JAPAN
25 March 2014
Japan's false sense of community
Many Westerners have the impression that Japan has a great "sense of community" in contrast to the individualism of Western countries. But is this really valid?
Many Westerners have the impression that Japan has a great "sense of community" in contrast to the individualism of Western countries. But is this really valid? In fact, some indicators suggest that Japanese society is fracturing.
Foreign countries benefit greatly from this investment. For example, Japanese automobile companies employ 1.4 million Americans, and purchase $51 billion in US auto parts. For their part, Japanese companies are still very protected at home, as Japan has one of the world's lowest levels of foreign investment -- less than 4% of GDP, even less than North Korea. Japan is missing out on many potential benefits because of its closed markets.
Today, income inequality in Japan is above the average of the advanced OECD countries. While inequality may be less than in the US and the UK, it is well above most European countries. Japan is one of only two OECD countries where the lowest decile has suffered an absolute decline in their real income since the 1980s.
Japan suffered greatly from the 2007-2010 global financial crisis, even though it was not a source of the crisis. Exports crashed. But the fall in Japan's income hit workers and self-employed businesses, not capital. And Japan's poorer households lost more than rich households. This means that Japan's inequality rose through the crisis period.
The consequence is that Japan has one of the highest rates of relative poverty (16%) among the advanced OECD countries, just below the US's rate of 17%, and well above the OECD average of 11%. And through the crisis period of 2007-2010, Japan has seen a rise in poverty for children and young people. The relative poverty for single working parents is the highest in the OECD at around 60%.
Some specific factors affect inequality and poverty in Japan. The government does not do enough to help in terms of social safety nets. Japan has a dualistic labor market where 38% of workers (double that of 20 years ago) have "irregular" jobs (part-time, casual, fixed-term or dispatch contracts). These irregular workers receive lower salaries, enjoy little social protection and have limited access to corporate training. And the education system relies heavily on private spending for after-school tutoring, which poorer people cannot afford. This generates intergenerational cycles of poverty.
Since the collapse of Japan's bubble economy over 20 years ago, Japan's public debt (government debt) has progressively exploded. A weaker economy reduced government revenues. The government increased expenditure to stimulate the economy. And as population aging has proceeded, health and pension payments have also increased.
Government deficits have accumulated to the point that Japan's gross public debt is now well over 200% of GDP, easily the highest of the advanced OECD countries.
Japan cannot keep accumulating debt. This cannot go on forever, as the government knows very well. The government will soon be increasing the consumption tax from 5 to 8%. But more bold action is required to raise government revenues.
The past couple of decades have seen income inequality (the gap between rich and poor) rise, and the corporate share of national income has also increased substantially. Japanese companies are sitting on mountains of savings. The government should increase taxes on corporations. But the cosy relations between government and big business mean that this is unlikely.
Social expenditures on Japan's aging population must also be brought under control. This will be hard to do, since Japan's senior population makes up a large and growing share of Japan's voting public. This is most regrettable because the Japanese government is not spending enough on its rising poor and disadvantaged population, like single parent households.
Will Japan suffer a financial crisis? We can't be sure. What is certain is that it is extremely wasteful for the government to be borrowing money to pay substantially for social welfare for its seniors.
It is also certain that it is grossly unfair for Japan's senior generation to be leaving a massive debt for its younger generation. Each Japanese person born today, awakes to a world with massive debt hanging over it.
A society with a true sense of community would not burden future generations with such a debt. Japan's Asian neighbor, Singapore, is a country which arguablly has a much greater sense of community. In contrast to Japan, the Singaporean government has run government surpluses and accumulated a big investment fund for future generations, a "sovereign wealth fund", Temasek Holdings.
The labor force participation rate of women in Japan is 24 percentage points lower than men. With very little support from government, women find it difficult to manage both work and family life. The International Monetary Fund estimates that if Japan's female participation rate were raised to the equivalent figure of other advanced countries, Japan's GDP per capita would be 5% higher. Others estimate a potential GDP gain of some 14%.
Another consequence of the difficulties in balancing work and family life is Japan's very low birth rate of 1.4 children per family, which has now become the cause of Japan's declining population.
And while the female participation is well below that of men, more than half of Japanese female employees are in fact "non-regular workers". This growing and troubling phenomenom means that some 38% of Japanese workers are now part-time, temporary or agency dispatch workers. Thus, women account for 63.0% of non-regular workers, but only 27.9% of regular workers.
According to Nobel-prize winning economist Amartya Sen, development is the process of expanding human freedom. It is “the enhancement of freedoms that allow people to lead lives that they have reason to live”.
And the failure to allow Japanese women to fully participate in the economy is one important reason why Japan's labor productivity is about one-quarter below the leading OECD economies, and its GDP per capita (in current purchasing power parity terms) of $35,190 is also well below countries like the US ($51,690), Australia ($45,020) and Germany ($41,230).
But it scores poorly on work-life balance, self-evaluation of health (stress), housing, and environment (due to pollution).
It is hardly surprising that only 40% of Japanese people report being happy with their lives, well below the OECD average of 59%.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Japanese big companies are very happy
Japanese big companies are certainly very successful and happy. As they recovered from the bubble economy, and navigated Japan's lost decades, they have become the world's 2nd biggest foreign investor, behind the US, and well ahead of China. Indeed, Japanese large companies now do 60% of their business overseas.Foreign countries benefit greatly from this investment. For example, Japanese automobile companies employ 1.4 million Americans, and purchase $51 billion in US auto parts. For their part, Japanese companies are still very protected at home, as Japan has one of the world's lowest levels of foreign investment -- less than 4% of GDP, even less than North Korea. Japan is missing out on many potential benefits because of its closed markets.
