Archive for the ‘Japan’s Economy’ Category

Japanese Housewives and Why They Rule the World

Sunday, May 9th, 2010

Perhaps when one talks of “the financial world,” it may evoke images of powerful finance ministers pulling the strings behind closed doors. Perhaps it conjures the image of the nondescript building of Goldman Sachs. Or, perhaps, it doesn’t really call to mind very much at all.

The truth of the matter is, if the financial world is a boat in rough waters, then at the helm are Japanese housewives.

For years, both the central banks of Japan and America have been boggled by why their monetary policies seem to have very little effect on the marketplace. Alan Greenspan, former chairman of the FED, famously proclaimed that this new world in which central banks no longer hold very much authority a “conundrum.”

In other words, the big dogs (i.e. the government and the savvy investment banks) were no longer calling the shots in the world of finance.

So who took over? Who is this enigmatic man that has suddenly taken the reins of power?

The answer may be surprising. This man, against historical convention, isn’t Caucasian. In fact, he isn’t very much of a man at all.

He is, in fact, a she, and she is none other than what The Economist now calls “Mrs. Watanabe:” the amalgam of Japanese housewives that have at their disposable nearly all of Japan’s household savings.

This reality is perhaps best expressed in David Smick’s book The World is Curved.

Smick, a famous financial consultant, observes:
“the Japanese system, once brilliant at controlling bureaucratic image and substance, is today facing its own fragile world that is curved. Now millions of [Japanese] housewives and other market decision-makers care little about bureaucratic image and power. They care about information-facts and insights that reflect future rates of return and risk. They care little about bureaucratic power because, in today’s brave new world, they collectively now are the power.”

“by the beginning of the twenty-first century, the frustrated housewives (and/or herads of households) had had enough of the economy’s poor performance, particularly its poor returns on savings account investments […] the housewives, taking financial matters into their own hands, began to hunt for a greater return on their savings.”


And here, perhaps, is where the changing landscape is best expressed:

In the world of currency trading, a common question lately has become: “what are the [Japanese] housewives investing in these days?”

Today, in a world where liquid capital is scarce and where Japan holds a great amount of the world’s reserves, Japanese housewives are the key players in deciding where future investments will be made.

If you want to know where best to invest your 401k, your best consultant is the apron-clad housewife walking her dog in Japan.


Schooled by Scandinavia? Not Quite.

Friday, April 23rd, 2010

The bandwagon for lauding the Scandinavian countries (Denmark, Norway, Sweden) is here and just about every Japanese professor has hopped aboard.

They’re right about one thing: The Scandinavian welfare model is certainly an object of adolation all across the world.

It offers universal health-care, subsidized higher education, and comprehensive social security. The Scandinavian welfare model undoubtedly provides the best social safety net to its citizens compared with any other system in the world. A strong social safety net paves the road towards the egalitarian welfare states of Northern Europe, which Japanese professors have been viewing lately with increasing admiration.

Take Norway for instance. Norway has consistently ranked #1 on the UN’s HDI (Human Development Index) from 2001~2007, and again in 2009. Norway also has one of the smallest wage-differentials in the world, evident in its low Gini coefficient (the Gini coefficient measures inequality within a country; the lower the score, the more equal the nation is considered to be.)

In contrast, Japan’s Gini coefficient has been steadily rising. Wage-differentials are growing, with the middle-class being eroded from both sides: a greater number of people are slipping into the quagmire of poverty, and people who were originally average-Joe’s have started to earn incomes that go well up into the stratosphere as well.

To add insult to injury, Japan’s social safety is weak, unsustainable, and inefficient. For example, Japan does offer universal health care to its citizens, but just recently the amount the state covers has been reduced to 70% of the bill, from the original 80%. This makes it increasingly difficult for old people with chronic diseases to receive treatment.

So thus there is little wonder that Japan looks to the Scandinavian states for guidance.

But there are two critical difference between Japan and Scandinavia:

Japan is bereft of resources; Scandinavian countries have a surfeit of them.

Take Norway’s state-owned Statoil for instance. Whenever Norway needs a sizeable GDP boost, Statoil steps in by ramping up oil exports, providing Norway with a renewed inflow of foreign currency. Norway, like Sweden and Denmark, also enjoys a geography rich in natural gas, forests, and minerals: all primary goods that can be used for export should the need arise.

