Now raising intellectual capital
Japan takes a kinder approach to growth
The victorious Democratic Party of Japan did not put economic growth at the heart of its electoral sales pitch. The party’s manifesto mentions “growth” only once. The word “support”, by contrast, appears 19 times.
Even so, there are reasons for optimism that the DPJ’s softer and more nurturing policies are just what the economy needs.
The global slump provided a painful reminder of the dangers of Japan’s export-oriented growth strategy. Output has fallen even faster than in other rich countries, leaving national income at roughly the same level as in the early 1990s.
After two decades of stumbling between recessions, policy makers need to convince their citizens to spend some of their vast cash savings, which are now equal to 1.5 times GDP. Making the Japanese feel more secure may be the best way of doing this.
There is plenty in the DPJ’s platform that looks encouraging. If Japan’s new government can enact election pledges, Japanese citizens would have fewer reasons to hoard cash.
Parents would benefit from a generous child allowance. High-school education would be made free and university scholarships more plentiful. For the elderly, there would be a minimum guaranteed pension of at least 70,000 yen (about $750) a month. The unemployed would get 100,000 yen (about $1,100) a month during job training.
There are two problems, however. The first is how to pay for this largess. The party’s belief that its $180 billion social agenda can be financed by cutting wasteful spending has left some economists unconvinced. A good deal of the fat in the budget was cut out when Junichiro Koizumi was prime minister from 2001 to 2006.
Canceling public works may be easy. But reducing the cost of Japan’s powerful civil service by 20 percent is a tall order — especially when combined with a drive to strip senior mandarins of much of their influence.
Meanwhile the DPJ seems reluctant to privatize the government’s giant postal savings and insurance businesses. An IPO could provide a large injection of cash without the need to trim costs or raise taxes.
If the Japanese feel the new social programs are unsustainable, they may be more reluctant to spend. With national debt at over 200 percent of GDP, a degree of skepticism would be natural.
The second economic headwind for the DPJ is even harder to overcome. Shrinking pay checks will make it difficult to tempt the Japanese into the shops. This year wages have been falling at their fastest pace on record — 7.1 percent in the year to June.
Beyond the cyclical downturn, deeper demographic forces are at work. As highly paid baby boomers retire, they are being replaced by cheaper youths, according to Edward Lincoln, an economics professor at New York University. This is ratcheting down wages.
A decline in the working age population will also make economic growth more of an uphill struggle. Overall the number of Japanese citizens has been falling since 2005. This makes Japan an unlikely engine of global growth even if the DPJ gets everything right.
Promising as some of its policies are, Japan’s new government will face strong headwinds. But it is good news both for Japan and the world that the country now has a leadership that seems inclined to put the interests of consumers before exporters.