Monday, September 21, 2009

NYT: Japan Strives to Balance Growth and Job Stability

This New York Times article is interesting from various perspectives. First, one could argue despite some obvious differences (population growth, access to natural resources, personal savings in Japan) the United States is following the Japanese path (massive real estate, stock market debt bubbles - huge public debt) with about a 10 year lag. It's more complicated than that of course but at least for a superficial look one could make the parallel. I've posted quite a few stories in the past on Japan that if I ripped out the country of origin and replaced it with "United States" the story would be just as fitting.
  1. [Oct 28, 2008: Pooring of Japan Too?]
  2. [Jul 29, 2009: Japan's Herbivore Men - Young American Men's Future?]
  3. [Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime]
  4. [Feb 26, 2009: NYT - When Consumers Cut Back - An Object Lesson from Japan]
  5. [Feb 8, 2009: NYT - Japan's Big Works Stimulus is a Lesson]

Second, it speaks to the larger question of what is the economy for? In the U.S. we've adopted the "live to work" culture (dog eat dog), whereas in greater (Western) Europe one could argue a "work to live" culture has developed. In those European states, in return for a much more difficult time in creating great wealth and higher taxes, the "middle" has a much more stable lifestyle. What price less stress and 6 weeks of vacation? Japan has been somewhere in between... however, many American principles were adopted in the past decade to try to push them out of a 2 decade economic malaise - but having failed at that and instead creating a massive temporary (nomad) workforce and a striking gulf in income disparity, Japan now seems to be pushing more to a European model. Which raises a few questions in and of itself for the States and frankly people in most 1st world countries. Especially if innovation cannot create enough work domestically to compensate for jobs that have been punted to low wage countries. (and will continue to be)

While easy to dismiss we'd follow anything similar to Japan (the cultures are so very different) you'd also never think we'd adopt zombie banks, new stimulus programs on a now 180 day basis, and the like. The dogma of "we are not Japan" sort of rings hollow in many veins when we've followed so many of the same "solutions" post crash that they did. And one could argue, we've gone even farther "all in".

The larger question for the States, as is being asked in many developed countries, is where can you place this class of worker whose jobs have been permanently displaced? Only so many people can be government workers, health care workers, lawyers, accountants, and doctors. And only so many "service jobs" can be created to service those higher wage occupations. We cannot just simply blow new bubbles on 4-6 year cycles to create non sustainable work indefinitely (although we are trying) [Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?] And our manufacturing base has been hollowed out, with no economic incentive to bring that work back domestically. So what will we do with these people while we await the Chinese miracle of middle class ascendancy which somehow will create tens of millions of new jobs in America (per dogma). I don't know the answers - I am simply asking the questions.

Industry Change, May 1999-2009

(thousands of jobs)*

Private healthcare 2898
Food and drinking places 1567
Gov educ 1390
Professional and business services 885
Gov except health and ed 843
Social assistance 796
Private education 772
Arts, entertainment, and recreation 188
Gov health 148
Mining 133
Financial activities 130
Utilities -40
Transportation and warehousing -43
Retail -91
Accomodations -119
Wholesale -166
Construction -238
Information -525
Manufacturing -5372

*Gov health and gov educ based on April 2009 estimates
Data: BLS


As an aside, if you are not familiar with what has been happening in Japan, a landmark political victory just happened - one ruling party that had been in power for decades was finally displaced. Put another way, once the citizens were stretched to their limit, a form of "revolution" did happen. Keep this in mind for 10-15 years out in the States.

