The Sun Also Rises a Survey of Japan L October 8Th 2005
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UKCOVER CMYK Cyan Magenta Yellow Black The sun also rises A survey of Japan l October 8th 2005 Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist C B M R Y G K W C B M R Y G K W The Economist October 8th 2005 A survey of Japan 1 The sun also rises Also in this section Capitalism with Japanese characteristics Suddenly, shareholders are beginning to matter. Page 4 New politics, old politicians It will never be the same again. Well, not quite, anyway. Page 7 New East Asia, old enmities China’s growth has changed Japan’s region, but is also changing Japan’s politics. Page 9 The ambiguity of Yasukuni A private war shrine with imperial status. Page 11 Visions of 2020 Japan is at last ready to surprise the world by how well it does, not Japan’s next 15 years are likely to be a lot how badly, writes Bill Emmott, editor of The Economist sunnier than the last 15. Page 12 O COUNTRY in modern history has whose real achievements remain rather Nmoved so swiftly from worldwide hard to get your arms around. Moreover, adulation to dismissal or even contempt as the OECD recently rated Japan’s potential did Japan, in a process that began more or rate of GDP growth for the rest of this de- less as the temple bells were tolling in the cade at a mere 1.3% a year, on the basis of new year of 1990. In the 15 years that fol- poor productivity growth and a popula- lowed, amid crashing stock- and property tion that is shrinking and ageing. Politics markets, mountains of dud debt, scores of didn’t even come into it. corruption scandals, vast government def- But remember. During the 1980s, when icits and stagnant economic growth, Japan adulation (or fear) of Japan was at its peak, mutated from being a giver of lessons to a many observers made the mistake of as- recipient of lectures, all of which oered suming that because some things in the recipes for its reform and revival. Those country plainly worked extremely well, lectures, although received politely by a everything did, so everything must be newly self-deprecatory Japanese elite, worth emulating and the trend must be seemed to be ignored. Now, however, the ever upwards. That is why your present time for lectures is over. Japan is back. It is author named a book he published in 1989 being reformed. It is reviving. The Sun Also Sets. Japan’s sun does not Exchange rates Really? The very unJapanese event that only rise, the book argued; trends can also Yen, September 26th 2005 took place on September 11tha snap gen- bring about their own downfall. Since $1= 112 ¤1= 135 £1= 199 eral election called on a policy issue and 1990, the opposite mistake has been made: won in spectacular fashion by the reform- just because some things have gone badly ist prime minister, Junichiro Koizumihas wrong, so everything has been assumed to Acknowledgments changed perceptions of Japan as an irre- be wrong, in perpetuity or at least pending The author would like to thank the many people who gave deemable dud, but not much. After all, the a revolution. Hence the somewhat self-in- generously of their time and ideas for this survey. Particu- case for cynicism is compelling. dulgent title of this survey: the Japanese lar thanks for hospitality and help with arrangements and introductions are owed to Minoru Makihara, Shintaro Hori, There have been several false dawns sun does not only set, either. It also rises, Thierry Porte, Martin Hatfull, Yoichi Funabashi, Skipp Orr, during those 15 dismal years, most notably and looks likely to do so from now on. Yotaro Kobayashi, Alex Kerr, Keizo Takemi, Georey Tudor, in 1996-98 when an incipient recovery For the case for greater optimism is also Je Kingston, Tadashi Nakamae and the Freshelds Tokyo oce. turned into a fresh recession and produced strong. It is not based on any notion that both a banking crisis and an apparent en- Mr Koizumi’s victory represents the start A list of sources can be found online thusiasm for reform. Since then, Japan has of radical change. Nor is it intended to sug- www.economist.com/surveys suered a price deation that has still not gest that privatisation of the postal savings come to an end. Since 2001 it has had a systemthe reform issue around which An audio interview with the author is at prime minister, that same Mr Koizumi, September’s election was foughtwill www.economist.com/audio who has talked a lot about reform but somehow magically turn Japan from a1 2 A survey of Japan The Economist October 8th 2005 2 sloth economy to a growth one, for it of Japan’s economy and society. And al- people, including health care and con- won’t. Rather, it is based on the view that though there may not be one single reason struction, but has gradually become per- Mr Koizumi’s victory is the culmination of to expect a transformation, there may well mitted almost everywhere else. Canon, for a long period of incremental change, be one single eld of data that currently example, a successful electronics rm that bringing welcome conrmation that that holds the clue as to whether economic re- still rmly maintains a lifetime commit- change is not likely to be reversed. covery is going to be sustainable in the lon- ment for its core workers, employs fully Even after his landslide win, it is not in- ger term, as well as exemplifying some of 70% of its Japanese factory sta on such evitable that Mr Koizumi will get his way, the biggest changes that have taken place. non-regular terms, up from 50% ve for his party’s rules stipulate that he will That eld is employment and wages. years ago and 10% a decade ago, according have merely a year as leader to exploit his to Fujio Mitarai, Canon’s president. new mandate. Still, there is a chance that Lessons from the labour market This new labour exibility has contrib- the party will extend his term, but also a The Japan of old was known as the coun- uted to a boom in company prots and to likelihood that any successor will follow try of lifetime employment, a somewhat the paying down of debt. In 1998 workers’ the Koizumi script. This would mean that exaggerated but still important notion that pay equalled about 73% of corporate earn- the size and role of the Japanese state will in return for loyalty and exibility big em- ings. By 2004 the proportion had dropped shrink, in a slow but remorseless process ployers typically oered a lifetime com- to 64%. Other factors helped too, most no- over the next decade or so. That will gradu- mitment to their workers, with associated tably a big rise in exports to China in ally help improve the public nances, company unions, generous fringe benets 2002-04, which revitalised manufacturers which are in a mess; gradually help reduce and pay rising according to age and senior- of all kinds, whether metal-bashers or pre- the nancial distortions that have arisen ity. That also made for a fairly egalitarian cision engineers, and a series of bank na- from the state’s role in banking; and gradu- society. Shock therapy would have shat- tionalisations and mergers in 1998-2004 ally help reform politics, which had be- tered the lifetime notion, producing a big during which bad loans worth trillions of come dependent on state cash and power. rise in unemployment. So it never hap- yen came good or were written o. Gradually: that could be Japan’s watch- pened: most big companies chose to main- As a result, the gigantic pile of dud cor- word. The country has not had a revolu- tain their commitment, asking workers to porate debt for which Japan became no- tion, nor has it gone through the shock take pay cuts and waive bonuses rather torious in the late 1990s is now a lot therapy of reform that Margaret Thatcher than lose their jobs, but ceased to hire new smaller: from a peak of more than ¥43 tril- deployed in Britain in the 1980s or that graduates. Less than half as many new lion in 2001, non-performing loans held by some central European countries tried in graduates were hired in 2003 as in 1997. banks have more than halved to less than the 1990s, and it is not likely to go through But also, helped by changes to employ- ¥20 trillion (see chart 2 on the next page). that now. For this is not a country of revo- ment law, rms found exibility in an- The number is now also thought to be lutions, but rather one that tends to follow other way: by hiring part-timers and oth- more or less accurate, whereas until 2001 a course faithfully and steadily once it has ers on temporary contracts, both at far or so ocial gures for non-performing been agreed upon and set. lower cost than for regular workers. In loans were appallingly and deliberately For the past decade, although the main 1990 such non-regular workers made up underestimated. approach to the country’s immediate 18.8% of the labour force. Earlier this year, Labour exibility came at a price, how- macroeconomic and nancial woes has that gure reached 30%, which in Japan’s ever.