Inequality and poverty in Japan
Japanese citizens have less reason to be happy. Income inequality has risen over recent decades, as it has in all advanced countries. The demand for skilled labor has risen relative to unskilled labor due technological change and globalization.Today, income inequality in Japan is above the average of the advanced OECD countries. While inequality may be less than in the US and the UK, it is well above most European countries. Japan is one of only two OECD countries where the lowest decile has suffered an absolute decline in their real income since the 1980s.
Japan suffered greatly from the 2007-2010 global financial crisis, even though it was not a source of the crisis. Exports crashed. But the fall in Japan's income hit workers and self-employed businesses, not capital. And Japan's poorer households lost more than rich households. This means that Japan's inequality rose through the crisis period.
The consequence is that Japan has one of the highest rates of relative poverty (16%) among the advanced OECD countries, just below the US's rate of 17%, and well above the OECD average of 11%. And through the crisis period of 2007-2010, Japan has seen a rise in poverty for children and young people. The relative poverty for single working parents is the highest in the OECD at around 60%.
Some specific factors affect inequality and poverty in Japan. The government does not do enough to help in terms of social safety nets. Japan has a dualistic labor market where 38% of workers (double that of 20 years ago) have "irregular" jobs (part-time, casual, fixed-term or dispatch contracts). These irregular workers receive lower salaries, enjoy little social protection and have limited access to corporate training. And the education system relies heavily on private spending for after-school tutoring, which poorer people cannot afford. This generates intergenerational cycles of poverty.
Japan's debt burden
Every Japanese citizen born these days awakes in this world with a massive public debt burden having over his head.Since the collapse of Japan's bubble economy over 20 years ago, Japan's public debt (government debt) has progressively exploded. A weaker economy reduced government revenues. The government increased expenditure to stimulate the economy. And as population aging has proceeded, health and pension payments have also increased.
Government deficits have accumulated to the point that Japan's gross public debt is now well over 200% of GDP, easily the highest of the advanced OECD countries.
Japan cannot keep accumulating debt. This cannot go on forever, as the government knows very well. The government will soon be increasing the consumption tax from 5 to 8%. But more bold action is required to raise government revenues.
The past couple of decades have seen income inequality (the gap between rich and poor) rise, and the corporate share of national income has also increased substantially. Japanese companies are sitting on mountains of savings. The government should increase taxes on corporations. But the cosy relations between government and big business mean that this is unlikely.
Social expenditures on Japan's aging population must also be brought under control. This will be hard to do, since Japan's senior population makes up a large and growing share of Japan's voting public. This is most regrettable because the Japanese government is not spending enough on its rising poor and disadvantaged population, like single parent households.
Will Japan suffer a financial crisis? We can't be sure. What is certain is that it is extremely wasteful for the government to be borrowing money to pay substantially for social welfare for its seniors.
It is also certain that it is grossly unfair for Japan's senior generation to be leaving a massive debt for its younger generation. Each Japanese person born today, awakes to a world with massive debt hanging over it.
A society with a true sense of community would not burden future generations with such a debt. Japan's Asian neighbor, Singapore, is a country which arguablly has a much greater sense of community. In contrast to Japan, the Singaporean government has run government surpluses and accumulated a big investment fund for future generations, a "sovereign wealth fund", Temasek Holdings.
Japan and womenomics
A society with a true sense of community should give all its members the opportunity to participate in economic, social and political life. But according to all the evidence, Japanese women suffer from immense discriminations. For example, the World Economic Forum estimates a "Global Gender Gap Index", and Japan ranks 105th out of the 136 countries, way behind countries like: Iceland (1st), Finland (2nd), the Philippines (5th), Germany (14th), US (23rd), Australia (24th), Singapore (58th), China (69th), Italy (71st), Vietnam (73rd), Indonesia (95th), and Malaysia (102nd). Japan does manage to beat Korea which ranks 111th.The labor force participation rate of women in Japan is 24 percentage points lower than men. With very little support from government, women find it difficult to manage both work and family life. The International Monetary Fund estimates that if Japan's female participation rate were raised to the equivalent figure of other advanced countries, Japan's GDP per capita would be 5% higher. Others estimate a potential GDP gain of some 14%.
Another consequence of the difficulties in balancing work and family life is Japan's very low birth rate of 1.4 children per family, which has now become the cause of Japan's declining population.
And while the female participation is well below that of men, more than half of Japanese female employees are in fact "non-regular workers". This growing and troubling phenomenom means that some 38% of Japanese workers are now part-time, temporary or agency dispatch workers. Thus, women account for 63.0% of non-regular workers, but only 27.9% of regular workers.
According to Nobel-prize winning economist Amartya Sen, development is the process of expanding human freedom. It is “the enhancement of freedoms that allow people to lead lives that they have reason to live”.
And the failure to allow Japanese women to fully participate in the economy is one important reason why Japan's labor productivity is about one-quarter below the leading OECD economies, and its GDP per capita (in current purchasing power parity terms) of $35,190 is also well below countries like the US ($51,690), Australia ($45,020) and Germany ($41,230).
Japanese well-being
Overall, Japan is a prosperous country, with a high employment rate, good education level, and with excellent personal security.But it scores poorly on work-life balance, self-evaluation of health (stress), housing, and environment (due to pollution).
It is hardly surprising that only 40% of Japanese people report being happy with their lives, well below the OECD average of 59%.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com
REFERENCES:
- Economic Survey of Japan 2013, OECD.- Income Distribution and Poverty at the OECD
- The Global Gender Gap Report 2013. World Economic Forum
- OECD Better Life Index
- Labour Market Reforms in Japan to Improve Growth and Equity by Randall S. Jones, Satoshi Urasawa. OECD Economics Department Working Papers, No. 889.