By many measures, Japan's economic fortunes have turned up. The Tokyo stock market has surged about 65 per cent since last fall. In the second quarter, the economy expanded by 3.8 per cent, which is faster than other developed economies.
At last, prices are edging upward, a good thing for Japan. Yet the mood in Tokyo among businessmen and economists remains precariously balanced between enthusiasm for the monetary and fiscal stimulus unleashed by Prime Minister Shinzo Abe and worry that promised structural reforms might not be implemented.
That's a worry that other countries should absorb. What concerns businesses in Japan concerns business all around the world.
In the endless global debate about the importance of macroeconomic budgetary and monetary policies, insufficient attention is often given to the unsexy, often politically toxic pile of smaller-bore policy challenges that can be critical to restarting a faltering economy.
Many countries need to take on those challenges, including calcified parts of "old Europe" like France and Italy, emerging nations like India, and even the United States, with its shortsighted slant toward consumption in place of saving and investment.
Japan is certainly as shackled by its own rigidities as any other country. While some export-oriented industries (autos but, notably, not electronics) have remained competitive, the domestic economy feels straitjacketed by bureaucracy, tradition and overregulation.
Accordingly, Abe has promised to deliver a vast array of microeconomic reforms, from permitting online drug sales to increasing the number of women in the workforce by expanding child care, to "corporatizing" Japan's fragmented farming industry.
But to date, virtually none of Abe's long, self-created to-do list of structural reforms, which he calls the "third arrow," has been proposed in full detail, let alone completed. During even a short visit, it's easy to see that the need for microeconomic reform is glaring.
All told, Japan's labour productivity is 71 per cent of America's - and on a par with Italy's. While Japan is still a wealthy country, its return on capital is equally unsatisfactory. Take, for example, the effect on staffing levels resulting from Japan's long-standing aversion to firing.
Over drinks, an American friend working at a major Japanese bank bemoaned his company's lack of cutting-edge computerized systems, which he ascribed to the bank's having so many people that it was more cost effective to have work done manually.
Some other industries troubled by noticeable inefficiencies include health care, retailing and agriculture. The average Japanese farmer is 66 years old, his farm is less than 5 acres in size, and he is the beneficiary of his share of about $50 billion of annual government subsidies.
Japan creates new companies at half the rate of the United States; as a result, the number of companies is shrinking and Japan ranks last among 24 developed nations in its level of entrepreneurial activity.
The country also needs corporate governance reforms, like stronger boards to force change at turgid huge companies. And much like the United States, it needs better tax policy: fewer loopholes, lower rates on income and, down the road, as the economy recovers, more revenue to close gaping budget deficits.
Even if the prime minister pursues his ideas vigorously, Japan will still face significant structural challenges. For example, despite a declining population, no one in Japan - essentially a closed society - is talking seriously about reforming exceptionally strict immigration laws.
Nor do many expect meaningful changes in rigid labour policies. Some elements of Abe's plan appear to be working. In order to stimulate consumer purchasing, he has exhorted Japanese companies to replenish thin wallets by increasing wages.
As a result, consumer spending has begun to tick up, particularly for luxury items. Inside the Daimaru department store near the Tokyo train station, gleaming new boutiques have been built for brands like Prada and Bottega Veneta. Loan demand and business investment are also finally increasing.
But Tokyo, which once seemed so dazzlingly modern, now feels far from cutting edge next to gleaming cities like Shanghai.
A gloomy sensibility was particularly apparent this summer, when office lights were dimmed, temperatures turned up and strict office dress codes relaxed as Japan grappled with shrunken electricity supplies following the Fukushima nuclear incident.
Given Japan's past failure to take on sacred cows, it's unlikely that the country will ever again rank as an economic juggernaut. But a robust third arrow could at least put it back in the game and provide an important lesson for other developed countries.
indiatimes.com
At last, prices are edging upward, a good thing for Japan. Yet the mood in Tokyo among businessmen and economists remains precariously balanced between enthusiasm for the monetary and fiscal stimulus unleashed by Prime Minister Shinzo Abe and worry that promised structural reforms might not be implemented.
That's a worry that other countries should absorb. What concerns businesses in Japan concerns business all around the world.
In the endless global debate about the importance of macroeconomic budgetary and monetary policies, insufficient attention is often given to the unsexy, often politically toxic pile of smaller-bore policy challenges that can be critical to restarting a faltering economy.
Many countries need to take on those challenges, including calcified parts of "old Europe" like France and Italy, emerging nations like India, and even the United States, with its shortsighted slant toward consumption in place of saving and investment.
Japan is certainly as shackled by its own rigidities as any other country. While some export-oriented industries (autos but, notably, not electronics) have remained competitive, the domestic economy feels straitjacketed by bureaucracy, tradition and overregulation.
Accordingly, Abe has promised to deliver a vast array of microeconomic reforms, from permitting online drug sales to increasing the number of women in the workforce by expanding child care, to "corporatizing" Japan's fragmented farming industry.
But to date, virtually none of Abe's long, self-created to-do list of structural reforms, which he calls the "third arrow," has been proposed in full detail, let alone completed. During even a short visit, it's easy to see that the need for microeconomic reform is glaring.
All told, Japan's labour productivity is 71 per cent of America's - and on a par with Italy's. While Japan is still a wealthy country, its return on capital is equally unsatisfactory. Take, for example, the effect on staffing levels resulting from Japan's long-standing aversion to firing.
Over drinks, an American friend working at a major Japanese bank bemoaned his company's lack of cutting-edge computerized systems, which he ascribed to the bank's having so many people that it was more cost effective to have work done manually.
Some other industries troubled by noticeable inefficiencies include health care, retailing and agriculture. The average Japanese farmer is 66 years old, his farm is less than 5 acres in size, and he is the beneficiary of his share of about $50 billion of annual government subsidies.
Japan creates new companies at half the rate of the United States; as a result, the number of companies is shrinking and Japan ranks last among 24 developed nations in its level of entrepreneurial activity.
The country also needs corporate governance reforms, like stronger boards to force change at turgid huge companies. And much like the United States, it needs better tax policy: fewer loopholes, lower rates on income and, down the road, as the economy recovers, more revenue to close gaping budget deficits.
Even if the prime minister pursues his ideas vigorously, Japan will still face significant structural challenges. For example, despite a declining population, no one in Japan - essentially a closed society - is talking seriously about reforming exceptionally strict immigration laws.
Nor do many expect meaningful changes in rigid labour policies. Some elements of Abe's plan appear to be working. In order to stimulate consumer purchasing, he has exhorted Japanese companies to replenish thin wallets by increasing wages.
As a result, consumer spending has begun to tick up, particularly for luxury items. Inside the Daimaru department store near the Tokyo train station, gleaming new boutiques have been built for brands like Prada and Bottega Veneta. Loan demand and business investment are also finally increasing.
But Tokyo, which once seemed so dazzlingly modern, now feels far from cutting edge next to gleaming cities like Shanghai.
A gloomy sensibility was particularly apparent this summer, when office lights were dimmed, temperatures turned up and strict office dress codes relaxed as Japan grappled with shrunken electricity supplies following the Fukushima nuclear incident.
Given Japan's past failure to take on sacred cows, it's unlikely that the country will ever again rank as an economic juggernaut. But a robust third arrow could at least put it back in the game and provide an important lesson for other developed countries.
indiatimes.com
No comments:
Post a Comment