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Al-Ahram Weekly 25 - 31 March 1999 Issue No. 422 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 March 1999 Issue No. 422
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Profile Features Travel Living Sports People Time Out Chronicles Cartoons Letters After the bubble
By Gamal NkrumahThe three pillars of the traditional Japanese employment system -- a job for life, wage hikes and promotions in line with age and years of continuous service, and labour unions specific to each corporation -- are being turned upside down, not by choice, but by the on-going inability of the government and industry to find a way to reflate the ailing economy.
By most accounts, of course, Japan is still one of the world's wealthiest countries, with a standard of living that rivals the richest Western nations. With per capita income standing at a staggering $40,000, the nation is far from a spent force.
However, despite this relative strength, the intrinsic economic outlook for the country remains decidedly gloomy. Indeed, many Japanese fear that the next century will see an even more deadly decline in their country's industrial prowess, and the figures certainly seem to back up this sense of despondency. Japan's average annual Gross Domestic Growth was 10.2 per cent in the 1960s, 4.5 per cent in the 1970s, 4 per cent in the 1980s and a paltry 1.7 per cent between 1991 and 1997. Export growth, meanwhile, collapsed from an all-time high in the 1970s to an all-time low of five per cent between 1991 and 1997.
Some people may claim to see a faint light at the end of the tunnel, but many fear that there is nothing anyone can now do to avert the unavoidable. For the pessimists, what has happened so far is merely the beginning of the end for Japan.
On the face of it, though, the country is merely suffering from one of its periodic recessions. The first such in living memory dates back to the mid-1970s in the aftermath of the 1973 oil crisis. Another economic slowdown induced by a strong yen bottomed out in 1986, and the Japanese economy had picked up by the following year. The subsequent boom lasted for four years before peaking in 1991. Since then, however, things have gone from bad to worse. The statistics are grim. At a miserable one per cent per annum, Japan has the lowest economic growth rate of any major industrial economy. Unemployment is actually higher at present in Japan than it is in the United States -- it stands at four per cent in the US, as against 4.5 per cent in Japan.
As the economy struggles, so the face of Japanese society is changing in reaction. Traditionally, the so-called madogiwa-zoku, or "window crowd" -- those middle-aged (or older) employees who are regarded as good for nothing and are therefore given nothing to do -- were forcibly removed to the margins of their office, where they suffered the indignity of spending their days gazing aimlessly out of the windows. Today, the madogiwa-zoku are a dying breed. Instead of being shunted to one side, they are weeded out by companies who can no longer afford to keep them on their payroll.
People in Japan live longer than in any other country in the world. But the sheer success of a healthy diet and lifestyle in prolonging human life also has its drawbacks. The number of people aged 65 and over as a proportion of the total population is already higher in Japan than it is in the US, Germany or France, and the rapid ageing of Japanese society relative to Western nations is forecast to increase further in the future. According to Latest Demographic Statistics, 1997, published by Japan's National Institute of Population and Social Security Research, by the year 2000 some 17.24 per cent of the population will be 65 and over. The equivalent figures for the US, Germany and France are, respectively, 12.43, 16.05 and 15.73 per cent. By the year 2020, an estimated 26.84 per cent of Japanese people will be 65 and over. Thus, in barely two decades time, it is estimated that Japan will be "the oldest country in the world", with the 20-29 age group less than two-thirds of its present size. Japan has aged at least twice as fast as any Western nation. The implications of this demographic imbalance for the country's future are extremely serious.
The situation might be rosier if the underlying economic infrastructure were in better shape. But the world's financiers have long considered the Japanese banking system second-rate, and the Asian financial crisis tarnished its image even further. In the past, Japanese banks were reluctant to write off bad loans. They have since paid a terrible price for their inaction. Moreover, their ability to compete internationally may well be further eroded by the failure of successive governments to take any serious steps towards reform.
Like much else in pre-millennium Japan, the excellent working relationship which once existed between the banking sector and the country's giant manufacturing corporations has broken down. "The system worked well because each corporation had a specific or 'main' bank which funded its projects and took care of its finances," Osamu Nariai, professor of international economics at Reitaku University, told Al-Ahram Weekly. "The system had its advantages. There was little wastage of resources, no duplication of activities, nor any unnecessary competition between banks over corporations. However, as the country's economic structures changed over the years, the major corporations preferred to look for funds through low-cost direct finance in the capital markets. After the decades of post-World War II economic boom, the giant corporations could easily generate their own funds without having to turn to their 'special' banks for funding."
As Nariai went on to explain, there are three official reasons that are often cited to account for the Japanese bubble economy. "First, a short-sighted monetary policy, which meant that the Japanese authorities kept on increasing the money supply, which thus expanded by over 10 per cent. Second, expectations which were astronomically high. Last -- and not least -- the faulty banking system." In turn, these factors led to an unjustifiable increase in the prices of stocks, paintings and land. "Asset prices increased dramatically, while their real value remained low," said Nariai. "In the bubble era, banks didn't scrutinise projects carefully, as they were convinced that land prices were going to go on rising indefinitely. So even if projects failed, it was wrongly assumed that land prices would still go up and up."
He added gloomily: "I'm still not optimistic about a Japanese stock market recovery."
Yet even in these hard times, Japan's giant corporations are as impressive as ever. Visiting their headquarters, one is awed by their sheer magnitude and sophistication. In general appearance, though, they are all much of a muchness, and their managers speak of the reversal in their fortunes in tones of glum unanimity.
Yet Japan still exudes prosperity, and Washington feels it is on Japan that the burden of rescuing East Asia should fall. There is, of course, a "negative heritage" binding Japan to its neighbours -- and especially to its second-largest trading partner, closest neighbour, former colony and once traditional foe, China.
Nevertheless, Japanese Prime Minister Keizo Obuchi and South Korean President Kim Dae-Jung recently signed a new blueprint for economic cooperation between the two countries, even though Obuchi had recently been forced to flee from angry Korean students, leaving through the backdoor of a university auditorium in Seoul. Obuchi has promised Korea one billion dollars in long-term loans to help it recover from the severe recession that hit the country last year. It is acts such as these which remind us that Japan is, indeed, still a formidable economic power.
Nariai, however, told the Weekly that he does not see how Japan can afford to bail out its Asian neighbours. Indeed, the professor was left scratching his balding head about one particular aspect of this new partnership. The bad loan problem which currently afflicts the Far East is far from being resolved. "In the US and Britain, bankers were jailed because of bad loans," Nariai said. "But in Japan, no one has been punished."
Asked where the rot began, Nariai replied, "The big mistake we made was not to take advantage of our currency's appreciation in the wake of the 'Plaza Agreement'." In September 1985, the finance ministers of five major industrialised nations met at the Plaza Hotel, New York, where they agreed to bolster the yen, devalue the dollar, reduce America's budget deficit and boost Japanese domestic demand. "With Reaganomics in full swing, the US found that it couldn't cope with the twin deficits -- massive budget and trade deficits -- at the same time," Nariai explained. If the country had struck then to capitalise on the advantages it had obtained, perhaps all would still be hunky-dory now. But the opportunity was missed.
Perhaps, as Wall Street sores to bubble-like proportions, there is a lesson there which the Western economies would do well to learn, before it is too late.
