I am now blogging at Forbes – you can find my most recent articles here.
The RSS Feed for my Forbes blog is here.
I am now blogging at Forbes – you can find my most recent articles here.
The RSS Feed for my Forbes blog is here.
Why do Americans keep misunderstanding Japan? Much of the blame must be placed at the door of the State Department. And that is why last week I extended an unusual offer to the current U.S. ambassador to Tokyo.
As part of a continuing effort to improve understanding of the Japanese economy, I have issued an invitation to the U.S. ambassador to Japan, John Roos: I will make a donation of $10,000 to his favorite good cause if he will nominate one of his State Department advisers to join me for a discussion in Washington of the contradictions of the “lost decades” story.
There is much to talk about. It is only a slight exaggeration to say that the essence of U.S.-Japan economic relations since the 1960s has been that Japanese officials have pretended to open the Japanese market, and the State Department has pretended to believe them. The Americans have been intent on keeping Japan “on side” in providing largely hortatory support for various U.S. foreign policy initiatives, most notably in relations with the old Soviet bloc and more recently with such problem states as Iraq, Iran, and North Korea. Continue reading
A message for Richard Katz and other Japan declinists: Look at the big picture.
Probably no commentator has been more outspoken in proclaiming the demise of the Japanese economic model than Richard Katz, author of The System that Soured. While many of his erstwhile comrades in the “collapsing Japan” school have long since quietly acknowledged that their previous extreme views were overdone, Katz keeps on keeping on.
In his latest salvo, Katz has portrayed the Japanese electronics industry as a basket case. “Japanese High Tech’s Five Circles of Hell” is how Business Week’s Brian Bremner sums up Katz’s findings.
Sounds pretty serious. But anyone who checks the facts finds that Japan continues to lengthen its lead over the United States. Continue reading
As usual the American press missed the real story.
The American press has made much of news that Japan last year recorded a deficit of $32 billion on its visible trade. Supposedly this is the beginning of the end for the Japanese trade engine. Some of us have been around a while and have seen that same story written dozens of times over the years — yet always said trade engine has not only recovered but has gone on to ever greater achievements.
The first thing to note is that the figures are incomplete in a way that crucially distorts the real news — of an extraordinarily strong performance in the face of unprecedented challenges.
It is past time Paul Krugman visited “basket case” Japan.
He writes: “Fingleton is right in this: the data don’t match the picture of relentless decline that is so widely held.” That is putting mildly but it is certainly better than the ”basket case” view that has for so long been espoused at even the most intelligent levels of American society.
The BBC has followed up my recent article in the New York Times.
Last Thursday Gillian Tett, a top editor at the Financial Times, joined me for a discussion of the Japanese economy with Emily Maitlis on the BBC’s Newsnight program. You can watch it here. The topic was an article I published last week in the New York Times Sunday Review. I am happy to say that though she and I have not always agreed in the past (she is an author on Japan who formerly served as the FT’s Tokyo bureau chief ), she was generally supportive of my argument this time.
Our conversation was preceded by a useful report from Tokyo by the BBC’s correspondent Roland Buerk, in which he echoed several points I made in my article. You can see his report here.
All this said, it is necessary to offer some counter-evidence on one “basket-case Japan” theme that both Gillian and Roland seem to have bought into: the idea that Japan’s government debt is out of control. This story has been put forward in various guises since the 1980s (I know — I have lived in Tokyo since 1985) and it serves various purposes quite at odds with the truth. For a start the Tokyo Finance Ministry (MOF) likes to portray the fiscal situation in disastrous terms as a counter to domestic lobbies pleading for budgetary handouts. In truth Japanese fiscal numbers, as officially stated, are full of contradictions. For a start there is the fact — never mentioned in the “basket case” reports — that the Japanese government can raise 10-year money on an interest rate as low as 1.0 percent. That is just a fraction more than the 0.8 percent the government of Switzerland pays and compares with nearly 2 percent for the United States, more more than 3 percent for France, more than 7 percent for Italy, and nearly 35 percent for Greece. Clearly a lot of investors do not think the Japanese government is going bust.
