Japanese Economic Mythbusting

We interview Noah Smith, finance professor at Stony Brook university and economics blogger, on lingering misperceptions of the Japanese economy and what is going to happen with Abenomics.

Noah Smith is a finance professor at Stony Brook university in New York. He blogs at Noahpinion and writes for several magazines about economics and public policy. Before he went to grad school, Noah lived in Osaka for two and a half years. He now works two months out of the year in Japan, doing research with professors at Keio, Aoyama Gakuin, and Osaka University.


Can you help debunk us the main myths of the Japanese economy?

Myth #1: “Japan is an export-dependent country.”

Actually, exports are a smaller part of Japan’s economy (16%) than that of most rich nations’ (though bigger than the U.S.). Also, Japan hasn’t had a big trade surplus for a while.

Myth #2: “Japanese households save a lot.”

This used to be true, but isn’t true anymore. The household savings rate nearly hit 0% in 2008 and is only around 2% now (America’s is around 5%).

Myth #3: “Japan is a top-down economy guided by industrial policy.”

This used to be true, but isn’t anymore. The influence of METI (formerly MITI) has been curbed substantially. The Ministry of Finance still has a lot of power over banks, but this is true in other rich countries too and is generally what happens after a big banking crisis.

Myth #4: “Japan is a manufacturing-based economy.”

Manufacturing makes up slightly more than one-fifth of Japan’s economy, which is more than most rich countries (only Germany and Korea beat it), but is a lot less than most developing nations. India, for example, is more manufacturing-intensive than Japan.

Myth #5: “Japan has lifetime employment.”

Sure, for the top half of the workforce. For everyone on the bottom, it’s a constant struggle with little hope of big raises or promotions. And among those with so-called “lifetime employment,” maybe half are in danger of losing their jobs to layoffs.

Myth #6: “Japanese companies aren’t innovative.”

This is just wrong in so many ways, I could write a book about it (and maybe I will).

Myth #7: “The Japanese buy government bonds out of patriotism.”

Unlikely. They probably buy Japanese government bonds out of fear, pessimism, and a lack of knowledge of good alternative investment opportunities.

Another one seems to be high prices.

Not everything is expensive in Japan! Go to a ¥100 shop and see if you can find the same stuff at an American dollar store. I bet it will be impossible. (And I just paid $7 for a shot of Jack Daniels at a grungy punk bar in Oakland, so we’re not in the 1980s anymore.)

Also, remember that Japan lists after-tax prices, while America lists pre-tax prices, so stuff in America feels cheaper relative to stuff in Japan, but it’s partly an illusion.

In addition, there are some quality differences. Milk in Japan tastes as good as organic milk tastes in America. Saran wrap in Japan is much better than in the U.S. And Japanese restaurants,cafes, and stores are much cleaner than most of their American counterparts. Those quality differences add costs, which raise prices, but you get more for your money.

Finally, remember that Japan is just not as rich of a country as the United States. Productivity is significantly lower, and Japan is also not endowed with natural resources. That means prices will tend to be higher relative to incomes — that’s the definition of being poor!

Also high prices don’t lead to profit if they come from higher costs. Many costs in Japan are high. These include land costs, labor costs, regulatory compliance costs, and corporate taxes.

During Japan’s post-war development, retailers increasingly emphasized quality product and high-end experiences over selling volume at low prices. Was there an economic rationale for this?

Possibly. Because Japanese cities are very dense and people walk everywhere, people are willing to pay a premium to shop at local stores. You can’t just drive your SUV to Wal-Mart and load up the trunk like you can in America. So big department stores have to make higher margins to stay in business (I know everywhere in Japan looks crowded, but many department stores are surprisingly empty). Higher margins typically mean higher quality products or branded products.

Why did it take so long for low priced retailers like Uniqlo to emerge?

Japanese regulation traditionally favored small stores. There was a law for a long time called the Large Store Law, which was only revised in 1994 and replaced with a much more lenient law in 2000. Reduced trade barriers also probably had something to do with it. The rise in inequality may have been a factor; the huge emerging Japanese underclass needs low-priced stuff to survive.

Japanese households have long seemed content with putting their money into bank accounts that accrue only the tiniest fraction of interest. Will this continue forever?

No. As I mentioned above, Japan’s households aren’t saving much anymore. So they just won’t have the money to put into savings accounts. (It’s Japanese corporations that do all the saving, by sitting on mountains of cash.)