Of course, exporting natural resources is only a fall-back plan. The Scandinavian countries encourage their citizens to pursue higher education so that processed goods with higher market value can be exported. In other words, while the Scandinavian countries usually employ knowledge-intensive goods for export, they also have the ability to fall back on their natural resources to ride the rough waters should the need arise.

Japan, while having strong human capital, has very little natural resources available for export. Thus one reason that the Scandinavian model won’t work in Japan is Japan’s lack of natural resources available for export.

The other crucial difference between Japan and the Scandinavian countries is that Japan has a significantly larger population. In order to provide a strong social safety net to all of its citizens, Japan would need to earn much more through its exports. In contrast, since the Scandinavian countries have smaller populations, they can concentrate more of the nation’s wealth per capita than Japan can.

The need for a better social safety net in Japan is clear. But Scandinavian countries, while providing a good case study, is not the ideal model for Japan, atleast not without refinement.

The only path towards growth (which is a prerequisite for knitting a better social safety net) that Japan can take is by improving its education and strengthening its comparative advantage in knowledge-intensive goods. Japan had rationalized its educational institutions in the Post-war years and took the semi-conductor industry by storm in the 1970′s. But lately, the current Prime Minister Yukio Hatoyama has been consistently cutting the Ministry of Education’s budget.

With limited time and limited national savings, Japan must concentrate on providing quality education to its next generation of footsoldiers: before its too late.


“Eco-Points”: Not so eco-friendly

Thursday, April 15th, 2010

Have you ever wondered just how eco-friendly “Eco-Points” are? After all, the Japanese government has specifically articulated that only eco-friendly products will merit “Eco-Points,” a new form of government subsidy.

If one really thinks about it, the “Eco-Points” system isn’t environmental friendly at all. It’s not in the least bit green; it’s a total farce.

According to JapanTimes, the Japanese government has installed the “Eco-Points” system to:
1) stimulate consumption
2) to promote [the] use of energy-efficient goods

This should be revised to say:
1) to stimulate consumption, especially household consumption
2) to promote the idea that Japanese citizens are buying themselves into being environmentally conscious citizens

More on #2 later. For now, lets concentrate on #1.

So, just how green are “Eco-Points?”
Let’s take a look at TV’s for example (one of the 4 products where “Eco-Points” can be redeemed- the others are refrigerators, air conditioners, and cars).

“Eco-Points” can be redeemed for TV’s that have high energy efficiency. So far, so good.
You get more “Eco-Points” for bigger TV’s. In other words, the bigger the TV, the more “Eco-Points” you get.

Ah, now we begin to see some contradictions. Obviously, if the TV is bigger, there will be greater energy consumption. A household that originally intended to buy a 32-inch TV may decide to swap their old TV for a 40-inch instead, an increase in energy use caused by the warping of consumer preference by none other than “Eco-Points!”

 To give you an idea of what this implies, here’s a little graph to help you visualize just how eco-friendly “Eco-Points” really are:

This graph makes the whole “Eco-Points” sham glaringly obvious in all it’s notorious glory. The government isn’t really trying to make Japan greener (though just like any other country, it certainly loves proclaiming to be eco-responsible.)

It’s basically just trying to get consumers to spend their hard-earned cash on not just a new TV, but a bigger TV. Not just a new refrigerator, but a sleeker, air-brushed steel door refrigerator. Not just a new air conditioner, but an air conditioner that dispenses negatively-charged ions that refreshes the room’s air.
In other words, “Eco-Points” is an attempt to jump-start the economy. It is, in fact, nothing short of and nothing more than a government-sponsored defibrillation of an increasingly floundering economy.

In the JapanTimes article List of goods qualified for Eco-points now out, there’s a Q&A which reads:
Why are the points being awarded only for air conditioner, refrigerator and TV purchases?

The government is focusing on those appliances because half of total carbon dioxide emissions from households are produced by these three products alone, according to the Environment Ministry.”

Notice how the answer state “carbon dioxide emissions from households.” If there’s any room for opposition left, here’s the knock-out kick statistics:

Japanese households consistently make up less than 20% of total CO2 emissions.

If the Japanese government really wanted to get serious about cutting down on CO2 emissions, then they would enact regulations on the industrial sector, by far the biggest pollutor. But that would hamper GDP growth, the government’s primary objective.

Why aren’t “eco-points” being applied to say, greener production lines or greener smelting equiptment? The answer is simple: the government wants to put an end to consumer frugality and stimulate domestic demand.

