Japan under the fading spotlight

Japan is a fascinating country. I personally rate the Japanese as one of the ‘master’ races of the world. But the current world narrative forbids any further discussion on this subject. I have only visited Japan twice and both times suffered from spinal problems due to excessive bowing. During the Second World War (WWII) when Japan controlled large swathes of South East Asia and South Asia, their top echelon made one cardinal mistake – the attack on the Pearl Harbor. Consequently, Japan was reduced to ashes. The rebuilding of Japan was launched. The Japanese people responded. Between 1950 and 1985 (35 years) Japan demonstrated the best economic boom the world had ever seen. Almost 10% GDP growth over 35 years. Every sector was modernized. The main architect of this growth was MITI – the Ministry of International Trade and Industry. MITI oversaw the allocation of state directed capital, technology transfer, reverse engineering, R&D, marketing etc. By 1980, Japan was becoming dominant in automobiles, engineering products, petrochemicals, textiles and apparel, chemicals, consumer electronics, etc. On the consumption side, long dominated by western multinationals, Japanese products were gaining international recognition. Kirin beer, Asahi beer, Suntory beer and Sapporo beer. Suntory whiskey was developing superior products (it’s all about the water source). Today Suntory has a brand line-up that can challenge Scotland. ‘Shiseido’, the beauty care brand, is top of the line. ‘Mikimoto’ pearls. By 1975, Japan had much surplus capital; they were purchasing assets around the world, including the Rockefeller Center in New York (beloved by the Americans). In 1982, it was estimated that the central business district in Tokyo, Ginza, was worth more than the state of California. This growth and dominance were ringing alarm bells in Washington DC and the European capitals. The same nations that had financed Japan’s rebuilding. A secret strategy was created to “contain” Japan. Before I venture forth on this let’s look at some Japan-relevant numbers 2019/20. Japan has a declining population. Current 127.5 million. Estimate for 2040, 115 million. The median age in Japan is 47 years (2nd highest in the world). The percentage of people over 65 years is 28.2%. Only Monaco is higher at 32.2%. The largest city in the world is Tokyo – 37.4 million. Japanese economy (GDP) is worth US$4.872 trillion. On Purchasing Power Parity (PPP) basis it falls behind India. Japan’s human development index is No.19 at 90.9. Its exports are 4.39% of the world (No.5). Official reserves are US$1.270 trillion. Gender pay gap is 24.5%. R&D spending is US$156 billion (No. 3 worldwide). These figures are generally known. The standout is the gender gap. Japan has achieved this economic miracle without mainstreaming its female workforce. Japan has been in economic deflation since 1990 (31 years). Financial stimulus has not worked. Neither has quantitative easing (QE) nor Abenomics. It all goes back to 1985 when the western powers decided to curtail Japan’s supercharged growth. MITI was deprived of funds, non-tariff barriers were imposed, emerging technology was not shared, market access was restricted etc. In fact, South Korea’s ‘Chaebols’ were encouraged and funded to steal business from Japan. Samsung was encouraged in consumer electronics and silicon chips/wafers. LG moved into white goods. Hyundai & Kia were set up for a frontal clash with the Japanese automotive giants. Taiwan was made the mecca for manufacturing silicon wafers (the building blocks of 5th generation industrialization). The project (whatever its code name is) succeeded. But it had one unintended consequence. China’s economic hegemony in the Pacific Rim. Just as Japanese economy was being put to sleep (1990), China’s took off. 30 years of uninterrupted growth. There was no power in the immediate vicinity to counter China. The project planners have taken the project back to the drawing board.

Can Japan bounce back? It depends.

Japan faces four structural problems:

1. Ageing population

2. Immigration phobia

3. Natural resource constraints (This issue has always been there. The current natural resources are already bespoke or committed.)

4. Debt – Japan is the highest indebted country in the world. Its current debt is close to 250% of GDP.

The end game should be interesting.

(The writer is a former Executive Director of the Management Association of Pakistan)

Copyright Business Recorder, 2021