Second of all, one of the purposes of Abenomics and Kuroda’s monetary policy is to create inflation and make real interest rates go negative. That punishes people for keeping their money in savings accounts, and — hopefully — forces them to invest in things like stocks. That’s the outcome the BoJ is hoping for. The bad outcome would be if households just invest in foreign bonds — the so-called “carry trade.” That won’t help Japan’s economy much.

What are some examples of Japanese business innovation?

Famous examples include the Prius, which started the hybrid craze, and the Canon 5D, which put high-quality movie cameras into the hands of millions. Traditionally, Japanese electronics companies have been very innovative; they were the first to market hand calculators, digital cameras, clamshell laptops, modern console video gaming, and a lot of other things. Car and motorcycle companies are very innovative too. And there is a huge amount of technological innovation in parts and components, which you don’t hear a lot about because it’s not glamorous.

In terms of business processes, Japanese companies have always been very innovative. They invented the “keiretsu” system, which did supply chain management before there was an Internet. Toyota’s management system is also famous and original. There are other examples. Japan has a lot of companies on Forbes’ “Most Innovative” list.

In art and design, Japan is obviously extremely creative. Maybe more than any country out there, though in a different way. A lot of the designs Japanese companies create are popular in Japan but strike foreigners as too “weird.” But “weird” is just another term for “creative.”

Japan gets pegged as an “innovation-poor” society for three reasons, I think. One is that Japanese basic research is not quite as good as in the U.S. Another is that Japanese startup companies have big trouble securing late-stage funding and are kept from growing by the actions of large established players and the government. And third, Japan is usually compared only to the U.S.; try comparing to Germany, France, and the UK instead.


What do we know is actually in the plans for Abe’s structural reform?

Abe is pushing the TPP, which would have big effects if passed. He is also pushing targets for women in top management positions, which is something I think could have a bigger effect than people realize if it sparks a cultural change toward more rational and efficient labor markets. Other than that, not much. He was talking about making it easier for companies to lay off workers, but he looks to have backed off of that.

Would these lower costs for consumers in Japan?

More free trade — in other words, the TPP — will lower prices for Japanese consumers. It would be a very important part of structural reform. The biggest impact would be on food prices.

How much Japanese employment can be attributed to Japan’s current system of regulation and high costs? In other words, if you take away the regulations and high costs, does that mean rationalizing employment?

To be honest, I’m not sure. First of all, the data don’t really tell us who is employed and who is unemployed. Japan is famous for having “low unemployment,” but the truth is that about the same percentage of working-age people have jobs in Japan as in the U.S. This is because a lot of women and young people in Japan don’t work. If Japan deregulated, would these people start working? I don’t know, and I don’t think anybody knows. (If anyone knows, it would be my friend Ohtake Fumio, a labor economist at Osaka University.)

One type of deregulation that would “rationalize” employment is the loosening of laws against firing workers, but that now looks unlikely to happen. (See this New York Times piece.)

Japanese firms already employ way more people than are “necessary” for operations. If firing restrictions are loosened, won’t that just mean laying off employees without them being picked up somewhere else in the labor market?

There would be some of that. But getting rid of unproductive workers would mean companies would have more money to hire productive workers. And new businesses will spring up (or old businesses will expand) to hire the workers who get fired — probably for much lower wages.

What would have to happen for firms to raise wages or increase hiring?

Those are two very different things.

For those both to happen at once, you probably need an investment boom. That could be caused by an expansion in trade or a surge in productivity. So the TPP and deregulation could both boost wages and hiring, conceivably, although the wage gains would not be evenly distributed and many individuals would lose out.

Also, getting Japan out of deflation and back to inflation with Abenomics should theoretically cause an investment boom, but so far we’re not seeing that happening. Give it a year and see where we are.

How crucial is international competitiveness for Japan’s total economic growth? Could there be a period of expansion that just relied on domestic spending without an increase in exports?

Well, the problem with international competitiveness is that it requires one of two things: high productivity, or low labor costs. Japan can gain competitiveness by letting wages fall, but that might not be a good thing. Higher productivity would boost competitiveness, but this would probably require the kind of deregulation that produces unemployment.

So Japan’s corporatist social model is maintaining equality but hurting competitiveness.

As for an increase in domestic spending, yes, that would help, and that is exactly what has happened as a result of Abenomics. Japan’s net exports have not risen since Kuroda started his new policies; in fact, Japan now has a trade deficit. But Japanese people are consuming more, and that is boosting the economy.

How big is Japan’s financial sector relative to similarly mature economies?

