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| Japan's Lackluster Economic Boom |
| [Commentary] Most workers have not shared in record corporate profits |
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Hisane Masaki (hmasaki)  |
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Published 2006-10-17 03:30 (KST) |
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The Japanese economy is on track next month to mark its longest expansion since the end of World War II, but nobody seems to be cheering.
A key monthly government report last Thursday confirmed that the world's second-largest economy is still "recovering" after a decade in the doldrums, matching the longest postwar expansion of the 1960s, known as the Izanagi boom, which started a year after the 1964 Tokyo Olympic Games and ended with the 1970 Osaka World Expo.
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FROM THE SECTION |
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| The current expansion phase that began in February 2002 had already surpassed the 51-month-long "Heisei bubble boom" (Dec. 1986-Feb. 1991) in May. The government report predicted that the recovery will continue on the strength of ongoing domestic private-sector demand for a while. It now is almost certain that the current economic expansion will surpass the 57-month-long Izanagi boom (Nov. 1965-July 1970) next month.
In Japanese mythology, Izanagi and his wife Izanami are the deities who created the Japanese archipelago and its gods. In the current economic expansion, however, many ordinary Japanese people do not seem to be rendering thanks to any god. Unlike the previous booms, the current one is still anonymous, with no name - divine or otherwise - given yet.
To be sure, the current economic expansion has brought many positive results, but critics claim that any recovery that goes largely unnoticed and unthanked by the public should be written off as just an "official record." Why haven't many ordinary Japanese people realized as much benefit from the current boom as the talk of a new growth record suggests?
Gross domestic product (GDP) has grown at an annualized pace of only about 2 percent on average in real terms during the current expansion phase. This growth rate is vastly eclipsed by the much faster rates logged during the past booms - 11-12 percent during the Izanagi boom and about 5 percent during the Heisei bubble boom. According to estimates by the Dai-ichi Life Research Institute Inc, the size of Japan's GDP increased 70.4 percent during the Izanagi boom and 24.9% percent during the Heisei bubble boom.
By comparison, the GDP had expanded by only 9.8 percent as of the end of last year in the current boom. Most companies and many households are said to gauge how well the economy is performing based on nominal GDP figures. The nominal GDP has so far expanded at a paltry pace of only about 1 percent during the current boom.
The benefits of the current boom have yet to filter through into small businesses, rural areas and households fully. Although former prime minister Junichiro Koizumi is widely credited for beating deflation and turning around the ailing economy, critics say his laissez-faire, market-oriented structural-reform program has left the negative legacy of a widening gap in society, especially between rich and poor.
Statistically, the income gap did grow. Japan's Gini index -- a gauge for measuring the degree of income inequality in a population -- has been steadily on the rise for a long time, showing widening income disparity. But some analysts, while conceding the widening disparity, have suggested that the phenomenon is not necessarily related to Koizumi's reform programs.
Be that as it may, there has been considerable disparity in the pace of business recovery between larger and smaller firms and also between big cities and the rest of the country. And most Japanese workers have not seen their wages rise during the current boom.
According to the Bank of Japan's latest "Tankan" survey of corporate sentiment, the key diffusion index (DI) for large manufacturers stood at plus 24 and that for large non-manufacturers at plus 20. The DI for small and mid-size manufacturers remained at a lackluster level of plus 6, while that for small and mid-size non-manufacturers was stuck at an even lower level of minus 8. Business confidence figures are calculated by subtracting the percentage of companies reporting unfavorable business conditions from that of those reporting favorable conditions.
Land prices are one barometer of local economic conditions, and commercial land prices in Japan's major metropolitan areas are rising for the first time since their collapse in the early 1990s. Concerns about a "mini-bubble" have even been voiced amid soaring land prices in fashionable urban areas such as Roppongi and Aoyama in Tokyo. But land prices in many rural areas remain largely depressed.
Although companies have begun to add to their payrolls, a record high proportion of Japanese people -- about a third of the total workforce -- now work as "irregular" (temporary or contractual) employees, a status lower paid and more insecure than their regular colleagues. After years of slashing the number of regular workers in favor of irregular ones to cut costs, however, Japanese companies are beginning to hire more regular workers, amid the ongoing economic recovery and an anticipated mass retirement of baby-boomers in 2007.
Despite record corporate earnings and an improving job market, wages earned by Japanese fell almost 10 percent between 1997 and 2005, an average cut of more than 400,000 yen, or US$3,400, Labor Ministry reports show. Japan's households kept themselves afloat during those years by spending money they would otherwise have put away for the future. As a result, the country's savings rate declined to 2.4 percent from 10.4 percent.
BOJ governor Toshihiko Fukui said in May that the driver of Japan's economic growth would gradually shift to consumer spending from corporate investment. But that has not yet happened. Consumption is weaker than expected, largely because of lagging income gains. Japanese wages still have not reversed their decade-long slide even with the country's economic expansion now in its 57th month. While businesses plan to increase their capital expenditures at the fastest pace in 16 years, higher costs for raw-materials and fuel make them reluctant to raise pay.
Even if salaries rise more quickly, many households may choose to rebuild savings rather than spend. Most Japanese are increasingly concerned about a possible sharp surge in social-security and tax burdens amid the rapid aging of society and declining birth rates. Last year, Japan's population began to decline for the first time since World War II. The country's working population had begun to shrink several years earlier.
Experts warn that the country's social-security systems, such as pensions, health care and nursing care for the elderly, will collapse unless steps are taken such as a significant increase in social-security contributions, a reduction in benefits, or a tax increase.
Japan's fiscal condition is still the worst among major industrialized countries. Total outstanding government debts, including bills, bonds and other types of borrowing, totaled 813 trillion yen ($7.06 trillion) at the end of last year, exceeding the 800 trillion yen mark for the first time. This translates into a 6.36 million yen debt per citizen.
Abe faces calls to raise the consumption tax to finance rising social-security costs and stem an even further rise in government debts. Even some within Abe's own party, including former finance minister Sadakazu Tanigaki, advocate that the consumption-tax rate, now 5 percent, be doubled in the early 2010s.
While saying he "won't run from the debate on taxes," however, Abe has advocated cutting expenditures before seeking a tax increase. He has said the contentious debate over raising the consumption tax will have to wait until the latter half of 2007, after the Upper House elections.
The coalition between Abe's LDP and the New Komeito party enjoys a roughly two-thirds majority in the House of Representatives. Still, next summer's Upper House poll, in which half of that chamber's seats will be at stake, could affect his political fortunes. The Democratic Party of Japan, led by former LDP heavyweight Ichiro Ozawa, has promised to grab a majority of seats in from the LDP-led coalition as a stepping stone toward taking power in the next general election, due by September 2009 at the latest.
The consumption tax was introduced in 1989, but only a few months later, prime minister Noboru Takeshita was forced to resign. The tax rate was raised from the original 3 percent to the current 5 percent in 1997, after which consumer spending slumped and the country slipped back into recession. The LDP suffered a debilitating loss in the elections the following year, forcing prime minister Ryutaro Hashimoto from office.
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Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. This article appeared on Japan Today. It is part of an article that originally appeared on Asia Times.
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©2006 OhmyNews
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