Japan’s government finances are so strong indeed that the MOF has long quietly acted as the ultimate lender of last resort to the world financial system: this point was made explicit at the height of the world financial crisis in early 2009, when the MOF advanced $100 billion to prop up the International Monetary Fund. And this is only a small part of the total effort by the MOF to borrow from Japanese savers to finance the West. The MOF also is a huge buyer of U.S., U.K., French, Italian, and Indian government bonds and thus Japanese government debt makes possible huge fiscal deficits in these other nations. It is not an exaggeration to say that without constant infusions of Japanese money, these other nations would quite literally be as beleagured financially as Greece and Portugal.
Paul Krugman has critiqued my analysis of Japan
Update: My response is here.
In an article in the January 8 issue of the New York Times Sunday Review, I extensively debunked the story of Japan’s lost decades. My analysis has not only drawn a flood of email but has been extensively noted in the blogosphere. I am happy to say that most of the comments have been complimentary, particularly comments from Americans with a real understanding of Japan (not least the sort of people who have actually visited the country!).
The most common criticism I have had is that I did not address the Japanese government’s supposedly out-of-control debt. Actually the original article did address this as well as several other myths not dealt with in the final edit but my comments had to be cut for space reasons (there are so many myths out there you would need to write a book to deal with them — come to think of it I have!). The first thing to note about Japanese debt is that the Japanese government can borrow 10-year money for little more than 1 percent — the lowest rate of any government I am aware of and lower even that the rate at which the British government could borrow at the height of British financial hegemony in the late nineteenth century. To say the least buyers of Japanese government debt don’t seem to agree that things are out of control. Basically the issue here is accounting. The ratio of 200+% of GDP often cited involves an enormous amount of double-counting with various government agencies borrowing from one another. The usual figures in other words are phony. It should also be noted that much of the money borrowed from the Japanese public goes to finance not Japanese but American government spending. Much of the rest of it goes to finance various semi-bankrupt European governments.
As for the blogosphere, of particular interest is that my analysis has been critiqued by Paul Krugman. Krugman is not only a first rate economist but a gifted writer and I find myself agreeing with most of his analysis of the American economy. His understanding of Japan, however, is a different matter. I plan to respond to his comments later this week and will deal also with one or two other intelligent interlocutors. In the meantime I am racing to meet a big deadline for my next book. Watch this space.
My article in today’s New York Times Sunday Review has been generating heat as well as light.
An article I have written on Japan for the January 8 New York Times Sunday Review went live at the nytimes.com website yesterday and already the reaction has been the greatest I have ever known. Virtually all of it has been good but some bloggers have greatly confused the issue.
In particular I am surprised by one Washington-based trade lobbyist for a Japanese corporation who in a 2,000-word commentary has ostensibly rebutted several of my points. On closer analysis his take is just standard-issue ignorance of Japan, plus an evident desire to perpetuate the usual spin.
I have a busy today ahead of me so I will confine myself here to a representative sample of his argument — his first and closing points, which I take it he considers to be particularly persuasive. His first point concerns life expectancy. As I mentioned, Japan’s life expectancy at birth increased by 4.2 years between 1989 and 2009. He thinks this does not count because Japanese-Americans are also extremely long lived. Well, yes, Japanese-Americans enjoy exceptionally good life expectancy but that surely reflects in large measure the fact that they have long ranked among the wealthiest of ethnic groups in the world’s until-recently wealthiest nation (nearly 30 percent of Japanese Americans have college degrees). They also benefit of course from a good diet. But all this is beside the point. I repeat: the 4.2 year increase reflects mainly a major improvement in the Japanese healthcare system and is a powerful indicator of superior economic growth. There is no other explanation and my interlocutor provides none.
Now for his parting shot. He shows pictures of Japanese consumers lining up to buy the new Apple iPhone. This supposedly is evidence that the United States, not Japan, leads in cellphone technology. He omits to mention — something well known to anyone who follows global competition in that industry — that Apple is an outsourcer. Its manufacturing is done in East Asia, particularly in Japan and to a lesser extent Korea and Taiwan, with final assembly in China. Essentially most of the jobs are East Asian.