Let’s review.
Publically, the government has stated it has launched the “Eco-Points” system to:
1) stimulate consumption
2) to promote [the] use of energy-efficient goods

And I argued,
This should be revised to say:
1) to stimulate consumption, especially household consumption
2) to promote the idea that Japanese citizens are buying themselves into being environmentally conscious citizens

From everything I’ve written thus far, #1 is quite obvious: The government wants to jump-start the economy by having consumers literally buy themselves out of a decade-long recession.

Now on to #2. The evidence for #2 has already been mentioned, but what good is there in coupling a system that rewards more expenditures with something like eco-friendliness?

In a previous article, I wrote about how we’ve entered an era of “symbolic consumerism.”

The fact is, we now live in an advanced capitalist paradigm in which we can buy ourselves into a new image of ourselves, including the view that we’re environmentally conscious, no matter how preposterous and paradoxical that may be in reality.

But I’ll give it to the DPJ. Their a wily lot, and while “Eco-Points” hasn’t made the world a greener place, it has certainly dethawed many people’s wallets.

So, all in all, I’ll give it to the DPJ: a party doing a splendid job spurring GDP growth under the banner of being green- since 2009.


Japanese Cell Phones: From Evolution to Extinction?

Wednesday, March 31st, 2010

Japanese cell phones, called “keitai” by the Japanese, are the savviest line-up of mobile cell-phones you’ll ever set your eyes upon. New models sport features such as a 12-megapixel camera, waterproof casing, GPS navigation, live video feed, e-Money capabilities, and more. While the world continues to embrace their “generation 3.0″ cell phones, the Japanese are texting away on their “generation 3.9″ counterparts.

This might make you want to travel to Japan, buy a cell phone, and use it back at home. What greater trophy can you obtain in Japan than one of these enigmatic technological marvels? You can dazzle your friends with your newfound buddy: the expatriated Japanese cell phone. You might even fancy giving it a Japanese name: like “Mr. Wasabi.”

Unfortunately, for those of you who just opened up a new internet tab to book the next flight to Japan, the abovementioned scenario is just not feasible. Japanese cell phones are compatible only in Japan.

For instance, if you were in Japan, you can use your phone as a train ticket. The “mobile Suica” service, developed by Sony, spares commuters from having to buy a ticket and allows them to use their phones instead, which greatly speeds up the flow of commuters (this helped alleviate congested public rail services, and, I suspect, also breathed new life into Sony, which has been in ailing health for quite some time now). However, the Suica service is provided only in Japan. A Japanese cell phone won’t be able to purchase train tickets for railways in anywhere else in the world.

It’s not just the “mobile Suica” service that’s incompatible abroad. The phone itself literally cannot be used anywhere else in the world (except, perhaps, as a paperweight). While the world uses 3G for cell phone coverage, Japan continues to use its unique W-CDMA and CDMA2000 standards. In other words, unlike other phones, you can’t just take out your SIM card from your old phone and swap it into your new one.

Looks like “Mr.Wasabi” won’t be going West for a while.

Many Japanese engineers, economists, and university professors liken this phenomenon to the animals living on the Galapagos Islands. For those rusty on Charles Darwin, the Galapagos Islands was where Darwin ironed out his theory of evolution in his iconic work The Origin of Species. Through natural selection, the animals of the Galapagos Island became more suited to their environment. The same can be said of Japanese cell phones. They are tailored to meet the needs of the home market, are synchronized with Japanese carrier standards, and are deviating farther and farther away from the global standard.

This would be less of a problem if the Japanese population wasn’t shrinking faster than you could jump ship from a ship taking water. With the inevitable downsizing in the number of domestic consumers, the Japanese cell phone industry will have to start setting its binoculars outside of the Japanese islands.

Some lawmakers have began contemplating mandatory “SIM-free” laws, which would be the first step towards making Japanese cell phones compatible with other carriers. In foreign countries, there are already laws in place which mandate cell phone companies to “unlock” their phones after a certain period of time.

After many years of “natural selection,” Japanese cell phones have become the most advanced in the world. With legal reform and some hardware tweaking, the phones can be sold aggressively abroad.

Otherwise, they’ll just continue to evolve… and become extinct.


