May 25, 2022·edited May 26, 2022Liked by Noah Smith
Just to provide an on the ground anecdote about Japan's relative lack of exporting...
I live in Vietnam which, for whatever reason, is one of the few places that does seem to attract Japanese exports. And it really drives home how absent they are in other countries (I'm most familiar with Australia and the US).
When I go to a baby store we can choose diapers from Merries, Moony, Genki, and Whito. For formula there's Meiji and Yokogold.
And that's just one tiny example from one store. You wonder why you never see these things anywhere else.
I really enjoyed your article; I hope that you might agree to have it translated into Japanese so that it could be picked up by someone in Japan who might work on the points you brought up.
I especially like the Hong Kong in Japan idea; I think Japan has the financial strength to carry it off, but needs a more externally oriented outlook for trade. I truly believe Japanese engineering is high quality, but the lower tier SMEs are reluctant or unable to market overseas. Foreign workers would greatly help. Once, and if, the economic ball starts rolling it might be easier to deal with the welfare problems.
Help me out here: how did you normalize (renormalize) productivity per labor hour (dependent variable) against labor productivity per worker (independent variable) without accounting for capital? This is a huge point in your argument and I’m missing the CAPEX impact upon the dependent variable.
The first thing Japan needs to do is to get rid of the insane consumption tax, which destroys 10% of the domestic economy (and falls most heavily on the weakest/poorest and elderly). Next is to raise the minimum wage. Third is to print more money and spend it. Increased government domestic spending (e.g. paying helpers for the infirm elderly better) would boost the economy.
Japan's falling fertility rate is due to the fact that the median income has been falling for at least 25 years. People aren't having as many kids as they want because they can't afford them. (Japan is also the most expensive industrialized country to raise a kid through high school. And then there's the inverted university system, in which the top/most elite schools are the (somewhat) affordable national universities, and people who can't get into those have to pay to go to a private uni.)
That is: the most important thing is getting more money into the hands of the Japanese consumers.
All these are things that Yamamoto Taro is saying. You might want to check him out.
Most of these proposals will not address the underlying Japanese productivity problem, which is not really rooted in office culture. In his The Power of Productivity, William Lewis points out that national productivity is just the average of productivity in individual economic sectors, weighted by the proportion of the population working in each sector. He explicitly reviews Japan, and highlights the sizeable sectors that drag down Japanese aggregate productivity -- especially food production, wholesale and retail distribution, and construction. There are fundamental cultural and institutional reasons why Japan does not produce at top international levels in those economic sectors. Those are obviously difficult to remove, otherwise Japan would have done it already. And your proposals do not address any of them.
I'm trying to understand exactly why Japan needs to grow its economy and what part of it. Japan does seem to have a free time issue with too many people working long hours, but that is something that requires a cultural fix, especially if those hours are just face time and not very productive. Still, you don't get more free time by growing the GDP. The US is a good example of how that doesn't work.
So, what exactly are the Japanese unable to get that could be provided by a larger economy with a higher GDP per capita? Are the poor malnourished? Are there people who can't get medical care or only substandard care? Is there a problem with homelessness? Are old people dying prematurely for lack of care? Would growing the GDP fix those problems or would fixing those problems, as a side effect, expand the GDP? In the US, we can grow our GDP per capita just fine, but it doesn't make housing, medicine or education more affordable; it just makes wealthier billionaires.
If you are looking at GDP per capita, then there are two ways to increase it. You can increase the GDP or decrease the population. As someone with economics training, I'm sure you've studied the French demographic transition in the 18th century. France dramatically cut its population growth and raised living standards. People started practicing withdrawal, using condoms and exploring other ways of having fun without having babies. England didn't catch up in GDP per capita for a century, and France stayed surprisingly rural into the 20th century.
Arguing that the Japanese should grow their population may prove counterproductive. If you want immigrants, they might solve the home health care aide shortage today, but they are going to stay in Japan, grow old and need care themselves. If you don't draw the line at some point, you'll have the same problem of elder care and sclerotic growth, except with a diverse population of a billion. That doesn't sound easier to solve.
More of a wish-list than anything practical/possible and none of these suggestions are very new either (except the last point, which even the author acknowledges as a stretch). A much more interesting piece would chart the evolution of 2 decades of failed attempts to move in this direction.
