Friday, March 25, 2011

Japan - truth, fiction, and stereotypes

Peter Tasker is regarded as "the foremost authority on the Japanese equity market". He lives in Japan, and makes a living studying and explaining the country. This is probably why his column on Japan's recovery from its unprecedented natural disaster gets a few important things right. But, frustratingly, these points of light are embedded in an article that is otherwise the usual mix of outdated stereotypes and bad economics that so often characterizes Western analysis of Japan.

I'm going to go out of order here. First, here are some things Tasker laudably gets right.
When the Japanese economy stagnated, the praise and warnings turned to lectures and self-congratulation, as the West patted itself on the back for having bested the Japanese threat. But...[i]n my three decades of residence here, Japan's underlying reality has changed a lot less than volatile foreign perceptions. 
This is basically true. Japan is often held to have suffered two "lost decades," but in fact suffered only one; per capita GDP growth rebounded strongly in the 2000s, catching back up with a stagnating America.
[Western "experts"] misread the causes of Japan's postwar success. The supposedly farsighted technocrats praised by Johnson in his 1982 book, MITI and the Japanese Miracle, were the same people who tried to stop Honda from getting into the auto market, poured public money into sunset industries, and built nuclear power plants on a tsunami-prone coast at sea level. 
Also true. Japan's massive bureaucracy has frequently been more of a hindrance than a help to the company's businesses.
After the collapse of the bubble economy in 1990, Japan did indeed descend into stagnation and banking crisis. At the time it seemed as if Japan's policymakers and bankers were uniquely incompetent in their fumbling attempts to tackle the problems. With the hindsight offered by the global financial crisis, it is clear that there are no easy fixes to the damage caused by the implosion of a large-scale bubble. And the United States is not one to judge: Washington has refused to make Wall Street take the harsh medicine it urged on Japan a decade earlier. 
All very true, and worth repeating.

But although he does a good job of skewering certain Western misconceptions about Japan, Tasker seems more than willing to indulge in some of his own...
The Japanese economic miracle had nothing to do with had everything to do with the resilience of ordinary Japanese people and the country's deep reservoir of social capital.
This is, to put it plainly, rubbish. Do all "resilient" cultures do well economically? Was China's poor economic performance until 1979 due to its lack of "resilience", and has its miracle growth since 1979 been due to a massive sudden increase in "social capital"? Did Korea and Taiwan only become "resilient" in the 70s? 

Hardly. Japan's economic miracle was due to A) rapid post-WW2 catch-up growth, B) a high savings rate, C) stable macroeconomic management, D) openness to foreign technology, E) stable export markets, and especially F) a well-educated hard-working labor force. 
Japan was urged to make radical economic reforms by many foreign observers, who were then disappointed by Tokyo's glacial progress in making them. But economic efficiency was never the end goal, whether Japan's economy was rising or falling. It was social stability...don't expect to see a plethora of Japanese billionaires emerging...or the adoption of hostile takeovers, Reagan-Thatcher-style supply-side reforms, and the rest of the neoliberal agenda.
Oh yeah? Where were you in the early 2000s, when Junichiro Koizumi and Heizo Takenaka instituted a whole bunch of Reagan-style neoliberal reforms (and the economy, possibly coincidentally, boomed)? Did you miss the fact that Koizumi won a landslide victory in 2005 purely on the strength of a promise to privatize the postal system? And as for "billionaires" do know about all those super-rich Japanese industrialists who emerged from the post-WW2 high-growth period, right? 

Sure, many Japanese people prize stability and security over growth and efficiency. More than Americans, on average...but much less than, say, the French! Growth is a big deal for Japan, and the country has shown a distinct willingness to do what it needs to do to keep the wheels of commerce turning.
The generation of Japanese brought up amid the postwar devastation was driven by a hunger to reconstruct everything -- their lives, their society, their country's standing in the world. Once Japan was strong enough to be left alone, the target had been achieved.  
If this is true, why do so many Japanese people I meet - from businesspeople to scientists to government officials to housewives - bemoan Japan's growth slowdown? Why the unprecedented ouster of the long-ruling Liberal Democratic Party? Why the outcry over growing poverty? And besides being patently false, the claim that "Japanese people only care about social stability and national prestige, not economic well-being" strikes me as pretty insulting as well.