Japan: From Egalitarianism to Plutocracy

Friday, March 26th, 2010

“ichiokusouchuuryuu(一億総中流)” or “100 million middle class [citizenry]” was the pride and glory of Japan following its mesmerizing growth which lasted a solid two decades from roughly 1955~1975. Over 87% of respondents during the late 1980′s identified themselves as middle class, and Japan became the first and remains the only country that achieved compatibility between high economic growth without exacerbating wage-differentials for an extended period of time.

As Harvard sociologist professor Ezra Vogel states in his book Japan as Number One, Japan’s “ichiokusouchuuryuu” was made possible by “the success in income distribution […] from a booming economy with full employment […] in national polls about ninety percent of the Japanese public consider themselves to be middle class.” (Vogel, 1979)

The key words that Vogel uses here are “success in income distribution” and “booming economy with full employment.” In other words, Japan’s export-driven GDP growth was climbing so rapidly that those in primary sectors (the agricultural sector) were siphoned into secondary (industrial) and tertiary (service) sectors in large numbers. With exports booming, demand for labor was consistently high, allowing what we now identify as characteristic of Japan’s management style: a seniority-based wage system, lifetime employment, company-based labor unions, and lavish corporate welfare/benefits.

These four proved critical in maintaining full employment and keeping wage-differentials down. I’ll examine each one in detail below:

A seniority-based wage system: Wages were initially low upon entering a company, but everyone’s wages rose in direct correlation to their years of service. Any differences in wage between coworkers on the same “wage rung” was purely a a sign from the company to the employee to get his act together.
Miniscule wage-differentials was made possible by a corporate mentality of a “family” or “clan.” For example, Mitsubishi employees were said to have characteristics of a “Mitsubishi person” and Matsushita employees were said to have characteristics of a “Matsushita person.” Corporate flags, banners, and slogans strengthened the unity between employees and their employers.

Lifetime employment: Played a critical role in maintaining full employment. Needless to say, lifetime employment was made possible by consistent growth, atypical of a “normal” economy. Japan was priviledged to benefit from its geopolitical location as the bastion of democracy in the Far East; if America didn’t consider Japan an ally, America would not have provided the necessary groundworks (i.e. continued demand for Japanese goods and services) for re-industrialization.

Company-based labor unions: The name itself is rather misleading; company-based labor unions are characterized by amicable relationships between employees and employers. This is why many identify Japanese corporations as socialist in nature. Without company-based labor unions, there would have been the possibility of industry-wide strikes, which would have choked Japan’s export-driven economy.

Lavish corporate welfare/benefits: Provided the means for an egalitarian society. The Japanese government was never a “big government” to begin with, and corporations provided the bulk of social welfare in the form of corporate housing and corporate health insurance.
The lack of government intervention can be measured by Gini coefficient terms-Japan is the second most egalitarian country of the OECD nations before government redistribution, but the third most unequal nation after the US and Great Britain after income distribution has taken place. (Miura, Karyuu Shakai, 2005)

Today, the landscape has changed. Japan’s economy has “normalized” and experiences peaks and troughs, making the abovementioned Japanese management style infeasible. We now see a more meritocratic wage-system, no guarantees of lifetime employment for part-time workers, a lack of interest in unions by employees, and a shrinking of corporate welfare/benefits.

Without heavy corporate intervention in the provision of a social safety net, Japan will continue to lose its egalitarian nature. Unlike the welfare nation-states of Nothern Europe, the Japanese government continues to provide very little to its citizens. This is a recipe for disaster: Japan’s social fabric is being worn away, which, in the long term, will cause the Japanese economy to tank.

Japan’s relative povery levels (relative poverty: those who earn less than 1/2 the average income of a particular country) has been steadily rising ever since there has been an increase in liquidity in the labor market.

The cause? An Increase in the number of part-time workers.

Part-time workers are hired contractually; they are given no guarantees of lifetime employment. They are also excluded from corporate welfare and earn about half as much as their full-time counterparts. As of 2009, part-time workers exceeded over 40% of Japan’s labor force.

This wouldn’t be problematic if the Japanese government took an active role in retraining part-time workers (most of whom have no specialized skills) and provided unemployment benefits. Without a “bigger government,” Japan’s social capital will continue to erode.

CitiBank recently wrote an article about how Japan was becoming a plutocracy, a system in which power is vested in those with the fattest wallets. The etymology of the word plutocracy can be traced to the Greek words ploutos for wealth, and kratia for power.

We are seeing the setting of Japan’s egalitarian sun, and the dawn of a society where the few with money are the few that rule.