/

Piketty’s solution for Japan’s sick economy? A fourth arrow

by

Toyota’s projected record $18 billion windfall profit should put a smile on Prime Minister Shinzo Abe’s face. This was, after all, how his economic strategy was supposed to work — after two years of driving down the value of the yen and filling the coffers of the nation’s giant exporters, they in turn would give workers fat pay rises. Hello consumer spending, goodbye deflation.

Except Toyota isn’t sharing the spoils. Like most of Japan’s industry bosses, Akio Toyoda, the company president, is hoarding the cash. Abenomics may be great for corporate Japan, but most of the nation’s 127 million people are still waiting for any benefit. How to move the wealth along? Well, there’s someone traveling the country who might offer Abe’s team a clue: Thomas Piketty.

Over the past week, the French economist has received rock-star treatment in Japan, where the translation of his 2013 book on inequality has hit bookshelves. The problem, Piketty argues, is that the Bank of Japan’s ultra-loose policies are ginning up stocks and real estate, assets that tend to further enrich the wealthy.

Meanwhile, the 30 percent plunge in the yen, disappearing bank-account interest and rising household costs are hurting everyone else. The BOJ, in other words, is increasing the gulf between the haves and have-nots.

“It’s not enough to print money,” Piketty told Bloomberg’s Daniel Leussink in Tokyo. “If you print money, you can create bubbles on the stock market, on real estate prices. But that’s not necessarily increasing consumer price inflation and increasing growth.”

By relying almost entirely on “creative” monetary policies and delaying any structural reforms, Abenomics risks increasing Japan’s Gini coefficient — a measure of a nation’s rich-poor gap. Japanese have long been proud of being ichioku-so-churyu — a nation of middle-class people. Yet Japan’s sense of egalitarianism is fading as fast as its tradition of lifetime employment. At 0.336, Japan’s Gini ranking is already worse than that of Germany, France, Italy and Canada.

Why are CEOs being so stingy? Abenomics has three arrows: monetary expansion, fiscal stimulus and a deregulatory “big bang.” The first two have been deployed, but Abe has failed to lower trade barriers, loosen labor markets, reduce red tape or encourage entrepreneurship. Corporate executives say higher wages are contingent on these upgrades; Abe wants paychecks fattened now. As the standoff continues, consumer-price gains (2.4 percent year on year) are setting Japanese back.

Just as Japan is a laboratory for what happens when an entire population ages, it’s a testing ground for whether zero interest rates can do more harm than good.

In a May 2014 paper titled “How Does Unconventional Monetary Policy Affect Inequality?,” economists Ayako Saiki and Jon Frost of the Netherlands central bank found that “structural reforms can play a role to offset widened income inequality.” The longer Abenomics remains just a monetary game, the more Japanese society will suffer.

“Abe talks about tackling deflation, but with so many younger workers sidelined into low-paid, dead-end jobs, they can’t spend much, won’t have families, won’t buy houses or invest in stocks,” said Jeff Kingston, director of Asian Studies at Temple University in Tokyo.

Japan’s relative poverty rate — those living on less than half of median income — is already about 16 percent, the sixth-worst among countries in the Organization for Economic Cooperation and Development. What worries Kingston is the rise of an insecure “precariat” in Japan, which he puts at 38 percent of the workforce. “Growing disparities,” he added, “trample on egalitarian norms and values. Increasingly, Abenomics is seen to be welfare for the wealthy.”

The answer, Piketty suggests, is a fourth arrow: a plan to redistribute wealth. Abe wants to cut Japan’s 35 percent corporate tax to further pad company profits. That would be grand for Toyota, which may earn more this fiscal year than the 11 other carmakers in Japan combined. Why not target the other end of the economy with tax incentives and stronger social safety nets?

“I think in Japan it’s important to rebalance the tax system in favor of the young generation, who have a very difficult time to access property right now in Japan,” said the author of “Capital in the Twenty-First Century.” “Increasing the value-added tax, which is what Abe did, is not a very good way to reduce inequality in Japan.”

Piketty also favors raising taxes on rich Japanese, particularly beneficiaries of what he calls “patrimonial capitalism,” or heavily concentrated wealth passed down over generations.

Abe also should slap a 10 percent to 20 percent levy on companies sitting on excessive cash piles. And why not use the bully pulpit to shame corporate Japan into sharing the wealth? If Toyoda and his ilk shared the record $2.3 trillion they held as of March 2014, Abenomics could be helping everyone.

William Pesek is a Bloomberg View columnist based in Tokyo who writes on economics, markets and politics throughout the Asia-Pacific region.

