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The Japanization and Abenomics: The Saga of Falling Japanese Economy(1)
chungheesoo

 

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

 

Introduction

 For last thirty years, the world has been watching the saga of downfall of the Japanese economy.

 In particular, the world has been watching with curiosity and even worry about the amazing adventure of Abenomics.

 The disappointing performance of the Japanese economy and the amazingly inefficient Tokyo's policies have produced the "Japanzation" of the economy meaning the three-decades of economic recession followed by depression and deflation.

 There is no reason why other economies will not share the same hateful experience in the future. In fact, there were some voices, thought weak, of worry about such possibility in Korea before the take- over of power by Moon Jae-in in 2017.

 Since the declaration of Abenomics, in 2013, the growth rate of Japan's GDP is no longer of minus figure, but still the lowest among the advanced OECD countries.

 The per capita GDP fell from US$ 44,674 in 2010 to US$ 39,295 in 2018

 True, there are a few encouraging signs. The number of jobs has increased; the consumer price index is no longer zero but still below 2% which had been the policy target. The value of Yen fell by 20% but did not help much Japan's exports.

 You may say that these data mean a success of Abenomics, but, if it is, its social cost is high. The fiscal incentive policy has imposed on the Japanese people a national debt ratio of 250%, the highest in the world of advanced countries.

 The central bank of Japan has applied so called "quantity easing" in order to prepare and inject liquid money amounting as much as 88% of GDP into the financial market with no convincing results.

 But, before anything else, the suffering that the Japanese people had to endure because of the wrong policies of the government should deserve our attention.

 Declining real household income and increasing non-regular jobs, the lack of adequate care for the elderly, the refusal of the young to get married are some of the collateral damages of the wrong judgements of policy choices and execution.

 What is really surprising is this. Despite such long deflation and suffering, Japanese people have not shown massive protest. Is this due to their legendary docility? Or is it attributable to their fear of severe punitive reaction by the government?

 Many will ask the question: Is Abenomics a failure or a success?" This question is of course important, but the more important question is: "What is the lesson of the deflation of thirty years?" I will try to answer this question later.

 This paper has four parts.

 First, we will see how the Japanese economy has evolved since WWII. Here, we borrow some of the ideas found in the theory of economic development by stage.

 Second, we will see who were responsible for the creation of the bubble in the first place and its explosion in 1989.

 Third, we will discuss the policy measures adopted by the government.

Fourth, the focus will be on the reason for the policy failure. And we will seek for policies better suited for the recovery of the Japanese economy.  

1. Evolution of the Japanese Economy.

 There can be several indicators of economic growth and development, but GDP is, perhaps, one of the useful yardsticks. The evolution of the Japanese economy has gone through the following stages: take-off, accelerated growth, stable growth and stagnation followed by deflation.

 It appears that the Japanese economy took off in the 1950s and the first half of 1960s. During this period, Japanese economy grew, at time, as fast as more than 20% per year in the 1950s, 9.2 % in the first half of the 1960s and 11.4 % in the latter half of the 1960s.  

 This period of rapid growth was attributable to American Dodge Plan, the Korean War, the successful adaptation of American high technologies to Japan's needs, managerial innovations undertaken by major corporations such as "just in time delivery" and the Confucian human resource management such as life-time job and seniority-based wage system.

 This period was one of the "Japanese Miracle." Japan was admired; Japan was envied; Japan was imitated.

 Then, from 1970s for two decades, the Japanese GDP grew at about 4.5% per year. This period was the stage of stable growth. One thing unusual was that the rate of GDP growth dramatically fell by 60% (6.9 percentage point), compared to previous stage (11.4%); this was unusually violent fall.

 This could have been due to Japan's loss of technological edge. In fact, much of Japanese technologies were modified versions of American technologies; they were not the original technologies invented by Japan; they were relatively easily transferred to other countries, such as South Korea and Taiwan

 Moreover, this period was the beginning of significant moving of a number of Japanese firms to low-wage countries. This was another factor responsible for the decrease in the GDP growth rate.

 However, the most significant factor was the weakening global competitiveness of Keiretsu firms (large industrial, financial and trade corporations) which were the post-WWII version of Meiji Era's Zaibatsu. The Zaibatsu played the central role for the success of the Meiji Restoration in the latter half of the 19th century.

 This period was also the period of the creation of the bubble and dramatic bursting of the bubble. We will come back later to this issue.

 The decades of stable growth was followed by the decades of deflation and stagnation. After the bubble explosion in 1989, the average annual rate of GDP growth in the first half of the 1990s dropped to 1.72% from 5% of the preceding five years. This was the beginning of three decades of painful stagnation and deflation.

 During the period of 1996-2018, the annual GDP growth rate never exceeded 1.0% with the exception of the first half of the 2000s when the growth rate was 1.22%

 There were periods of minus growth rates. In 1998, GDP fell by 2.0% and in the following year, it came down by 0.2%. In 2007, the growth rate was minus 1.0%, while it was as low as minus 5.5% in 2008. In 2011, the Japanese GDP shrank by 0.5%.

Such is the saga of the incomprehensible breakdown of the number-two economy of the world

 

2. The Bubble and the Oligarchy

 The world was shocked by the explosion of the huge bubble in 1989. The value of stocks fell by 60% in 1990; the value of real estate had a free fall of 80%. This bubble bursting hit hard Japan, very hard.

Why such a dramatic fall? The answer: "It is because the price went up too high in the past!" In 1988, the price of Ginza area land of one square meter was US$139,000.

 The area of the Japan's territory was 3.7% of that of the U.S., but the value of Japanese real estate was in 1988, four times that of the U.S. The value of stocks in the Tokyo stock market soared from 60% of GDP in 1985 to 152% of GDP in 1989.

Who and what were responsible for such a bubble? It is true that the Plaza Accord of 1985 was perhaps responsible in part. The resulting dramatic appreciation of Yen in comparison with the value of US dollar might have attracted foreign capital to be invested in real estate and stocks for speculative purpose. (다음 호에 계속)

 

 

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