Joseph H. Chung (정희수), Ph.D. Professor of Economics at Quebec University in Montreal (UQAM)

(지난 호에 이어)

 It is true that the government has also tried the M&A of banks; in 2008, 27 banks were merged into 4 banks groups.

 What did the commercial banks do with the flood of liquid money apart from financing the bailouts of troubled companies? Not much; the QE policy was not able to restore the Japanese economy.

 The primary reason was that there was not much demand for money.

This is explained by two reasons.

First, for decades, the household income stopped to increase; so, there was not much new demand for money needed for the consumption of goods and services. The increasing inequality of income distribution has worsened the income situation of the Japanese people

The inequality of income distribution is measured by the Gini coefficient which goes from zero to 100. The lower the Gini, the more equal the distribution of income is; the higher the Gini, the more unequal the distribution becomes.

The Gini coefficient in Japan has increased from 32.1 in 2008 to 37.9 in 2011. If this trend continued, the Gini in 2019 could be much higher.

Second, there was not enough demand for money by exporters, for Japanese exports did not increase due to the loss of global competitiveness of Japanese companies, especially the Keiretsu companies.

Under this situation, the banks had the burden of managing the huge stock of idle liquid money. So, they made loans to pay back existing debts; they could invest the interest-free money in assets abroad.

The second policy was the fiscal policy. The government of Japan spent an astronomical amount of money in order to recover from the decades-long deflation. For this, the government had to borrow heavily; in fact, the public debt is now more than 250% of GDP amounting 13 trillion USD.

Most of these funds were used for the construction of infrastructure facilities including a bridge in the Tokyo area, a bridge which went nowhere.

The fiscal policy has not done any better than the monetary policy in saving the Japanese economy from deflation. It is possible that much of money spent went to constructions firms which were directly or indirectly related to the oligarchy members. 

Now, the third Arrow of structural adjustment policy was designed, in theory, to change the structure of the whole system of the economy. This was announced in 2015 when the second stage of Abenomics was explained.

The policy tackled the problems of education, labour force, innovations, fee trade and host of other problems. But this policy came too late and did not deal with the real problems of improving the competitiveness of large corporations and the underdevelopment of SMEs.

4. Conclusion

 Three sets of policies were applied: monetary policy, fiscal policy and the structural adjustment policy. None of these policies was successful in restoring the sinking Japanese economy. Why?

 The primary factor responsible seems to be the loss of global competitiveness of the Japanese economy. The loss of the strength of Japan's global competitiveness is primarily due to the poor performance of Keiretsu corporations.

 Between 2005 and 2011, the foreign market share (percentage of sales abroad) of Japanese auto makers' production dropped in a dramatic manner. The foreign market share of Toyota fell from 51% to 41%, while that of Honda dropped from 39% to 29%.

 The performance of the electronic industry was even worse. For instance, from 1995 to 2007, Japan's foreign market share of the production of DRAM Memory came down from 42% to 9%. In the case of car navigation equipment, the foreign market share which had been 100% collapsed to 0%.

 The picture of auto makers profit was not pretty either. Between 2001 and 2011, Mazda's profit slipped from 4.3% to 2.8%; in the case of Toyota, it came down from 9.9% to 1.9%; in the case of Honda, it dropped from 8.8% to 2.9%

 These figures show by what extent the Keiretsu companies have lost their place in the global market.

 There is another factor which must be dealt with, if Japan wants to restore its economy.

 It is Japan's isolationism. Japan should come out of isolationism. One of the challenges which Japan must deal with is the declining population. The absolute number of population has been declining to reach 126.5 million in 2019 and it will go down to 100.0 million by 2050.

 To make the matter worse, the proportion of elderly of 65 years or more has reached already 28.0% in 2018 from 17.4% in 2000. This means the decrease of active population of 15-64 years which accounted for 67.9% in 2013 dropped to 59.3% in 2019, or a decline of 1.4% point per year. This is too much.

 This demographic aspect of the Japanese society must be dealt with, but it seems rather difficult to do so, because of Japan's isolationism or racism. Perhaps, the only way to deal with declining population and the shortage of working population is immigration.

 Japan is one of the most anti-immigration nations in the developed world. In 2016, immigrants in Japan were merely 1.6% of the total population as against 12.2% in OECD countries. In Canada, immigrants represent more than 25% of its total population

 Japan's isolationism is also represented by the reluctance of Japanese youth to go abroad to study. Japan's another problem is its reluctance of accepting foreign direct investments (FDI). It was only 5% of GDP in 2019 as compared to 15% in Korea and 50% in the UK.

 I was told that Ph.D. obtained abroad is not as much valued as Ph.D. obtained in Japan

 Such anti-foreign things could be a factor which prevents Japan from importing new technological know-how and needed labour force.

 Another factor which might be included in the strategy of revitalizing the economy is the mechanism through which the people can prevent any given party from monopolizing the power for ever, as did the LDP (Liberal Democratic Party) of Abe.

 There is close positive correlation between the longevity of political party power and the corruption of the government. The corruption of the government can easily lead to policies which can be used for the selfish interests of the oligarchy at the expense of the national interests. (다음 호에 계속)

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