Somewhere in the middle. Finance is a little less than 6% of Japan’s economy, compared to around 4% in Germany, 5% in France, 8% in America, and 9% in the UK.

Anecdotally, a lot of Western finance firms seem to be moving workers out of Tokyo. What impact does this have on the Japanese economy?

I believe that the only way for Japan to really raise productivity growth in the near future is probably to implement “neoliberal” reforms, which would ideally include allowing financial firms to do more than they currently do — for example, hostile takeovers of companies. If Japan continues to shy away from those reforms, in order to protect its social model of “corporate welfare,” then its productivity will probably continue to stagnate over the coming decade.

But as for Western firms specifically, I think that doesn’t matter on its own; it’s just a bellwether of conditions in the sector.

Who does “corporate welfare” benefit? Is it intended to keep employment high or does it just put hands money in the pockets of executives?

Corporate welfare appeals to people because it keeps employment high, yes. It mainly benefits older workers, who get more job security and much higher pay than under a shareholder-capitalist system. It doesn’t benefit executives, who would be paid more under shareholder capitalism.

It also helps preserve Japan’s “social model,” where pay is based on seniority, meaning no one has to worry about whether they’re a “winner” or a “loser.”

What should we watch for in 2014?

Three things: 1) business investment 2) wages, and 3) the trade balance.

If the Abenomics recovery is going to be sustainable, businesses are going to need to start investing their cash. If deflation is really going to be whipped, wages need to start going up. And if the trade balance swings back to a surplus, that will be very good for Japan.

As for structural reforms, watch the TPP negotiations, but that should go without saying.

W. David MARX
January 15, 2014

W. David Marx (Marxy) — Tokyo-based writer and musician — is the founder and chief editor of Néojaponisme.

32 Responses

  1. gen Says:

    great interview!

    Naomi Pollack’s “Made in Japan” is a great recent showcase of Japanese product design.


  2. Sean B. Says:

    Re: Myth #6: “Japanese companies aren’t innovative.”

    I think the more specific sentiment is that Japanese companies are innovative in iterative ways (e.g. putting movie mode in a DSLR, which is an industry that Japan already dominates) rather than defining paradigm shifts (the Internet and practically everything important that followed its invention). In that way, the “myth” isn’t exactly wrong, and is then corroborated by Noah’s elaboration that the Japanese economy is not very friendly toward startups. I remember reading another article that examined how depressingly few top-100 Japanese businesses are younger than 50 years.

    Aside from that nitpick, it’s an interesting interview. Thanks for writing it.

  3. Noah Smith Says:


    A lot of innovation seems incremental but provokes paradigm shifts. There were mp3 players before the iPod and tablets before the iPad and smartphones before the iPhone, but those were all game-changers. There were search engines before Google, etc.

    Japanese startups innovate a lot, they just have trouble turning into big companies. You’re right that that’s a major problem, but it doesn’t mean Japanese companies (or people) are just imitators, as a depressingly large number of people in bars have asserted to me over the years… ;-)

  4. Leo Lewis Says:

    Largely agree with the above. Good interview. I think one of the perception problems for Japan is that the term “innovation” has been grotesquely narrowed by tech-centric journalism and a (largely western) online commentariat that sees gadgetry, software and the internet as the only areas of innovation worth discussing. Japanese innovation is, of course, very much more broadly based. Even a Shikoku-based chemical company invents a revolutionary type of paint that saves 6 per cent of the fuel bill on every single containership or oil tanker whose hull is coated with the stuff (and one has), we are primed to ignore that as we scratch our heads and wonder why Japanese mobile phones aren’t globally competitive any more.

  5. M Penney Says:

    Great insights.

  6. gen Says:

    “Japanese startups innovate a lot, they just have trouble turning into big companies.”

    This is a big concern, imo. What do you think are the key issues here?

    I perceive part of the problem is that some Japanese entrepreneurs often cash out sooner at lower valuations and the big established Japanese firms want to keep their positions and thus enforce a defacto ceiling by buying up successful startups sooner rather than later.

  7. W. David MARX Says:

    I agree that not all Japanese innovation is in portable music players and mobile phones, but the reason everyone focuses on those two areas is not random: Japan had an advantage in them for decades! Until the iPod and the iPhone, all the most advanced gadgets in those realms came from Japan. Now none of them do. That’s a huge change in less than 10 years.

    They are also a symbol of the paradigm shift to Internet-enabled devices that Japan hasn’t caught up with across the board, not just in those particular devices. Japan’s innovations still seem to be in solid physical objects and industrial design rather than in the web/software space.

