Japan’s “Lost Decades”: The Sophistry Continues

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.

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