  • GBR48

    Right-wing Governments tend not to start implementing left-wing policies simply because their own haven’t worked. Would be nice to be proved wrong though.

  • Dipak Bose

    A country where everything is being produced in foreign countries cannot remain be prosperous unless it is an oil exporting country with very few people like Saudi Arabia.
    Japan does not manufacture anything. Whom are you going to tax?

    • Kingshuk Dasadhikari

      What do you mean Japan does not manufacture anything?

      • Dipak Bose

        Go to any shopping center or mall in Japan. Everything is made in China, even what NTT a public sector company sells. It is rare to find out anything which are made in Japan. This is the cause of unemployment and low pay. Inequality is the result of unemployment but not the cause.

      • Kingshuk Dasadhikari

        I am a permanent resident of Japan, and have lived here for 16 years. Yes, low key goods on supermarket shelves are made in China, but the same is true for most other countries, including the US and India. But, look for any high end technological/infrastructure goods, and you’ll see Made in Japan everywhere.

        Besides, Japan has one of the lowest unemployment rates in the developed world, in addition to comparatively low income inequality and remains affordable to most local residents on average wages.

      • Dipak Bose

        High End products: all equipment of NTT are Made in China. Most of the components of automobiles and electronic goods made in Japan are actually Made in China. This is the reason for high unemployment in Japan, which unlike in other developed countries are hiding the true level of unemployment. University graduates are working part time in grocer shop in Japan. Japan is being destroyed by Free Trade with China.
        It has nothing to do with inequality which was always there in Japan.

      • Kingshuk Dasadhikari

        LOL? Do you have any statistics or EVIDENCE to back up these silly claims, or is it all hearsay? Do you know what evidence means?

      • Dipak Bose

        If you are honest about what you said about yourself, just go to your nearest supermarket or Electrical shops or open up a car or electronic equipment, as for the qualifications of the shop assistants in Jusco or Takashimaya or look at the real high end products like aircrafts ( all made in USA with Chinese components). It will take serious research to find out what japan is producing except for Sushi, Sochu and Rice.

      • Go take some meds and get some rest. Right, we let the Chinese build the components and we assemble the capital goods. Don’t have to look that hard to find things built in Japan – cars, trains, beer, ramen, many clothes are designed in Japan and manufactured in China then imported and sold here. Bridges, buildings, financial instruments, ice cream, semiconductors …. alot. BTW… manufacturing jobs do not pay that much anyways. It’s the designers, engineers, marketers, market sales, analysts that make all the money … oh, and a few English teachers that are actually skilled and certified.

      • High unemployment in Japan? Oh yeah… among uncertified and inexperienced English teachers.

      • Dipak Bose

        Unemployment rate for people with age less than 25 is 6.4 percent last year in Japan.

      • Manfred Deutschmann

        But the unemployment statistics are not showing the whole truth – that most jobs in Japan are shared by three people if the same job is done by one person in the West. This is expensive and one of the reasons for Japan’s high debt and declining wealth.
        Have you ever walked past a Japanese construction site? You will have noticed a horde of men just standing around pointing to the warning signs that have been installed (making their jobs redundant).
        Japan’s statistics are simply nationalist propaganda, paid by debt and this debt is mostly held by Japanese nationals, thereby making the Japanese economy a huge Ponzi scheme (Pyramid).
        As we know, there are not enough Japanese born to keep up this Ponzi scheme in the future, so when the Pyramid will crash some day (in the next 20 days), Japan as we know it will cease to exist and I expect a takeover by China or self-destruction through civil unrest.

      • Kingshuk Dasadhikari

        Where are YOUR statistics to validate what you say then? Anecdotes don’t count as evidence.

      • Dipak Bose

        Unemployment rate for people with age less than 25 is 6.4 percent last year in Japan.

        Overall unemployment rate 3.4 percent.
        That means new jobs are not being created as these jobs are being exported to China.

      • Dipak Bose

        USA trade deficit with China is about $340 Billion, not counting the indirect imports from China, whereas Japan`s trade deficit about $120 Billion with China.

      • Dipak Bose

        Everything is false with you. Das- Aghikari cannot be a proper surname at all.
        Das means a person with very low status by birth, while Adhikari is a person with highest status by birth. These two cannot be mixed up.

      • Dipak Bose

        Japan`s definition of poverty is just absurd. according to Japan a couple with 2 children earning less than 200,000 Yen per month is poor.
        200,000 Yen is enough for a family to survive; they will starve to death.
        Most single Japanese earn about 100,000 Yen per month doing part time work; they stay with their parents to survive.
        Thus, Japanese statistics because of nationalistic reason hide a lot. Yet at the same time they surrendered to China.