  8. Chuckles Says:

    The lag in Japanese mobile phones is truly puzzling. Korea and the US basically dominate the smartphone market – with the Chinese behind. There are virtually no equivalents of the dominant tablet products – Samsung and Apple – coming out of Japan.

  9. Noah Smith Says:

    Regarding mobile phones, people generally think of America as an innovative country, and yet America lost leadership in the television, battery, and digital camera industries. People used to freak out about that, but not anymore. I’m sure the managers of Panasonic and Sony wish that Japan had the global lead in every single kind of electronics product in existence, but economically it probably isn’t feasible.

  10. Gabriel Puliatti Says:

    Hi Noah,

    When I went to Japan (my girlfriend is living there), I noticed that the Internet use is not very widespread, compared to my country of residence, the UK, for example. People still use faxes a lot and online shopping requires you to pay cash or go to the konbini and put your bills into a machine there.

    Why do you think that is? Is this not an example of the “lack of innovation” that you refer to? Japanese people are very innovative, sure, but it doesn’t seem like their structures are very responsive to new innovations.


  11. W. David MARX Says:

    The lag is not puzzling. Good tablets are just slates for Internet services and consumption of culture on the web, and Japan as a country still isn’t that comfortable with culture happening on the web first and foremost. Newspapers’ websites are still a joke (articles disappear after a week!!), and one of the top music companies Johnny’s still refuses to let Amazon show its talent on covers of third-party magazines. Both Korea and the U.S. are meanwhile very Internet-forward countries in this regard.

  12. Brett Says:

    When I was visiting a friend living in Maborikaigan (he’s a US navy officer stationed in Yokosuka), I noticed that the overall housing stock even in nice middle class areas seemed rather . . . spartan and small compared to what you’d get in the US. Not a lot of stuff like air conditioners except in business and commercial buildings, even though the place was crazy humid and warm.

    Is that just a consequence of lower incomes overall? Higher housing costs in general? Regulatory barriers on construction unless it’s for highways in rural areas?

  13. Noah Smith Says:

    Hey, Gabriel! Actually I don’t know the answer to that question, though it’s a documented fact that Japanese companies have been very slow to adopt, and to make use of, office productivity software. I don’t know why, but I expect that more exposure to real competition would force companies to cut costs however they can. As for consumers, Japanese people aren’t home very much, so home PC adoption was slow, but that market is kind of dying anyway.

    Hope that helps…

  14. Jerome H Vaughan Says:

    Japan has produced an economic miracle over the last 20-years which the West and all our “economists” have entirely failed to notice. This can be illustrated in 4 simple data sets:

    Data 1989 2012 Change %
    Population 123m 127m +4m 3.25%
    Over 65-yrs old 14.3m 29.3m +15m 104%
    Working age pop 69.5m 63.7m -5.8m -8.3%
    GDP $3tn $5tn +$2tn 66%

    So here is a country which since 1989, has seen its population increase by just 3%, the number of its retirees by over 100% and the working age population decline by 8%. AND YET its GDP has grown by 66%.

    Show me one other country in the world which comes close to matching that.

    And, incidentally, this also demonstrates all that nonsense spouted by economists regarding the need for immigration to support economic growth, is just that: pure nonsense.

  15. Justin Bowles Says:

    Noah. Isn’t your prescription for Japan of instituting neo-liberal reform and deregulation that would “rationalize” employment a set of policies that has had a less-than-stellar track record in the U.S. Allowing the market free rein in the U.S. in the face of globalisation and technological change has given the country 1) a falling labour participation rate, 2) declining real median wages, 3) a sharp polarisation of the job market between winers and losers and 4) exploding income and wealth inequality. And this is the model that Japan is supposed to emulate?

    Further, if we adjust Japan’s overall economic performance to take account of the dramatic decline in working age population, as the much-derided former Bank of Japan governor Shirakawa always used to do, the country doesn’t look nearly so bad when compared with other advanced economies.

    I lived for 20 years in Japan on and off, and whenever I hear calls for structural reform I wince because it is never made very clear how such reforms will be welfare-enhancing.

    The economics literature on happiness appears to have matured to a point where we understand that GDP is not the only welfare indicator we need to target. Slapping a U.S. style neo-liberal set of reforms on Japan would certainly remove many of the things that I love about Japan and make it such a liveable country (like retail and restaurant sectors that are employment heavy but unparalleled in service and quality; non-ghettoized community living; and a corporate sector that takes into account the negative impact on employees and their families of downsizing and rationalisation).

