Next November 16th, Japanese government will publish the first estimation of Japan GDP for the 3rd quarter. According to the country main research institutes which just published their own estimations, it should act the fact that the country has slumped into recession. After a fall during the 2nd quarter of 1,2% in annualized terms, GDP should decline by 0,2% during the following three months. Japan would be the first, among major industrialized countries, to fell back into recession, since the 2007-2008 financial crisis.
This setback occurs, despite the boosting economic policy launched by the government (the Three Arrows of Prime Minister Shinzo Abe) and quantitative easing carried out by the bank of Japan. The recession commes after 20 years of stagnation and even deflation, which have affected this former star of the world economy. Let’s remember. Thirty years ago, the Tsukuba International Exhibition pointed out the pinnacle of a country whose companies were accumulating success abroad with the declared ambition to dominate the world industry. At that time, in France, that situation had generated the episode of the transfer to Poitiers of video recorders customs clearing procedures. The foreign trade minister, Edith Cresson, had been strongly criticized for that decision. Retrospectively, she was right.
During that period, western countries were preparing their riposte: the Plaza Agreement, in September 1985, generated a massive reevaluation of the Yen which went up in a few years from 240 to 120 for a dollar, level where the Japanese currency stands today, after having reached a summit near 85 before the financial crisis. Japanese stock markets and real estate prices rose under the consequences of “endaka” (the strong yen), foreign investors rushing to buy shares and properties whose values were supposed to indefinitely appreciate. Value of all these assets collapsed at the beginning of the nineties with serious damages to the “real” economy. None of the economic policies implemented since this crisis has achieved the goal of putting back Japanese economy on its normal growth path, which has inclined economists to conclude that this destiny “secular stagnation and deflation”, threatened all countries having registered a strong growth, including China with which comparisons, wrongly, we will see the point later, are more and more frequent.
The Japanese case has been at the origin of debates on the usefulness of budget deficits and public debt which surpass 200% of the GDP, and on the effectiveness of quantitative easing put in practice by the central bank. The excessive enrichment of the corporate sector, to the detriment of investment and wages, has been also considered as being at the origin of the country stagnation. Comparison with supply side oriented policies followed notably in France must be studied seriously. But these legitimate questions, in the cas of Japan, are secondary to structural problems, geography and demography first.
The country has about 100 millions citizens, who live in a surface equal to Great Britain, but where the two-third of it is improper for living (mountains, islands). The situation is made worse by the cultural or even ancestral choice to prefer houses, even very small ones, without land around, to buildings. One of the consequences is the demographic disaster. Having a lifestyle which favors longevity and social practices which discourage large families, Japan has an unbalanced age pyramid which consequences are heavier year after year, with a total lack of immigration. The government has assigned as an objective to increase the birthrate from 1,4 to 1,8. To achieve it, among other measures, it proposes to equip day nurseries with robots to facilitate baby receptions and to support insurance costs for the use of the robots!!
The result is an unemployment rate under 4%, a dream for European countries, but which reveals the deep disease affecting the Japanese society. So, could innovation be the solution, with new products and services generating activities and creating wealth? On this point also there is a disappointment. The country has failed in its great spatial ambition, is quite absent from the aeronautic sector and the internet. Japan, 30 years ago, with its electronic industry which submerged the world, among other realizations, aroused worldwide admiration. You just have today to visit Akihabara, the Tokyo district which once was the showcase of its last innovations in the electronic sector, to see that there are now only “manga-stores” where are sold DVD and baby dolls, shops where you can buy sex-toys or recycled cellular phones. No Apple-stores, or new video screens with LED or connected watches: they are not made by Japanese companies. But the country is still obsessed by robots to the point that they imagine to equip nurseries with, which reveals a vague stress caused by the diminution of the population. Being shared by no other people in the world, the robot project, on an economic basis, cannot be successful. If, in Japan, some hope that one day, cars will be driven by robots, everywhere else in the world, research is focused on cars without drivers, humans or robots.
But these singularities don’t explain the incapacity of the country to attain a new growth path. This incapacity, which is a paradox rarely mentioned, is the result of the misunderstanding of globalization which is a game played by teams. Japan persists to play it alone. In the past, thanks to its powerful trade companies admired worldwide, the famous “soshas”, the country took advantage of its purchase of raw materials to export, as a counterpart, its manufactured products and, with the profits, to invest abroad to build new plants. But the Japanese market was, and is still, closed. The consequence is that very few foreign companies were interested in creating partnerships with their Japanese counterparts to develop new projects and open new markets. Japan and its business community are today paying the price for that.
Even on a local basis, Japan remained isolated. Without returning to the errors made in the past, between the two World Wars with the “co-prosperity zone”, Japanese companies could have created with their Asian counterparts, following the examples of the Chinese companies, partnerships surpassing pure commercial relations between a customer and a supplier of raw materials or industrial products. The country, this is quite an achievement, has succeeded in falling out both with South Korea and China, following disagreements about China Sea islands and war time crimes. Japanese government position, at the detriment of its most obvious economic interests, was motivated by internal political considerations, which confirms that Japanese people has not yet understood in its ways of thinking the new rules of the globalized economy. The Summit which was organized in Seoul among the heads of the three countries must not create illusions. None of the hot issues has been discussed and the only substantial result was to agree to organize next year a new summit. But it was a success since the three countries didn’t talk to each other since three years.
In Japan, everything is or should be Japanese. As far as the country has not broken with this atypical attitude, which is anchored in its culture but which is not compatible with today’s world, open to people, to goods and to ideas, it cannot recover the road to growth and it will fall in decline.