        This is the root cause of unemployment, not inequality.
        Japan has always a very unequal society but at the same time it has developed the economy massively. Thus, inequality does not cause unemployment. Piketty is totally wrong and his suggestions are not new but cannot work in the changed situation of globalisation when interest of Toyota or Sanyo are different from the interest of the Japanese people.

      • Manfred Deutschmann

        Why do you think I have to explain anything to someone like you?

  • Dipak Bose

    Piketty has no solution. Unemployment and low pay are the problem not inequality. .

    • Bruce Chatwin

      Do you think that maybe unemployment and low pay might be connected to inequality?
      Piketty has offered has offered a solution. What’s yours?

      • Dipak Bose

        Piketty offered no new solution at all. Tax on investments and inheritance were there until 1990`s but then because of Thatcher-Reagan revolution IMF-World Bank forced most countries to remove these gradually, but in some countries these are still there. That is not the solution, as there were mass unemployment even with these..
        A planned economy with proper investment planning and a self sufficient economy as far as possible is the solution for low pay and unemployment; but Piketty does not want to go beyond the capitalist system. Thus, there is no solution in his huge book, which is useless.

      • Bruce Chatwin

        A planned economy? That worked out well with Stalin and Mao. Perhaps Piketty is just a bit more of a realist. There is no solution in your answer, which is useless.

      • Dipak Bose

        Planned Economy worked out very well between 1954 to 1985 and between 1929 to 1939 . Until 1954 USSR was just recovering from the effects of the Second World War. After 1985 Planned economy was destroyed by Gorbachev.
        Mao never had any planned economy; he was very ignorant killer nothing much else.
        Piketty is saying things we all know. There is nothing new in his solutions, which do not work.
        Unemployment and low pay are not caused by inequality but because of free trade with China. if China produces everything there will no production elsewhere and no employment either.

      • Bruce Chatwin

        The planned economy in the USSR worked well between 1929 and 1939? You might want to ask the Ukrainians how they feel about that statement. How many died in the Holodomor? 2 million? 5 million? 7 million? 10 million? But then it was probably the fault of all the Kulaks. Right?

      • Dipak Bose

        Famine in Western Ukraine under the control of various anti-Soviet forces in early 1930s has nothing to do with the Planned Economy, which was started in Ukraine only in 1934 when those anti-soviet forces were driven out to then Poland (now North western Ukraine).
        You ask yourself the question why there was no famine in other parts of the USSR at that time, why only in western Ukraine?

      • Bruce Chatwin

        Famine was not limited to the western Ukraine as you claim. The Northern Caucasus, The Volga, Southern Urals among other areas were affected.

        You claim that “the Planned Economy worked out very well between 1929 to 1939.” Yet the Ukrainian Soviet Socialist Republic suffered a man-made famine of staggering (genocidal) proportions from 1932-33. This was a direct result of forced collectivization, which was an integral part of your vaunted planned economy.

      • Dipak Bose

        Collectivization in Ukraine started after the famine in 1934 in the areas under the control of the Soviet Government. Most parts of the Western Ukraine ( a lot of these were under Poland until 1939 or 1946).
        Why there was no famine in other parts of the USSR. I have relatives from the Don-Kuban area, next to Ukraine; There was no famine as such there
        Collectivization has produced improved agriculture to support the industrial development and dramatic improvement in rural life.
        West is now propagating that Putin invaded Ukraine to kill 5000 Russians and to receive 1 million Russian refugees. One should never trust anything written by the West. Was there any mention in the history of the “nd World War by Winston Churchill of the Bengal Famine of 1943 where 5 million people were forced to starve to death by the British??

  • kyushuphil

    Just wait till TPP goes into effect.
    At that point, Japan will have near totally surrendered its autonomy to the global corporate rich. Some Japanese — themselves already well-placed, already hoarding profits — will join the international corporate who will rule. They’ll profit even more.
    And the gap will widen between them and everybody else. More jobs will go abroad, to sites where the rich will have arranged lowest-pay opportunities. The environment will suffer, as each member country will no longer have autonomy to protect itself. That will be up to an international court — set up expressly to guard the interests of the corporate rich.
    Schools? Japanese schools? Hello. Hello. They can double down on their currently mindless high-stakes, high-pressure standardized testing, keeping everyone busy, busy in slavish regimentation, lowering even more — if that’s possible — the potency of good asking-of-questions.

  • Dipak Bose

    Piketty is just a Balloon, he has nothing new to offer as he is restricted himself to Capitalism. Only a socialist planned economy can solve the dual problem of unemployment and inequality.