    Further, the securing of a decent payback from neoliberal reform in terms of economy-wide productivity gains (that is, gains that would accrue beyond a small cognitive elite) is doubtful. Since 2000, such gains have been missing in action in the U.S.

  16. DC Says:

    @Gabriel, I don’t see how your example of methods of payment are really symptomatic of a lack of innovation. These methods have been in use for ab long time there, for mail order based services, and thus it completely makes sense to expand them to web based markets. If you think about it, Japan introduced cellphone (zero contact) based payment methods several years ago (as early as 2006 iirc), and it’s only been picking up lately in the western world.

    I think that many (potentially paradigm shifting) innovations happen in Japan, but remain conceiled in their domestic market – or at most the close pacific region – for some reason. And there are fads too, like segways in the US for instance. Perhaps it has been mentioned above that Japaneses may lack talent in building hype outside their borders. Japanese are avid consumers of novelty (I think it might be somewhat linked to their language being so neologism prone), so the idea of a lack of innovation there seems counter intuitive.

  17. Adam Says:

    Sad to see socially-oriented market structure vs.Neoliberalism false binary introduced under the guise of dispelling common myths about the Japanese economy. This is a long-standing ideological tactic of the Capitalist economist-cum-apologist, stretching as far back as Hayek, and indicative of the discipline’s compromised rigor. Given this is Neojaponisme, I expected something of the more sober appraisal provided by Justin.

  18. Jerome H Vaughan Says:

    Well, I’m reasonably good with English but can’t understand Adam’s point. Put it clearly man. Justin, you have made some sober and valid points which pick-up on the post I made earlier in the string. One thing which few mention but, I consider worth reflecting on, is the absence of Japanese billionaires from these global rich lists which appear. This absence is worthy of study in its own right (naturally ignored by economists), but would seem to suggest, in a country where capitalism is very much alive, they hold an interesting and, quite different view from the West, on shared benefits and responsibility.

  19. Justin Bowles Says:

    Adam: My point wasn’t that Japan has a superior system; my point was that the type of neoliberal reforms suggested for Japan have a less than stellar track record in improving welfare in the Anglo-Saxon economies. As to whether Japan’s economic structure could be improved: of course. So I don’t see this as a binary choice.

  20. Justin Bowles Says:

    Adam. Sorry, after re-reading your post, I think I got the wrong end of the stick. I believe we are on the same page in terms of not believing reform is a binary option. Noah’s post is rather strange since if you read his blog (Noahpinion), he doesn’t come across as a Chicago University-type free markets, rational expectations and atomic individuals kin of guy at all. So the knee-jerk reform equals neo-liberal reform coming through in his post is rather bizarre.

  21. Anymouse Says:

    I think he may have been commenting with approval on your analysis, as opposed to Smith’s.

    To me there are simply two different ways to have a really bad sandwich. Japan has chosen one way, the US another.

  22. Chuckles Says:

    Interesting response from Marxy, one that I have heard confirmed by several people who know Asia: the Japanese lag in Internet mediated culture consumption, and that this affects the market for certain consumer electronics.

    Why that level of discomfort?

    But another issue has been raised: whether or not Japan is actually a capitalist society. This is the crux of the debate between those arguing for reform and the other side. It is an old question and dates to the 70s.

  23. M-Bone Says:

    The Japanese lag in internet mediated cultural consumption is vanishing. Japanese now spend more on apps per capita than just about anyone and spend more in absolute terms than Americans despite 1/3 the population. There is going to be a bit shift, and soon.

    When interpreting Japan’s lag it is also important to consider the flat out annihilation of Western start-up Blackberry (rags-riches-rags in a blink of the eye) and the battering of Microsoft into near irrelevance across a whole field of areas by Apple. Apple didn’t just beat up Japan, it beat up everyone.

    Apple seized retro design and did what Japan couldn’t – interface. This was the long delayed flowering of silicon valley when the technological capability to implement smooth design in software caught up with the will.

    The exception is the Koreans. Who came along at just the right time (devalued currency, comparatively cheap labor) to push the profit margin on mobile into the basement which made them the Android winner. Never would have happened without the American OS and the contextual advantages over Japanese companies that resulted from mid-2000s international political economy. Just look at any of the recent discourse coming out of Korea – panic over the newly devalued yen. It still remains to be seen if Japanese hardware makers can reclaim global market share, however. I do see them cutting into Apple’s share of the domestic market in a big way in the next year or two and perhaps leveraging that to make a play for US and Europe. Could happen.

