JAPAN: STUCK IN NEUTRAL

September 3, 2009

No citizens in the rich world take as few holidays as the Japanese, but the government has tried to emphasize the fun side of life to strengthen Japan's domestic economy and leave it less vulnerable to the vagaries of world trade.   But it hasn't worked, says the Economist.

A combination of factors kept domestic demand below par:

  • Japan's demography, with a shrinking working-age population and a growing grey-haired one, helped the downward pressure on wages; more high-paid workers were retiring and being replaced by lower-paid youngsters, which dragged down overall wages.
  • Japan suffers from a glaring gap between large firms, which are highly profitable, and small ones, and within the manufacturing industry, there's a big disparity between unionized workers, who enjoy high pay, bonuses and job security, and non-regular workers.
  • Moreover, the deep-rooted aversion to spending and a reluctance to borrow has contributed to the country's lopsided economy.

The economic crisis has that plagued Japan since 2008 is only likely to make people more cautious, says the Economist:

  • In the short term Japan's path out of the crisis is familiar; the government has stepped in with one of the most aggressive fiscal-stimulus packages in the rich world.
  • But in the long term, rebalancing the economy is the best way to ensure higher growth.
  • A sensible way to achieve higher productivity would be to slash the forest of regulations that surround service industries, protecting them from competition in the name of quality control.

But in the run-up to general elections at the end of August, there was little talk of rebalancing the economy.  Instead, politicians still seem fixated by exports.  There is also talk of re-regulating wages by restricting the hiring of non-regular workers in manufacturing, says the Economist.

Source: Editorial, "Stuck in neutral," The Economist, August 13, 2009.

For text:

http://web.economist.com/displaystory.cfm?story_id=14216784

 

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