More generally Japan is by far the largest manufacturer of the key components in all cellphones. And the real technological magic is in these highly miniaturized components (they are why your cellphone doesn’t look like a walkie-talkie). A survey by Deutsche Bank some years ago identified nine key components in cellphones. Of the 36 manufacturers worldwide of these, 29 were Japanese — and just one was American. Japan indeed monopolizes the world supply of many such components and without them Apple, Motorola, Nokia, and so on would not have a business. An example is capacitors, formerly the size of light-bulbs but now, using tantalum technology, no larger than a grain of salt. They are essential in virtually all electronic devices and a typical cellphone requires half a dozen of them — all made in Japan, mainly by Kyoto-based Murata. According to the Asian Development Bank Institute, Tokyo-based Toshiba Corporation alone contributes 33 percent of the manufacturing content in the iPhone (in particular its superb touch-sensitive screen). Such manufacturing not only requires far greater per-capita capital investment than U.S. corporations can afford these days but vast amounts of secret manufacturing knowhow, typically built up over decades.
I have now had time for a few further rejoinders.
My interlocutor says that Japan’s astounding trade surpluses do not matter, nor do America’s vast trade deficits. We have come a long way since John F Kennedy said the two things he feared most were nuclear war and trade deficits. The idea that these deficits do not matter comes from broadly the same school of economics that told Americans they could borrow ad infinitum against the value of their homes without negative consequences.
My interlocutor tries to gainsay the scale of the remarkable building boom during Japan’s supposed “lost decades.” He cites misleadingly low population figures for U.S. cities to suggest that Tokyo’s skyscraper ratio is not very impressive on a per-capita basis. The key fact — one that he has no answer for — is that 81 skyscrapers taller than 500 feet have been built in Tokyo proper since 1990, versus a total of only 12 such buildings up to that date. And this in a country that suffered one of the biggest real estate busts on record (true), an aging population (also true), supposedly idiotically out of control government finances (not true but widely believed in the West), and huge hidden unemployment (obviously untrue but also widely believed in the West). The issue here again is economic growth: how can such a historically extraordinary pace of building be reconciled with the story of an economy that is supposed to be flat on its back? And why don’t the analysts who have sold us the “basket case Japan” story ever mention such interesting contrary data?
He suggests that Japanese unemployment figures are understated. Wrong. The figures I used have been adjusted by the U.S. Bureau of Labor Statistics to be fully comparable with U.S. statistics. He points out that the labor participation rate is lower than in the United States. This is true but it does not cast doubt on the low unemployment rate. The lower labor participation rate – 59 percent versus 64 percent – reflects (1) a high proportion of retirees; (2) a high proportion of young people at college; and (3) a strong cultural tendency for women to give up work once they have a child. Those of us who read Japanese know that small businesses are constantly advertising for staff. There is no shortage of jobs in Japan, either for women or men. As countless foreign employers in Japan can testify, the problem rather is a shortage of young workers.
People have asked me what happened to the Fingleton Invitation. The answer is nothing.
Some months ago I invited Ed Lincoln, a former Tokyo-based economic adviser to the U.S. government, to join me for a public discussion of the Japanese economy. In his capacity as economic adviser to the then U.S. ambassador to Japan Walter Mondale, Ed had been particularly influential in leading the American public to accept that the Japanese economy had somehow lost its mojo after the Tokyo stock market crash of 1990. I have consistently taken the opposite view that, slumping stock and real estate prices notwithstanding, the underlying Japanese economy has done rather well. Indeed, in key ways, particularly in the most rarefied areas of manufacturing, it has raced far ahead of the United States.
Beginning in 1998, I have on several occasions offered to debate the dozen or so leading proponents of the “basket case Japan” thesis. I have had no takers.
Ed would be a particularly relevant interlocutor, and, to cut a long story short, I offered last summer to make a $10,000 donation to his favorite good cause if he would come forward. I mentioned earthquake relief in Tohoku as a particularly appropriate cause. I have not had a reply but my offer is still open.
I have summarized my argument in an article in the January 8th issue of the New York Times Sunday Review. To read it, click here.
The letter below, to the Clinton administration’s chief Japan economist, is self-explanatory.
Having heard nothing from you over the summer despite several private attempts to make contact, I must now press publicly for an answer.
As you know, I have offered to donate $10,000 to your favorite charity if you are prepared to join me for a public discussion of the hidden contradictions in the “lost decades” story of Japan. On several occasions since 1998, I have extended similar invitations to nearly a dozen other key commentators, most of them securities analysts, yet none has come forward.