    Adam Vs. Justin Vs. Noah – I think it was pretty clear that Adam was going off on Noah’s initial support for flexible labor: the fundamental no-liberal tenant which seems at first glance to be at odds with his humane view of the economy. Jerome says “put it clearly, man” but this isn’t a problem with Jerome and it isn’t necessarily a problem with Adam either. Neo-liberalism is the new Postmodernism in academic speak and I’d bet dollars to donuts that Adam is in academia.

    Here’s the beef: people with Japan experience like the labor intensive service and broad idea of corporate responsibility to employ people and at the same time don’t like it that old guys making huge salaries a prestige companies are freezing out the much cooler and much more open young people. Many of the people who are benefiting from the lefty dream of corporate responsibility are conservative mouth-breathers who are locking out diversity (and especially locking out women). This means that people who are interested in left critique in the American context like Marxy and Noah are going to use the liberal / neo-liberal beatstick against Japan a bit. Is it possible to mount a critique in which we can recognize that the wrong people might be benefiting from the Japanese system while also acknowledging that a Hayek / Friedman style neo-liberal apocalypse is not the answer?

  24. Justin Bowles Says:

    M-Bone: Yes I realised after I posted my initial comment that Adam was sounding off at Noah (I was just being a bit thick).

    As for your other point, I am not sure you can have your neo-liberal cake and eat it as part of a left critique. In the U.S., we have seen technology and globalisation push people out of middle income routine cognitive work (like basic office work) and routine manual work (like manufacturing) into either non-routine cognitive jobs (highly paid professional or IT jobs) or non-routine manual jobs (low paid restaurant, hotel work and so on). The job polarisation literature is pretty substantial now.

    In this connection, I read one study by Furukawa and Toyoda suggesting that the polarisation trend was also going on in Japan, but predominantly for younger people (I guess, the rise of part-timers, freeters and so on). So this sounds unfair.

    But let’s say you drop a bomb of aggressive M&A and downsizing into corporate Japan and take out a big chunk of baby boom echoers and above. Will that really reinvigorate the job opportunities for “the much more cooler and much more open young people”?

    Frankly, I doubt it. I have personal experience of working for one U.S. icon, Dun & Bradstreet, which in the early 1990s was at the forefront of Big Data and information processing. Every couple of years, it went through a round of aggressive downsizing, financial engineering and offshoring, but it never, ever got on top of the internet tsunami and just became the incredible shrinking company. The madogiwa zoku got thrown out of the window in true neoliberal style, but the cool and creative guys never got to take charge of the company.

    Indeed, neoliberal reform is very good at the destruction bit of ‘creative destruction’. But it is not so good at the creative bit, which is much more elusive, like fostering open educational environments that cross-fertilise with business, finance, and so on.

    Moreover, it is only a subset of the cool, open guys who get to clear up in the U.S. and U.K. Your TED-talk attending cognitive elite may be doing very well, but if you have dropped out of high school or college, forget it. And even the return on a plain-vanilla first degree has fallen considerably.

    So slaying the salarymen with a neoliberal sword may be deeply satisfying, but I doubt that a much fairer, just and vibrant society will emerge from the mayhem.

  25. Adam Says:

    @M-Bone I do not work in academia, but would be happy to be viewed as such if that is what is counterpoised to speculating about people’s careers and some kind of pastiche of newspeak as a stand-in for argument. Believing that one can employ an “oppositional” philosophy repositioned in any intellectual context is no less fallacious, so I’m confused to as why you would restate it. I have no deep engagement with leftist thought, but I imagine it would preclude the straw man of the Japanese corporate model as its embodiment. Thankfully again, there are people like Justin with a more rationale and measured take to offset this vapidity.

    Restated, my hope is that Economics as a discipline can separate itself from the the political responsibilities placed upon it by its usefulness to specific aims in an American historical context. Justin speaks of Noah’s work outside of this piece as being an insightful commentator, so perhaps he is already contributing to this effort.

