The chief economist of the Organization for Economic Cooperation and Development, Rintaro Tamaki, recently gave a talk that should be heard by all Japanese economists and policy makers. He observed that the aim of Japanese economic policy is still mainly about strengthening growth. However, in Europe, the more recent trends in policy strive for reducing inequality.
In his speech, delivered in Tokyo in July and based on a report considering the future of OECD and global economic development, Tamaki noted that the growth rate of emerging economies will gradually come down to that of advanced economies in coming years. For all developed countries, Japan included, there is a limit to expanding growth, most of which has been reached already.
That means the income inequality that inevitably results from the constant push for growth will in the long run be more destabilizing to the economy than helpful. As the OECD economists understand, efforts to reduce income inequality will have more positive long-term effects on stabilizing the economy. European countries already realize this and are implementing efforts to reduce inequality. Japan is not doing much in this regard.
The global economy, Tamaki also noted, will become increasingly interdependent. Japan should thus focus on establishing better trade relations, especially with its Asian neighbors. Because emerging markets will continue to rise, Japan should focus on getting a share of those markets, not on distancing itself from potential cooperation. However, Prime Minister Shinzo Abe’s policies and comments have only worsened relations with the very countries whose markets Japan will need in the future.
Japan is positioned to do well in that significant parts of Japan’s economy rest on value-added sectors of the economy — a developed service industry and highly skilled manufacturing. These are all areas important to future economic viability for all countries.
Japan has the potential to do well in the changing global economy of the next 50 years, but only if it can ensure the education of the workforce and the relative social equality upon which those advanced economic sectors depend.
Japan also needs to look ahead to understand that the nature of the economy will be one that is constantly evolving. That means workers in mid-career will need training to learn new skills, since old skills will become inadequate more quickly than before. Business and government must understand that they will need to stay flexible and innovative to adapt to developing conditions.
Unfortunately most of Abe’s policies look more to the past than to the future. Repeated attempts to use inflation to restart the economy have produced momentary jumps in growth.
But those little jumps are less beneficial in the long run than improving education, equality and relations with other economies. The speech by OECD chief economist Tamaki should serve as a wake-up call.