In mid/late February I had the chance to join a 9-day study trip organized by my university to go to Japan. It was my first visit to the country and here are some thoughts on the economic prospects of Japan:

When I was a child (that was at the turn of the 80s and 90s), people in Germany (and I guess elsewhere) used to smile over the weird Japanese tourists who traveled 8 European cities in 6 days. Today the Japanese tourists are hardly realized among increasing shopping tourism from China. But China is not only flooding European shopping streets with its newly-rich, it has also become a point of attraction for ambitious young students as a destination for internships, studies and a possible career. In the meantime Japan appears to have disappeared somewhere in the Asian nirvana. I guess its image (if there is any) is to be some sort of a rich and friendly country. But it is not really known as the place to be (like China) nor for anything else really. The slightly more informed person will know that Japan’s prime minister changes every few months (making it even harder to remember anything about the country) and it somehow manages to get credit even though it has had higher debt levels than Greece or Italy. While China is rising, Japan simply does not seem to take place in Europe anymore. For those few public policy students who read the occasional news about world developments, Japan is the country of extreme debt and aging. – Hardly a place that appears to play a role in the future.

Big in Japan: problems
Admittedly, I did not know too much about Japan but I probably had a positive interest in the country because I have met a couple of slightly crazy and very nice Japanese people over the past years and, if anything, that gave me at least a good portion of curiosity to see the real thing. Since the school’s study trip had been known for a while, I have followed reporting, or basically any coverage, on Japan more intensively over the last weeks before finally flying over at the end of February. During a number of the excellent talks and meetings we had during that week, the general problems and challenges that Japan faces were confirmed by the local experts: an aging society, slow-to-stagnant economic growth since the early 1990s, extreme levels of debt and continuous changes in government. It also appeared as if the image Japanese people we met had of their own country was somehow not too positive or optimistic. On top of all of this came the triple disaster of “3/11”, the earthquake-tsunami-nuclear-accident shock that hit big parts of the country almost a year before our visit. Most of the affected places were still devastated despite the incredible efforts and capacity of a developed country like Japan.

Bleaker than bleak
Obviously, the restoration efforts post-3/11 were one of the foci of our one-week visit and it was clear that all the affected areas (and not only those affected by the nuclear fallout) were still struggling to recover – and will continue to do so for months if not years. Structural challenges for society and policy-makers alike are even broader than that and include the persistently low levels of female labor participation, the lack of job perspectives for the young, risk-awareness in the business field, hierarchical thinking and quite unambitious politicians. But the thing that struck me most was the lack of internationalization in a country that is so export-oriented and has had such high levels of wealth over at least a generation. Hardly any ‘average’ Japanese could speak any reasonable degree of English (or any other foreign language). Still, the country has hardly any immigration and visible foreign population beyond the respective districts in Tokyo. Brand and production loyalty to Japanese produce appears to be extremely high (food, mobile phones, cars, household hardware etc.) despite the ready availability of arguably cheaper and better products in at least some fields.

But think about it – Japan.0
Maybe the good thing is that when you expect so much gloom – and then you visit the disaster-hit areas during your first days – it can’t really get worse than what you expected. The challenges are so huge and many have existed for quite a while, so that Japan turns out to be a fascinating place particularly for the public policy student I am. Given Japan’s structural similarities to (aging, industrial) Europe, it is in many ways ten years ahead. – The challenges Japan has been facing for a while are those many European countries are beginning to phase already – with a bit of a time-lag. Maybe the three most relevant are aging, increasing levels of debt and the end of economic growth as we know it. And when you think about it, Japanese society has coped with these challenges surprisingly well so far. From afar you might just say that it can hit at any time. But after seeing its cities and villages, I think there is a great deal of opportunity in Japan and much to learn for outsiders. Firstly, the country is still amazingly rich (while lacking the Asian bling-bling) – without an apparent inequality. These levels of wealth have persisted despite 20 years of de facto economic stagnation. Hence, lesson one: measuring economic ‘progress’ in terms of GDP does not work anymore in advanced industrial societies like Japan. In particular after coming out of Singapore, it is positively surprising that a city like Tokyo can be so rich without people showing off but rather dressing and behaving in (local) style. Secondly, you feel that you hit a deeply cultural place as soon as you land in Haneda and this impression has been reinforced by the people and all these small things between Tokyo and up to the smaller villages we visited in the north. Lesson two: Japanese have style, they have fashion and there is a lot of cultural content generated on so many spheres. Only after having been to Tokyo have I really understood why young people across Asia look for the whole range of cultural products and content from Japan. Thirdly, people’s reaction to the harshness of 3/11 has seriously impressed me. There is an amazing sense of resilience in the country and it stretches beyond the effects of disaster. Lesson three: if you are ever responsible for managing natural disaster, try to get hold of some Japanese to help you sort out the mess. Fourthly, Japanese infrastructure is pretty amazing. This starts with the crazy roads and metro/rail tracks that are all over you in Tokyo (and under conditions of constant earthquake danger) to the reliability and speed of the Shinkansen. Lesson four: get Japanese managers to run your railways. Fifthly, resource efficiency goes without saying in Japan. This is possibly one of the observations which is closest to the German mentality. – It’s simply no biggie to recycle everything possible and trying to develop ever more efficient electronic products (following the famous top-runner principle). One MP from a very rural constituency in the north was very proud to tell me that a small local company from his district was a leader in rare earth recycling. Lesson five: wonder if German and Japanese recycling and efficiency efforts cannot be closer combined. Sixthly, I had a bit of a feeling that Japan might witness a political spring moment. Not only had decades of LDP rule been broken with the historic success of the DPJ in 2009, this shift as well as the 3/11 disaster seem to have encouraged more people to question government-as-they-knew-it and get involved or raise their opinion. A number of interesting individuals and movements have begun to spring up over the past months, and the current prime minister is even considering tackling the revenue-deficit with a significant VAT raise. Japanese politics might eventually become dynamic and interesting – to the great benefit of the Japanese people. Lesson six: follow these developments and provide information to those groups active in the energy field.

Big in Japan again – a choice
Japan appears to have strong cultural and economic foundations that may well serve it long into the future. Disaster could hardly have been worse than 3/11 and yet the country remains one of the richest countries in the world and with continuing opportunities for successful entrepreneurs. More can and needs to be done and if that potential is realized very much depends on my last observation: will the politicians evolve in Japan release the country from its bonds of the past? There is room to be optimistic. And even if the country fulfills half of its potential in the next ten years, it is unlikely that anyone but possible Korea or Taiwan will come anywhere near its level of economic development. Growth will slow down in places like China eventually and sooner than they think will they face those aging and debt issues that Japan faces now – but with maybe only half the average income levels. It is up to Japan to show itself and others that these obstacles can be overcome. After my first visit to Japan I am confident that the Japanese have what it takes. Now it is up to them to get involved in making Japan big again. Lesson seven: return to Japan in a year and check on its progress.

Key indicators for Japan and selected countries (2012 or newest)

Japan

USA

Germany

Italy

South Korea

China

GDP/capita 47,960 49,054 45,619 37,576 25,948 5,715
GDP in bn 6,125 15,495 3,707 2,287 1,275 7,744
Debt/GDP 220% 94% 84% 199% 33% 34%
Population in mio 128 316 81 61 49 1,354
>65/population 23% 13% 21% 20% 13% 9%
Unemployment rate 4.8% 9.0% 6.2% 8.5% 3.3% 4%
# prime ministers (presidents) since 2000 9 2 2 5 3 2

All economic/demographic data from IMF World Economic Outlook Database, September 2011.


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