Asking an economy to 'change' is very easy in theory....and very difficult in practice. Institutions, social structures, political realities and economic frameworks don't just start bending because someone has a few nice bullet-pointed suggestions and a couple of fancy graphs.
These are basic common sense ideas, but the japan that i live in and have lived in (and wrote a book about) since 2001, will NEVER implement these ideas. Japan is hopeless. Its like a really slowly sinking titanic.
I doubt any potential immigrants will stay in depopulating regions. Bright, young professionals, the people you suggest that Japan should bring in are not going to stay in mid-level, depopulating city any longer than they have to. Most will go to Tokyo/Osaka as soon as possible, exarcebating the issues. Same thing happening with your Canadian example where the immigrants to the Canadian Maritimes, see the place as a temporary, necessary "evil" before the eventual move to the Greater Toronto Area.
few thoughts : (1) when you look at that productivity chart regression and see ireland and luxembourg, clearly shows impact of financial sectors on "productivity" calcs. (2) your very "viewed from space" map on renewables in Japan seems very dubious, in the sense that is hugely simplistic. Following this logic, sahara should be covered in solar panel and greenland in wind turbines. Except not where population lives and terrain reality (climate, mountains etc) ignored (3) late stage funding : quasi ONLY the US system manages to do it, and probably a feature, not a bug. Winner takes all logic + very unique capital market structure in the US. Smarter niche positioning like Israel are successful ones outside US. (4) Japanese HK... same problem again. Very limited room for major global financial center. Basically three worlwide (3x8 hours spread geographically). Japan law standards very different etc. etc. Looks highly unrealistic. (5) reboosting birth rates can help smoothen transition but developped countries HAVE to transition to lower birth rates. Issue is how to get qualitative growth vs. quantitative. What I believe would change economic outcome is bottom up "new model" from younger japanese generation of leader. Impossible to predict but answers lie with them, not some ready made macro view. We all think changing the economic/political makeup of a country should be easy. It never is.
Just to provide an on the ground anecdote about Japan's relative lack of exporting...
I live in Vietnam which, for whatever reason, is one of the few places that does seem to attract Japanese exports. And it really drives home how absent they are in other countries (I'm most familiar with Australia and the US).
When I go to a baby store we can choose diapers from Merries, Moony, Genki, and Whito. For formula there's Meiji and Yokogold.
And that's just one tiny example from one store. You wonder why you never see these things anywhere else.
Really well written
I really enjoyed your article; I hope that you might agree to have it translated into Japanese so that it could be picked up by someone in Japan who might work on the points you brought up.
I especially like the Hong Kong in Japan idea; I think Japan has the financial strength to carry it off, but needs a more externally oriented outlook for trade. I truly believe Japanese engineering is high quality, but the lower tier SMEs are reluctant or unable to market overseas. Foreign workers would greatly help. Once, and if, the economic ball starts rolling it might be easier to deal with the welfare problems.
Help me out here: how did you normalize (renormalize) productivity per labor hour (dependent variable) against labor productivity per worker (independent variable) without accounting for capital? This is a huge point in your argument and I’m missing the CAPEX impact upon the dependent variable.
Thanks
Your HK in Japan sounds rather like a modern version of Dejima?
On the interesting Hong Kong idea, how do you avoid Japanese companies doing a Delaware and thereby eroding Japan’s tax base?
Maybe having government debt at 200 percent of GDP doesn't help, either
The first thing Japan needs to do is to get rid of the insane consumption tax, which destroys 10% of the domestic economy (and falls most heavily on the weakest/poorest and elderly). Next is to raise the minimum wage. Third is to print more money and spend it. Increased government domestic spending (e.g. paying helpers for the infirm elderly better) would boost the economy.
Japan's falling fertility rate is due to the fact that the median income has been falling for at least 25 years. People aren't having as many kids as they want because they can't afford them. (Japan is also the most expensive industrialized country to raise a kid through high school. And then there's the inverted university system, in which the top/most elite schools are the (somewhat) affordable national universities, and people who can't get into those have to pay to go to a private uni.)
That is: the most important thing is getting more money into the hands of the Japanese consumers.
All these are things that Yamamoto Taro is saying. You might want to check him out.