But here's the part that really got me steamed:
[E]conomists usually discuss GDP without reference to currency markets, but this can obscure what's really going on. Japan's tight monetary policy has caused the yen to strengthen significantly against the dollar and dollar-linked currencies -- which raises the global purchasing power of Japanese households and corporations. In comparison, U.S. growth looks impressive when denominated in dollars, but not so much when taking into account the weak dollar policy followed by Messrs. Greenspan and Bernanke.
OK, this is just bad, bad economics. And false. First of all, "tight monetary policy"? This is a country where interest rates have been zero for a decade, and "quantitative easing" first became a buzzword. And a strong yen policy?! Japan actively intervened in currency markets to weaken the yen for decades, including a massive dollar-buying spree in early 2004. The yen was, until very recently, undervalued against the dollar by most measures. And to say Alan Greenspan pursued a "weak dollar policy" is, quite frankly, the kind of thing I expect to read on a second-rate investment advice website or on a conservative blog rant. 

A little more attention to facts, please.

Anyway, after getting a few things right and a few face-palmingly wrong, Tasker fills the remainder of his column with cliched stereotypes of Japanese culture. Here's a condensed version:
[T]he country's extraordinary social cohesion and stoicism haven't budged an inch...

If modern Japan has a common ethic, it's based on mutual respect, not victory in competition...

Japan does gaman (endurance) superbly. It copes with the challenges of success less well...

In the Japanese hierarchy of needs, social cohesion ranks higher than top-line growth...

The Japanese also fear a dilution of shimaguni konjo, the "island nation spirit" [that would result from increased immigration]...

The quiet strength of today's Japan is that the janitor in your apartment building is not a representative of "the other." He is you.

As they set about the task of recovery, [the Japanese] will become more like themselves. 
Heh. Been rereading The Chrysanthemum and the Sword on those long plane flights, have we? I swear, I never cease to be amazed by the willingness of Western analysts to ascribe everything about Japan to the mysteries of the country's ancient, immutable, alien culture (and/or race).

And in conclusion...I guess being "the foremost authority on the Japanese equity market" entitles one to say pretty much anything about Japan and get away with it. But it does not entitle you to say something like this:
In a sense, Japan has been waiting for a crisis just such as this to show its inherent strengths. 
No, Mr. Tasker. Japan was not waiting for a crisis just such as this, in any sense of the word.

P.S. - I realize, as I write this, that I never posted anything on this blog about giving to Japanese tsunami/earthquake relief. That was a huge mistake on my part. It was, I suppose, a holdover from back when I assumed that so few people read my blog that I couldn't make a difference. But in any case, if you haven't already given money to disaster relief, you should. Sorry I failed to say that when it would have counted a bit more.


  1. This post reminds me of an amazing discussion I stumbled across on reddit about "The Great Wave off Kanagawa" ( j3ffr3y argues that the image should be reversed so Western viewers can "read" it the way the Japanese do. ( The difference is dramatic - it becomes clear that the fishermen are in fact charging into the teeth of the wave. A fitting allegory for outsiders' misperceptions of Japan's economy, perhaps.

  2. Re: fundraising - it counts just as much, if not more, now. From what I hear, the biggest problem in disaster relief fundraising is that the initia surge of donations dies out after the "immediate crisis" is seen as having passed. This is a good reminder.

    I know about economics approximately 10% of what you've told me, so I don't think I'm qualified to comment on the rest of the post. :-)

  3. I am neither agreeing nor disagreeing here, but I do want to note that -something- is different in Japan. Stereotypes (or shorthands) aside, Japan seems to do major shifts differently (the Meiji restoration being the one that sticks out immediately). While 'waiting for' may not be the correct way of phrasing it, 'turning points' do appear to be more abrupt. For example, your reference to the poverty issue - people have been gaman-ing it out for quite a while (as evinced by the numbers - one in six living in poverty doesn't happen overnight) before it officially became a problem.

  4. I am Japanies. I am not good at English. But I want to coment this post.I agree with your this post. Peter Taska tricks people in Japan. In Japan, Economists are liar. You can't believe this, but true. They don't understand economics at all. Japanese(in average) doesn't like evidence, so people tend to believe liar's word. Liar pretend they understand Japanese. But I think they look imaginary Japan, not real. In Japan,people believe conspiracy theorist or marxists (even college economists too!).