HONG KONG — It’s official. Japan, which economists and other pundits predicted 20 years ago was heading to the very top of the global league by about now, has in terms of 2010 gross domestic product slumped to No. 3.
The U.S. is No. 1, but sickly, running the biggest budget deficit ever recorded, a huge $1.5 trillion. China is No. 2 and aggressively rising.
Japan is an also-ran headed to the second division any way you measure its prowess: by sheer economic numbers, by industrial might, political weight, diplomatic influence and military muscle.
Of course, GDP numbers and league tables are bogus. What really matters is how comfortable people feel, their quality of life, having a job and sufficient income to eat, pay bills and save for a rainy day, being able to confront sickness and old age without being forced into destitution, with a secure political umbrella, and leaders who are respected and not pushed around.
Japanese immediately retort that their lifestyles are the envy of anybody anywhere and their streets the safest in the world, though they hesitate about expressing confidence in their politicians. But the situation is changing rapidly: Japanese are like a frog swimming in a comfortable warm bath unaware that the heat is being turned up.
It is not merely the massive government debts, twice GDP, nor the heavy budget deficit, nor the rapidly aging population — 22 percent already over 65 — which will add cripplingly to government health and welfare bills, but the continuing hollowing out of Japan’s industry, the lack of new job opportunities and the failure of political imagination to see a way of breaking the stranglehold of vested interests on economic and social life.
Hard-pressed Prime Minister Naoto Kan has woken up to some of the problems and is trying desperately, waving and perhaps drowning, to signal that it is time to get to grips with the government’s massive debts. He has appointed a renowned “fiscal hawk,” the curmudgeonly Kaoru Yosano, to be economic and fiscal policy minister tasked with putting Japan’s fiscal house in order and raising the 5 percent consumption tax.
He has asked other political leaders to help him solve the intractable problems of a heavily indebted economy through a grand brainstorming debate. He’s also tempting big business with promises of reducing the 40 percent burden of corporation tax, one of the heaviest burdens in the world.
For this show of grit, the Japanese public has rewarded Kan with approval ratings that have risen to 32 percent. That’s probably about right, a lot better than his string of predecessors, but not a mark for a man on top of the job.
Even an innumerate can work out that doubling the consumption tax from 5 percent will not do much for the popular mood and will depress the economy — yet some economists say that a tax of 20 percent may be necessary really to fix the black hole in the budget.
In any case it is not going to happen easily. Kan’s many opponents, outside and inside his Democratic Party of Japan, are not going to go to his brainstorming party. Their priority is to turf him out of power, even before attending to the budget and deficit problems. Robert Feldman, chief economist of Morgan Stanley MUFJ, lists 10 contradictions covering almost the whole battlefield of Japan’s political and economic life that pose insurmountable problems.
Just to take his efforts to clean up Japan’s household finances, Kan cannot pass the budget implementation bills without a stable coalition; and he cannot create a stable coalition without disrupting the unity of his own party. He cannot keep the party together unless the widely hated “Shadow Shogun” Ichiro Ozawa stays inside; yet Kan will be unable to gain popular support unless he kicks Ozawa out.
Slightly beyond that, Kan cannot get to grips with Japan’s underlying economic problems without a consumption tax hike, spending cuts and growth policies that undercut vested interests; but he would have to show guts and leadership qualities rare in history to win an election based on tax increases and spending cuts.
Then there is a whole obstacle race of contradictions further ahead, involving relations between the bureaucracy and politicians, election reform, economic progress, the future of industry, international trade, and defense relations under the U.S. nuclear umbrella.
The economic pressures on beleaguered Japan grow daily. Akio Toyoda, president of the flagship Toyota Motor Corporation, has warned again that with the yen at 82 to the dollar and creeping again toward all-time highs of 80, his company will have to take a hard look at how many of its vehicles can profitably be made in Japan. Companies are squeezing on new hiring, and almost a third of fresh college graduates have been unable to find jobs. Economists running the gloomy numbers have projected that Japan’s economy may fall behind South Korea, which has only 50 million people against Japan’s 126 million, by 2022.
The logically classic way to deal with dilemmas is to escape between their horns. In Japan’s case, this would mean going for growth, that would promote well-being and jobs and revenues to counter the effects of cuts and tax increases. But growth and seizing new opportunities seem far from Japanese minds.
I asked Mikako Hayashi, a clinical, teaching and research associate professor of endodontology at Osaka University, who is one of the most thoughtful Japanese. Her job allows her to listen to the dreams and fears of patients and to survey the attitudes of the next generation of bright students, while she keeps a close eye on international trends through her own research.
“Japan is becoming a nation of ‘shoganai,’ ” she said. “The word literally means, ‘It can’t be helped’ or ‘nothing I can do’, but it has negative connotations of being determined not to do anything, just happy to be stuck. It is a depressing attitude, seen in large numbers of teenagers who are taking to wearing flu masks because they want to live in their own worlds.” She added another phrase that is in vogue, “the Galapagos effect.”
“It usually refers to very high-tech products, such as mobile phones, electronics, electronic money, designed only for the Japanese market, which leave the rest of the world behind. The trouble is that it is Japan that is being left behind by these self-centered views.
“It is time we looked in a mirror that allows us to show ourselves and compares us with what is happening elsewhere, especially in China and Korea. They may not have our cutting edge products, but they are going round and behind and developing good and profitable products that the world wants to buy.
“We in Japan have much to offer and much to learn. If we don’t, Japan is going to be a very uncomfortable place, especially for the diminishing numbers of our children and grandchildren.”
Kevin Rafferty is a veteran journalist.
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