  26. M-Bone Says:

    @Justin – I worry a bit that neo-liberalism is simply becoming a term to describe “everything” (it is the ideological state apparatus, the superstructure… even the libidinal source depending on who one is reading at what moment). You mention a structural shift in the economy, but this used to be called a “post-Fordist” or “post-industrial” move (as part of postmodernsim) and it isn’t at all clear the extent to which it is being mediated by policy, driven by consumer demand for different types of products or experiences, changes in technology, etc. Sometimes people talk as though this kind of thing wouldn’t have happened without Thatcher and Reagan, but if this is a world system shift, there needs to be change. Manufacturing is not coming back and automation is going to make much of what is left “post-employment” in the next few years. The shift of the economy to service, as you note, is significant, but these jobs are likely to become ever more “efficient” due to things like app ordering, and thus employ fewer people. Creative industries will never employ more than a tiny part of the population, especially if young people, the very market for those products, are becoming fewer and seeing fewer opportunities. And to give you an idea of where I’m coming from, I read “The New Left Review” and don’t watch TED talks. And by cool and open I just mean generally – more tolerant of diversity, GLBT, more open to new ways of doing things (shared homes, communal farming, etc.), and so on. I’m not talking about douchebags with “Creative Class” t-shirts.

    I don’t think that we should clear out older workers, but there are many other possible strategies to move wealth to other age groups – higher income taxes at over $100,000 equivalent, performance based bonuses, etc. There are opportunities for movement by both government and corporate. Instead we are getting a consumption tax spike which is likely going to result in more wealth transfer from young families to the madogiwa types (as well as elderly in legitimate need, a group for which Japan has no plan).

    The left and libertarian right in Japan are talking about some interesting options. Higher minimum wage (making age based pay scales less top heavy – perhaps corporate tax breaks for this) and protections for contract employees. A basic minimum income is what I would want to see (decrease dire need, vitalize consumption, open up time / creative freedom, provide relatively more resources to families with children, support entrepreneurship). Japanese libertarians aren’t sociopaths like the US Republican equivalents so there is always a chance to that this could gain steam (especially given the likelihood of consumption being hit as automation picks up and corporate getting behind ways to get people to buy again).

    To get any of this moving, however, there needs to be a wealth move from the Japanese who benefited from lifetime employment to “the lost generation” and millennials. This, I guess, is why I’m not going to beat the drum for neo-liberal flexible labor but I’m not going to blow up at mentions of it either. My concern right now is that top heavy Japanese employment, which has the upside of more security for older Japanese, is draining creative vitality (in both corporate contexts and starving the market for youth culture of cash) and locking the young out economically.

    @Adam – Do you mind if I ask where you are getting your terms of economic critique? What are you reading?

  27. Justin Bowles Says:

    M-Bone. I think my use of the word neo-liberalism is in the tradition of the economics literature, where it would frequently be referred to as the Washington Consensus. I would hazard a guess that this is what Noah meant (but am happy to be corrected). As such, we are talking about the promotion of free markets, free trade, deregulation, privatisation and a shrinking of the state within the economy, particularly its social welfare function.

    I would completely agree with you that some of the economic or social problems we face are not primarily caused by neoliberalism, the Big Three being climate change, resource depletion and the impact of technology on society (the main concerns of my own blog The Rational Pessimist). That said, neoliberalism isn’t providing solutions to these problems either.

    In the case of Japan, you state the problem as a zero sum intergenerational conflict, with Noah’s idea perhaps being to use neoliberalism as a lever to shift wealth and opportunity down a generation. I just find this hopelessly naive.

    Let’s take an example: the creation of a free market for corporate control. This surely must be the neoliberal poster boy with respect to structural reform in Japan. I don’t think I have ever seen an op-ed in the Wall Street Journal or Financial Times on Japan that doesn’t recommend an active market for corporate control.

    Again, I have personal experience in seeing such a market in action in the form of a private equity take-over. The classic PE playbook is three-pronged: 1) restructure pension obligations (out goes any defined benefit scheme in comes an inferior defined contribution; 2) instigate aggressive tax avoidance schemes (not evasion since they comply with the letter of the law if not the spirit), which usually involve the copious use of debt; and 3) downsize aggressively.

    What emerges from this process is a leaner and fitter company, but has it increased social welfare? Or has it increased the social welfare of the young? My answer would have to be an emphatic ‘no’. The welfare that has been enhanced is predominantly that of the equity holders.

    As to your policy prescriptions: a more regressive tax system, raising the minimum wage and so on. Well these are certainly not neoliberal policies. They all appear to require an enhanced role for the state, an anathema for a neoliberal.

    Personally, I think such redistribution policies aren’t actually the solution. I believe a complete rethink is required of how we work, get educated, get healthcare and so on. in short, a revamp of our institutions. The kind of ideas Juliet Schor is talking about:


  28. Anymouse Says:

    I sometimes do wonder if we are simply rearranging the deckchairs on the Titanic. Nothing other than truly new economic ideas can change our utter lack of an economy that can actually support a normal and healthy life for the great majority, rather than for just the elite and a subset of the professional class.