Most of these proposals will not address the underlying Japanese productivity problem, which is not really rooted in office culture. In his The Power of Productivity, William Lewis points out that national productivity is just the average of productivity in individual economic sectors, weighted by the proportion of the population working in each sector. He explicitly reviews Japan, and highlights the sizeable sectors that drag down Japanese aggregate productivity -- especially food production, wholesale and retail distribution, and construction. There are fundamental cultural and institutional reasons why Japan does not produce at top international levels in those economic sectors. Those are obviously difficult to remove, otherwise Japan would have done it already. And your proposals do not address any of them.
I'm trying to understand exactly why Japan needs to grow its economy and what part of it. Japan does seem to have a free time issue with too many people working long hours, but that is something that requires a cultural fix, especially if those hours are just face time and not very productive. Still, you don't get more free time by growing the GDP. The US is a good example of how that doesn't work.
So, what exactly are the Japanese unable to get that could be provided by a larger economy with a higher GDP per capita? Are the poor malnourished? Are there people who can't get medical care or only substandard care? Is there a problem with homelessness? Are old people dying prematurely for lack of care? Would growing the GDP fix those problems or would fixing those problems, as a side effect, expand the GDP? In the US, we can grow our GDP per capita just fine, but it doesn't make housing, medicine or education more affordable; it just makes wealthier billionaires.
If you are looking at GDP per capita, then there are two ways to increase it. You can increase the GDP or decrease the population. As someone with economics training, I'm sure you've studied the French demographic transition in the 18th century. France dramatically cut its population growth and raised living standards. People started practicing withdrawal, using condoms and exploring other ways of having fun without having babies. England didn't catch up in GDP per capita for a century, and France stayed surprisingly rural into the 20th century.
Arguing that the Japanese should grow their population may prove counterproductive. If you want immigrants, they might solve the home health care aide shortage today, but they are going to stay in Japan, grow old and need care themselves. If you don't draw the line at some point, you'll have the same problem of elder care and sclerotic growth, except with a diverse population of a billion. That doesn't sound easier to solve.
More of a wish-list than anything practical/possible and none of these suggestions are very new either (except the last point, which even the author acknowledges as a stretch). A much more interesting piece would chart the evolution of 2 decades of failed attempts to move in this direction.
Asking an economy to 'change' is very easy in theory....and very difficult in practice. Institutions, social structures, political realities and economic frameworks don't just start bending because someone has a few nice bullet-pointed suggestions and a couple of fancy graphs.
This Japanese Hong Kong sounds like your dream Noah.
These are basic common sense ideas, but the japan that i live in and have lived in (and wrote a book about) since 2001, will NEVER implement these ideas. Japan is hopeless. Its like a really slowly sinking titanic.
They should call it kaminato to really play on the HK idea
I doubt any potential immigrants will stay in depopulating regions. Bright, young professionals, the people you suggest that Japan should bring in are not going to stay in mid-level, depopulating city any longer than they have to. Most will go to Tokyo/Osaka as soon as possible, exarcebating the issues. Same thing happening with your Canadian example where the immigrants to the Canadian Maritimes, see the place as a temporary, necessary "evil" before the eventual move to the Greater Toronto Area.
few thoughts : (1) when you look at that productivity chart regression and see ireland and luxembourg, clearly shows impact of financial sectors on "productivity" calcs. (2) your very "viewed from space" map on renewables in Japan seems very dubious, in the sense that is hugely simplistic. Following this logic, sahara should be covered in solar panel and greenland in wind turbines. Except not where population lives and terrain reality (climate, mountains etc) ignored (3) late stage funding : quasi ONLY the US system manages to do it, and probably a feature, not a bug. Winner takes all logic + very unique capital market structure in the US. Smarter niche positioning like Israel are successful ones outside US. (4) Japanese HK... same problem again. Very limited room for major global financial center. Basically three worlwide (3x8 hours spread geographically). Japan law standards very different etc. etc. Looks highly unrealistic. (5) reboosting birth rates can help smoothen transition but developped countries HAVE to transition to lower birth rates. Issue is how to get qualitative growth vs. quantitative. What I believe would change economic outcome is bottom up "new model" from younger japanese generation of leader. Impossible to predict but answers lie with them, not some ready made macro view. We all think changing the economic/political makeup of a country should be easy. It never is.