Recommended reading on Japan
Two excellent recent pieces, one by Richard Katz, one a special report by Noah Sneider for The Economist, deserve to be read by any subscriber here with an interest in Japan's political economy
I haven’t been in the habit of recommending others’ articles and books in this newsletter, but I am making an exception for two fine pieces of work I have just read on Japan. They sum up many of my own thoughts so well that it would be pointless to try to reprise them.
Richard Katz has long been one of my favourite writers on Japan, who I read for years when he produced his terrific Oriental Economist newsletter, and who I now follow through Substack and his frequent articles for Toyo Keizai and others. His latest article picks up on what I believe to be the single most important feature of Japan’s political economy in recent decades, namely the persistent sluggishness of wage growth, and thus of labour’s overall share of income, despite apparent labour scarcity. This has held back economic growth by making household consumption anaemic, has increased inequality and is an obstacle to greater gender equality too. As Rick writes, the reason for it essentially is politics, broadly defined. His piece on “Why Wages Slowed More in Japan Than Elsewhere” can be found here and subscription is free.
This is what I think is the key part:
What is different about Japan? The biggest factor is the sharp upsurge of poorly paid non-regular workers. They rose from 15% of the labor force in the 1980s to nearly 40% these days. While regular workers, on average, earn ¥2,500 per hour, temporaries get just ¥1,660 and part-timers just ¥1,050.
But why did France, where non-regulars comprise a third of the labor force, suffer only a small wage-productivity growth gap during 1995-2011 (see chart again. A look at this underscores how politics makes a difference. In both, the law requires equal pay for equal work. France, however, enforces the law, including with use of labor inspectors. In Japan, by contrast, no Ministry is mandated to investigate the problem and prosecute violators. Victims have to launch and pay for their own lawsuits. Moreover, virtually all French workers—both regular and non-regular—are covered by union contracts, whether or not they belong to the union. In Japan, only union members are covered by the contracts and, by law, neither temporary workers nor those sent by dispatch agencies are allowed to join a union. To be sure, France’s non-standard workers face many difficulties, but outright pay discrimination is not one of them.
The second recommendation is a big special report by Noah Sneider, who is the latest Tokyo Bureau Chief of The Economist, a role I filled for a while during Japan’s go-go, “bubble economy” years of the 1980s. His special report, in the latest issue, is called "On the front line" and is dedicated to the issue of Japan’s continued relevance in the world, both because of where it is (in defence and foreign policy) and because of the lessons it offers, for both good and ill, in how it has conducted itself over recent decades, in economics, demography, climate, immigration and more. That link with the report’s title will take you there, but it will be behind a paywall so for non-subscribers’ benefit here is a section which is pretty representative and which I particularly liked:
All too often what happens in Japan is seen as sui generis, reflecting an almost-mystical social cohesion possible only on a closed island with a relatively homogeneous citizenry. This cultural essentialism is for Japanese both a source of pride and a cover to ignore examples from outside, while giving foreigners (especially Westerners) a source of fascination and a licence to discount unsexy policies, from disaster drills to zoning laws. Culture is obviously important, but it also changes, often through cross-pollination. The behaviour that had the most impact on the course of covid-19 in Japan—mask-wearing—first came from the West, taking root during the Spanish flu of 1918. In Japanese, “face mask” is still written in katakana, the alphabet reserved for foreign words.
The idea that Japan never changes is an old chestnut that needs cracking. These days change is only gradual. But that does not mean it does not happen—and that it cannot accelerate, as it has at times in the past. One reason the economy has avoided the collapse that some predicted decades ago is that policies have changed. The transformation is even more pronounced in foreign affairs. Once derided for “karaoke diplomacy”, singing from American tunes, Japan now does more of its own song-writing. Diplomats speak of Asia in terms of the “Free and Open Indo-Pacific”, a coinage of Mr Abe’s. Trade negotiators discuss “Data Free Flow with Trust”, another Japanese idea. Central bankers ponder “quantitative easing”, also pioneered in Japan. Years before Joe Biden promised America would “Build Back Better”, Japan pushed to insert the phrase into the un framework for disaster-risk reduction.
Japanese society is changing too, though mostly from the bottom up. “It seems as if change is not happening, but the seeds for future change are there,” says Mr Komiyama. Old ideals, from the sarariman (salaryman) to shimaguni (island nation), are eroding. In Japan’s stubbornly seniority-based system, the Showa generation still runs the country. But those who follow have a different outlook and different values, reckons Hiroi Yoshinori, a philosopher at Kyoto University. “The young don’t know the period of high growth—there is a huge generational gap.”
For too many, it is an anxious time. That comes through in conservative voting patterns: young Japanese are more likely to support the ldp than the old. Some retreat into the dark realms of the netto-uyoku (far-right online extremism) or isolation as hikikomori (shut-ins)—hardly uniquely Japanese behaviour. Others, though, embrace the chance for reinvention, choosing startups or freelancing over large companies and lifetime employment. Their energies are often channelled not into products and services, but into cultivating the social capital that makes a society resilient, into volunteering, social entrepreneurship and socially engaged art. Their scale is local, not national or global, their arenas the private sector or civil society, not politics.
This is partly because politics has become ossified in the absence of real competition. Such stasis is a big reason why being on the front line does not mean being in the vanguard. Japan’s treatment of women is retrograde, its protection of minority rights weak, its government services archaic and its climate policy dirty. Many institutional frameworks are stuck in the past. Labour laws are designed for industrial-era monogamous employment, tax codes and family law for the Meiji-era patriarchy, immigration practices for a growing population. “The central government is running behind the times,” laments Yanai Tadashi, the founder and head of Fast Retailing, and Japan’s second-richest person.
Those weaknesses will hamper Japan in the Reiwa era. Nonetheless, its ability to cope should not be underestimated. And the world should pay attention. Showa Japan once offered lessons in how to win the future, while Heisei Japan showed how to lose it. Reiwa Japan will offer lessons in how to survive. The place to start is on Japan’s front line with China.
Do read both. I have a PDF version of Noah’s special report which I can share with special friends, so do let me know. And Richard Katz has just completed a book on social change in Japan, and how he thinks it could stimulate entrepreneurship, which will be published during 2022. I’m looking forward to it.