  • Jules

    A couple ideas: make labour laws stronger so that people get paid overtime, double pay (or time and a half) on national holidays, proper paid breaks (not mandatory unpaid ones which are rarely taken anyway) and make people take their own holidays. Double benefit is that more money in the average wage earners’ pockets and more time off to spend it.

    While you are at it, improve the real estate system by not letting land and property owners gouge consumers. Legal payment of bribes (key money) and ridiculous deposits are terrible for everyone except the rich. Trying to move to a bigger home or start a small business costs a kings ransom and it’s all easy enough to change with a few new laws and some decent watchdogs. C’mon Abe!

  • Dipak Bose

    GINI coefficient assumes Unit elascity of demand in respect of income, this is unrealistic as it assumes away savings and property purchases which causes extreme inequality if there is asset price inflation.
    Use instead Mahalanobis method which does not assume any elasticity.
    However, Piketty could not estimate Gini coefficient either as that requires extensive data for each year, which are not available for years before 1950 and not for each year either. He basically calculated percentage of the people above a particular income level which cannot estimate Inequality.
    His solutions are well known and cannot work either.

  • Dipak Bose

    You open up the so-called Made in Japan automobile, computer, Wi-Fi, mobile phones, rice cooker, hot plates, gas cookers. All components are Made in China. Japan only assembles and put the label Made in Japan. This is the reason Japanese products are popular any more and some of the Japanese companies are going bankrupt, Santo, Akai, Sharp etc as they produce everything in China with variable quality.
    Evidences are there. Japan`s export revenue is declaning, import costs are rising. Japanese people cannot get jobs.
    USA-UK are suffering too from the same high unemployment and McJobs.

    • Hang in there lil’ fella. You’ll find a job eventually. Just stay on your meds and get some rest.

    • Manfred Deutschmann

      Exactly. “Made in Japan” is just a marketing slogan catering to the very nationalist public. Legally it is OK to say “Made in Japan” as long as the final assembly takes place there (and clever companies can even get around that).

      It’s not necessary to discuss Japan with Japanophiles – it’s like discussing religion with religious zealots.

      Just sit back and watch the losers see their utopia crumble.

    • Kingshuk Dasadhikari

      No developed economy, least of all Japan, wants the sort of menial jobs putting together low key dollar store components on assembly lines when those components could be manufactured using AI instead, leaving the rest of the people to do more advanced work. Besides, what with expected standard of life and minimum wage laws in Japan, it would not be economical to do so. There is no evidence that Japanese people seeking work with the qualifications to do that work are not getting work. PERIOD.

  • Dipak Bose

    rice Cookers: Tiger or Zojirushi, all made in China
    gas cooker: Paloma, Rennai, all made in China
    Cycles: all made in China
    Cups,l dish, cutlery; all Made in China
    Cloths, shoes: All Made in China
    Mobile phone from ITT, Softbank: all Made in China
    Cars: almost everything Made in China
    Computers: Mostly Made in China
    Furnitures: made in China

    What is left?

    • Kingshuk Dasadhikari

      I see how you cleverly (or maybe not very cleverly) ignored all the aerospace components. If I go look at other industries, I can dump 100s of pages of things made in Japan for you, but it would be a waste of time, since you clearly haven’t learned to argue based on FACTS.

      • Dipak Bose

        Overall trade deficit of Japan with China in 2012-2013 ( latest year available) was $120 Billion and is increasing.

        The poverty rate of Japan is 16 percent, which is similar to that of the Southern European countries and near the average rate of the developed countries.

        Japan while calculating the unemployment rate does not include people who are partly employed or as disguised unemployment ( example University Graduates working part time in shops).

  • Dipak Bose

    rice Cooker: Tiger or Zojirushi, all made in China
    gas cooker: Paloma, Rennai, all made in China
    Cycles: all made in China
    Cups, dish, cutlery; all Made in China
    Cloths, shoes: All Made in China
    Mobile phone from NTT, Softbank: all Made in China
    Cars: almost everything Made in China
    Computers: Mostly Made in China
    Furnitures: made in China by IKEA or Mr.Max

    What is left?

    Can you see anything in Japan`s shops which is Made in Japan?

  • Dipak Bose

    Toyota is making everything in China and importing these to Japan and export to USA from Japan.

    USA trade deficit with China is about $340 Billion, not counting the indirect imports from China, whereas Japan`s trade deficit about $120 Billion with China.

    You do not live in Japan, otherwise you can see that everyday how China has taken over Japan.