    Speaking of libertarians, I know Charles Murray is a supporter of a minimum income and I do find the idea intriguing.

    I want to toss out a truly radical pair of economic ideas: agrarianism, and the family wage. Isn’t there a place for those? At least, we would be less likely to simply rearrange the chairs.

  29. M-Bone Says:

    Libertarians: Hayek, Friedman, and contemporaries like Ricard Nixon were all behind some level of basic income. It makes sense as that money will prop up consumption and thus feed the market. It is only this last generation of sociopath libertarians that don’t give a crap about the poor or can’t recognize the utility of mass consumption for capital.

    There are a other interesting ideas as well. A national wealth fund: replace corporate taxes with a system that puts a percentage of stock into public trust when a company goes public. Or just go whole hog with government embrace of our current economic realities: sell advertising space on the money (bye bye Fukuzawa, hello Coke) and public buildings.

    Agrarianism – Japan needs to start doing land grants including land grants for farming migrants (to be a bit brutally instrumental, tying the visa to working the land) subsidized communal farms for young people, etc.

    Of course, capitalism is like the Borg or something. It adapts to anything. If our Titanic economy starts to drag down corporate capital because of weak consumption, it will be entirely logical for capital to move to distribute money to the mass so as to better replicate itself.

  30. Chuckles Says:

    […I worry a bit that neo-liberalism is simply becoming a term to describe “everything” (it is the ideological state apparatus, the superstructure… even the libidinal source depending on who one is reading at what moment)…]

    i.e. End of History, in which all is assimilated into a single discourse.

    [… Creative industries will never employ more than a tiny part of the population, especially if young people, the very market for those products, are becoming fewer and seeing fewer opportunities. And to give you an idea of where I’m coming from, I read “The New Left Review” and don’t watch TED talks…]

    What do you make of this?


    The history of market neoliberalism is a disastrous one and rightly so, like the Holy Roman Catholic Empire, NeoLib is a neologismic oxymoron, neither market nor neo nor lib. Its not new because it is essentially the mercantilism of trading classes of pre Industrial Europe. Its not lib, certainly not in the enlightenment sense – it isnt engineered with a view towards human freedom, neither does it spring from that source.

    What it is, really, is an attempt to impose a structure of power relations outside the ordinarily chaotic mechanisms of markets. Theres nothing liberal about this. Its a kind of corporate fascism.

    To compare this to postmodernism is interesting: since of course the same critiques of PoMo apply: the introduction of areferentiality is essentially the decentering of political economies all over the world, particularly the third world where such centering is interpreted purely as statist illiberal phenomenon or harmful protectionism.

    Market liberalization is a deconstruction, which is non recursive, i.e., fails to deconstruct itself as a paradigm.
    The guise of audience to audience discourse cloaks hidden interpreters or the world center in Wallersteinian / World systems terminology – so also, the guise of global free trade does not take into account the essential invisibility of the major western economies.

    It is a failed mode: but it serves its intent, and to argue for welfare, in Japan or elsewhere from a neoliberal stance is weird.

    Radical, new economic ideas seem impossible at this stage, but they can be imagined, along with a complete slew of trans-humanist, post-human possibilities. It isnt odd that Japan would be a setting for this, but the excavation of the Japanese middle class is evidence that the invisibility of the structure is perhaps the stage for its ultimate effect.

    See here:


    It was only a matter of time before the consequences of Japan’s move to the center began to take effect.

  31. M-Bone Says:

    The manga majors thing is crap reporting. I have contacts at all three of Japan’s biggest manga programs and they worry a lot about student placement. There are some people getting jobs, sure. But let’s also keep in mind that Japanese creative industries are supported by lowly paid labor. The best estimate for how many people actually make money drawing manga (a multi-billion dollar industry): a couple of hundred. The App world works like this globally as well. For every Temple Run there are hundreds of games that don’t make back the investment.

    “neither market nor neo nor lib”

    I had a fun time explaining to my father why neo-conservatives are neo-libearls.

    Let me think over your other comments for a bit.

  32. A. Case Says:

    I think the statement “exports are a smaller part of Japan’s economy (16%)” is a little misleading.
    This number represents only the actual “exporting”, i.e., the figure made by the trading company or direct sales made by major manufacturers. There are millions of parts manufacturers and middle men, etc., etc., working to make products to be imported, but their numbers are included in domestic figure rather than in the export category.