast trade deficit that is completely “baked in.” It would have to increase its manufacturing labor force by probably 40 percent merely to break even on trade again. And all of the new jobs would have to be in advanced manufacturing. There is not the slightest chance that the U.S. can achieve this within the foreseeable future. In the meantime the United States is fated to become ever more indebted to other nations, most notably China and Japan. The last superpower that tried this sort of financial policy was the Ottoman Empire. What became of that empire? It is time that U.S. policymakers checked the history books.
