The corruption culture and the wrong leadership in Korea can lead to the same economic fate as in Japan

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

 (지난 호에 이어)

4. The Structural Weakness of the Japanese Economy

There were major structural problems of the Japanese economy.

•Losing global competitiveness of major corporations.

•Increasing inequality of income distribution.

•Decreasing active population.

In the period, 2005-2011, the fall of global market share of major corporations was as follow: Toyota, from 51% to 41%; Honda, from 39% to 29%; DRAME memory from 39% to 9%.

Moreover in the period 2001-2011 the rate of profit of major corporations fell as follows: Mazda, from 4.3% to 2.8%; Toyota, from 9.9% to 2.0%; Honda, from 8.5% to 2.9%.

The dramatic loss of global competitiveness and profit of these major corporations was not cyclical; it was structural. The feasible explanation is the Zaiteck which allowed Japanese corporations to neglect investments in costly technology development and make quick money through asset speculation, especially commercial real estate speculation.

What Abenomics should have done was the liquidation of insolvent firms instead of bailing out them with money generated by the fiscal policy and the monetary policy. These companies were the Zombie companies, that is, good for nothing companies. It is most likely that these zombie companies were the friends of the corrupted oligarchs. It is also possible that the part of the bailout-money went into the personal pockets of the members of the corruption community.

The successful structural adjustment was the policy applied by President Kim Dae-jung of Korea during the financial crisis of 1997-1998. President Kim undertook bold structural adjustment of Chaebols which were responsible for the crisis. President liquidated a great number of insolvent Chaebols; he forced the Chaebols to specialize themselves and improve global competitiveness; he forced the Chaebols to be more transparent in accounting; he forced the Chaebols to stop circular financing.

As the result of this policy, Korea could pay back its date to IMF before debt maturity.

The widening income gap for decades between the rich and the poor was another structural disease of the Japanese economy.

This is partly due to inter-related neo-liberalism and corruption culture. The two most central parts of economic neo-liberalism is the decreasing power of the government and limitless competition. To be competitive, the firm must save labour cost and material cost. To save labour cost, wage should not increase meaning decreasing workers' income. To save material cost, cheap intermediate goods were imported leading to the decline of domestic production of these goods and this invites decrease of workers' income.

On the other hand, limitless competition means decreasing number of surviving winners. The combination of all these factors invites unequal income distribution in favour of the rich. The government can make the income distribution more equal through transfer income and other income assistance programs. But, in Japan, the corruption culture prevented the government from adopting such policy.

As a result, as time went by, the income distribution was getting worse. That is, the domestic consumer demand which accounts more than 60% of the domestic demand was bound to fall.

One of the reasons for the failure of Abenomics was, precisely, the weak domestic consumer demand due to unequal income distribution in favour of the rich. In fact, the average income of ordinary Japanese people has been frozen and has fallen for decades.

True, a small part of the fiscal policy money and monetary policy money went to the ordinary people. But, the consumer did not spend on the purchase of goods and services; they saved for the uncertain future.

Another structural problem of the Japanese economy is the increasing number of the aged who now represent almost 30% of the population. This means decreasing number of working population. Remember that GDP is the number of working population multiplied by the worker's production of goods and services.  

The Japanese population will decrease from 126 million in 2019 to 100 million in 2050. Now, the aged population of 65 + increased from 17.4% in 2000 to 28% in 2019, while the active population of the age group of 15-64 fell from 67.5% to 59.3% in 2019.

This change in the demographic structure of the population is shared by most of the developed countries. In these countries, the solution has been immigration. In average, in OECD countries, immigrants account for 12% of the population as against 1.6% in Japan. The government of Japan had tried to boost immigration of people, but, it has failed mainly because of the racism which has been also responsible for Japan's imperialism in the past and at present.

The tradition of people's submission to authorities and the popular priority given to stability and fear of changes can be another structural problem. Since the 1960s, the world seldom saw massive political protest movement against the government in Japan.

Moreover, even if they do, the government just ignore them. We saw this in 2021 during the Tokyo Summer Olympics. Almost 90% of the population were against or the postponement of the Games. But, the Suga government just ignored it. What was more incredible was the fact that the Japanese people did not go any further. This explains why LDP has kept the power for so long despite, the corruption of the oligarchs.

5. Conclusion

To sum up, the decade-long stagnation of the Japanese economy can be attributable to the loss of corporative global competitiveness, worsening income distribution leading to weakening domestic demand, the falling number of working population and the absence of organized protests against the wrong doings of the oligarchs These are all structural problems and the possibility to overcome them is low due to the corruption culture dominated by the oligarchs.

The government of Fumio Kishida may try to revive the economy. He many envisage means to solve the decades-long ailment of the Japanese economy through remilitarization. It may provide temporary stimuli to the economy, but in the long run, it cannot assure the sustained growth of the economy. What is even worse is the possibility that it will lead to wars and destroy the basis of the economy.

Fumio Kishida may try to tackle some of the structural problems of the Japanese economy. In fact, he said that more equal distribution of income is needed for the recovery of the Japanese economy. But, this requires that he will survive as prime minister. We saw how vulnerable and unstable the position of prime minister is in Japan.

Kishida was appointed by Shinzo Abe, because Abe could exert his influence on Japanese politics through Kishida. In other words, the probability of Kishida's survival as prime minster depends on how much he can carry on economic policy set up by Abe.

Shinzo Abe and his friends of the oligarchy have avoided the needed structural adjustment, which would harm the interest of the oligarchy. Therefore, as long as Kishida continues Abe's policy, he may remain as prime minister for a while. On the other hand, if he tries his own policy different from Abe's policy, it is likely that he will be promptly replaced.

Under these conditions, the decades-long stagnation of the Japanese economy will continue.

But, it is my hope that Kishida succeeds with his own economic policy and revive the Japanese economy not only for Japan but the world.

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