Via NY Times
  • Every day, the impeccably dressed “elevator girls” of Tokyo’s Odakyu department store greet customers, ushering them in and out of the cars. During breaks, they practice their greetings and meticulously reapply their makeup. Critics see the women as the embodiment of this country’s productivity problem — squandering of one of the world’s best educated labor forces on banal jobs that do little to make the economy grow.
  • But others, including the Democrats, Japan’s new ruling party, see them as beneficiaries of a more humane capitalism, a capitalism that values employment and stability over growth.
  • Japanese manufacturers taught the world to be competitive — reshaping the landscape in industries like cars and electronics, and introducing a vocabulary of quality and efficiency that became a mantra on business school campuses and shop floors. But productivity growth in Japan’s service sector has slowed in recent years, weighing on the labor productivity of the entire economy, which ranks only 18th among the 30 countries in the Organization for Economic Cooperation and Development and just 70 percent of levels in the United States.
  • With the service industry making up 70 percent of Japan’s economy ("we're not at all like Japan"), and manufacturers battered by the global slowdown, economists say Japan’s ability to emerge from the worst recession since World War II will depend partly on its ability to make its service sector more productive.
  • But Yukio Hatoyama, the leader of the ruling Democratic Party, bases his political philosophy on what he calls “fraternity,” meaning empathy with workers, rather than concern for corporate profits.
Of course the above point will be anathema to those who cry for free market capitalism. Most of those folks will point to America as a beacon of free market capitalism, to which I ask - "where? Outside of Ebay." Corporate socialism? I'll give you that - but in that case we might as well do corporate socialism with some benefits for the workers to boot.
  • Hirohisa Fujii, a leading contender for finance minister when Mr. Hatoyama announces his cabinet this week, has criticized even some of the moderate changes made by the departing Liberal Democratic Party.
  • Market economics is supposed to make a lot of people happy by letting skilled people fully utilize their skills,” Mr. Fujii, an elder statesman and former finance minister, wrote in a newspaper column last year. But recent pro-market changes in Japan “did not make everybody happy,” he said. “ That must be corrected, and we must build a politics led by the people.”
Again, complete anathema for any reader in the States, but useful to see how other people think and the cultural differences. Obviously being happy is not something that should be guaranteed by the state ;)
  • Evidence of low productivity in the service sector is everywhere: office workers still pour over paper files; a veritable receiving line of security guards and receptionists greets visitors at building entrances; and Japanese retailers employ twice the average number of workers per outlet as their peers in other Organization for Economic Cooperation and Development countries.
So the obvious question here would be, how does one compete globally with low productivity? Then again are most service industries truly competing globally ? i.e. US health care system. Tons of waste and costs, creating tons of extra jobs. Does it need to compete with any other country's health care system? Not really. So "unproductive" services can be a hallmark of any economy... including ours. As long as subsidized by government / taxpayers. See, we really are not very different than those we look down at...
  • Mr. Hatoyama is especially critical of changes championed by the former prime minister, the pro-American, free-market Junichiro Koizumi. Among other things, Mr. Koizumi took aim at Japan’s stagnant labor market, lifting a ban on the use of temporary laborers at factories.
  • He hoped to increase flexibility in hiring at Japanese companies, many of which are saddled with more employees-for-life than they need, protected by labor laws and social norms. The inability to fire these redundant workers even in lean times keeps productivity at ailing companies low, while hurting upstarts that could use experienced workers.
  • But critics blamed those changes for a widening income gap between lifetime workers and their poorer “temp” colleagues. (sound familiar?) The number of temporary workers, with low pay, few benefits and little job security, has surged in the last decade, reaching a third of the work force of 67 million. (again, sound familiar?) The plight of temporary workers let go en masse in the fallout from the global financial crisis has prompted a public outcry.
  • “People started to see high levels of economic inequality. The quality of jobs started going down, and there was a growing number of temporary workers,” said Steven K. Vogel, a professor of political science at the University of California, Berkeley.
An interesting example here, with a simple service such as haircuts
  • A cautionary tale, repeated by market proponents and opponents, is about QB Net, a start-up that took on Japan’s highly regulated barber market 10 years ago. QB Net’s string of super-efficient shops took the market by storm by offering quick haircuts for 1,000 yen, or about $10. Last fiscal year, the company logged sales of 6.73 billion yen, while the rest of the industry slumped.
  • Threatened, a nationwide association for barbershops called for more regulation. Among other things, the association argued that it was unclean for QB Net to offer haircuts to clients without first washing their hair; soon, ordinances were passed across the country requiring all barbershops to install shampooing facilities, an expensive investment that slowed QB’s growth.
  • “It’s not right to be penalized for being successful,” said Kazutaka Iwai, chief executive at QB Net. “We simply came up with a way to be more productive.”
  • Others, however, argue that Japan’s traditional barbershops, though outdated, are worth saving. These tiny salons have consistently employed about 250,000 barbers for three decades, and the shopkeepers are often central figures in a kind of community life that many Japanese fear is being lost.
Again, inside a closed society - (you are not going to fly to South Korea for a haircut) you make a decision. Cut back on efficiency (QB Net), and increase costs to consumer... in return for more jobs / stability. These are the types of questions I believe many 1st world countries will be grappling with in the decades to come as the world becomes more flat and many jobs can be located "anywhere". Having very successful, productive businesses might become a moot point when a growing class of the population could not pay for the services provided. Seems inconceivable to many, but it has been happening slowly but surely under the surface even in the States.
  • “There are many structural factors that may influence the relationship between productivity and social welfare,” said David J. Brunner, a Japan specialist and research associate at Harvard Business School. “So firms should fire their excess employees and leave them feeling betrayed and worthless, and without income? That certainly would not contribute to economic growth or the general welfare.
Works for us, at least in the private sector! Public sector? We're Western Europe personified.

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