On 30th April, Emperor Akihito abdicated and handed over to his son Naruhito – something that has not happened for 200 years. But it will change nothing for the vast majority of the population in Japan who are struggling to make ends meet. Still the world’s third largest economy in total GDP terms, Japan is stagnating – hit by prolonged economic stagnation, political inertia and rising social alienation.
Below we carry a review of a book by Brad Glosserman called ‘Peak Japan: the end of great ambitions’, written by Robin Clapp for Socialism Today – the monthly journal of the Socialist Party England and Wales (CWI).
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Japan matters. This is true even though the world’s third-largest economy has been eclipsed by China’s spectacular growth rates over the last two decades while wrestling with a ‘lost 20 years’ in which economic performance has been sclerotic by its former standards. As the announcement of carmaker Honda to close its Swindon plant in 2021 shows, decisions taken by capitalists in Tokyo can still have major international repercussions for workers and governments alike.
The timely publication of Brad Glosserman’s new book, Peak Japan, is welcome in helping to unravel where Japan stands today, economically, socially and politically. In particular, whether its economic weaknesses are merely the results of a lengthy cyclical trend which the government of Shinzo Abe could reverse, or if deeper global and national structural crises are embedded in Japanese capitalism and mean that its striking growth rates of 1950-90 are unlikely to be repeated.
Glosserman is a former member of the Japan Times editorial board, deputy director of and visiting professor at the Tama University Centre for Rule Making Strategies in Japan, and a senior advisor at Pacific Forum International. His contacts give him public and confidential access to Japanese politicians, civil servants and key economic planners, many of whose comments strengthen his conclusion that Japan’s best days are behind it. Furthermore, that the 2020 summer Olympics hosted by Japan will “… mark not the country’s re-emergence… they will instead be a valedictory salute for Peak Japan”.
The author does not claim to offer a socialist perspective or shine his otherwise perceptive torch on the state of the Japanese workers’ and trade union movements. Nor does he conclude that the widespread and growing discontent among ordinary people – at the failures of successive governments to decisively counter the economic and political paralysis that has been so intractable since the 1990s – is likely to lead to popular support for socialist ideas and a sharp upturn in the class struggle in the coming years.
What Glosserman does well is to trace the present trajectory of Japan. He does so in a readable style that presents his narrative convincingly to both students of Japanese affairs and readers coming to this question with little foreknowledge. He examines the myriad and connected reasons for Japan’s comparative weaknesses and the complications created by a growing inter-imperialist struggle with China, and an ageing crisis where 28% of people are over 65 while the fertility rate is plummeting. The consequence is that today’s population of just under 127 million is projected to fall to fewer than 100 million over the next 30 years.
Post-war Japan
The war in the Pacific 1941-45 resulted in a devastating defeat for Japanese imperialism, culminating in the atomic bombings of Hiroshima and Nagasaki. Between 2.6 million and 3.1 million civilians perished and up to 25% of the nation’s pre-1941 wealth was destroyed, according to historian John Dower. Yet, out of this devastation, post-war Japan was to rise and become a mighty economic force, one denied a military capability by US imperialism and firmly tethered to the western sphere of influence during the cold war and until this day.
The new model was underpinned by the application of a large degree of state-directed investment into private companies like Sony, Toyota and Panasonic which then focused on building a powerful export sector. In Glosserman’s view: “A single-minded bureaucracy working hand in hand with an ambitious political class and determined business sector fused a largely homogeneous society with an ancient culture to rewrite the rules of capitalism”.
During the years of the post-war upswing, this policy of state-driven capitalism appeared infallible. By 1988, Japan accounted for more than 16% of global wealth, while seven of the world’s ten largest companies were Japanese. In the banking sector, five of the largest global brands, measured by total assets, were based in Tokyo. But alas for the capitalists, the rules of capitalism cannot be permanently rewritten to sustain a profits paradise. Glosserman explains Japan’s sudden economic stumble in the 1980s as a result of its closing the economic gap with its rivals and exhausting its easy ‘catch-up growth’. This necessitated the search for new profitable outlets and an even more intense export drive into the US.
When, in 1971, the US acted in self-interest to end the post-war system of global financial management and fixed exchange rates (the Bretton-Woods agreement), its purpose was to bring the dollar’s value down to restore its competitiveness. This partially curbed Japan’s easy access to the US domestic market, which had been facilitated by the historically undervalued yen.
The collapse of the Stalinist bloc in the early 1990s created new complications for Japanese capitalism. The post-war era based on the rules of the cold war was finished. No longer having to concern itself with the geopolitical threat posed by Stalinism, the US was less willing to continue sanctioning Japan’s distorting economic influence on its trade. As early as 1985, the US had sought to correct trade imbalances with Japan and others through the so-called Plaza accord and, two years later, the Louvre Accord.
These international meetings of the then G5 capitalist nations (the US, West Germany, Britain, France and Japan) demanded that Japan reflate its currency, allowing the dollar to depreciate against it to restore US competitiveness, thereby reducing its chronic trade deficit. Glosserman quotes a demagogic speech from a young Donald Trump, to sum up US fury at Japan’s perceived unfair trade practices: “Why are these nations not paying the US for the human lives and billions of dollars we are losing to protect their interests… The world is laughing at America’s politicians as we protect ships we don’t own, carrying oil we don’t need, destined for allies who won’t help”.
Inflating the bubble economy
The Plaza Accord had some dramatic and unintended consequences, however. Through managing to further increase productivity rates, Japanese companies maintained profitability even at the new challenging exchange rates. The yen’s revaluation as a result of Plaza saw it rise markedly against the dollar. Finding its US market share curtailed, Japan swiftly cut interest rates by 50% to stimulate the economy. This created a mountain of capital, suddenly made accessible through cheap credit. The subsequent monetary bounce of up to 12% in three years then became the trigger for the build-up of a monster asset bubble. In the words of economist Paul Krugman, “Japan’s banks lent more, with less regard for quality of the borrower than anyone else’s. In doing so they helped inflate the bubble economy to grotesque proportions”.
There were insufficient productive domestic outlets in which to invest this cheap capital. So some of it went into asset purchases in the US and elsewhere, while huge amounts were soaked up in acts of reckless speculation in real estate and the stock market. According to Glosserman, the imperial palace in the heart of Tokyo – a piece of land a mere 3.4 square kilometres in size – was valued as being equivalent to all the land values in California.
Bank regulations were relaxed. This allowed investors to borrow up to 90% of the value of their real estate collateral, while inefficient and often completely unviable ‘zombie companies’, generating just enough business to service loans that would never be repaid, were allowed to continue on life support. By 1990, the asset bubble was becoming a huge danger to Japan’s economic stability and its frothy impacts risked destabilisation spreading to the global economy. The Japanese stock market hit its all-time peak in 1989, with paper assets equivalent to 150% the value of all US securities. It was responsible, on paper, for almost 45% of the world’s equity market capitalisation.
Shock treatment
Acting on the government’s instructions, the central bank brought a sudden close to this bubble madness by slamming on the brakes in May 1989 with a rude hike in interest rates from 2.5% to 6%. This shock was to lay the basis for Japan’s ‘lost decade’, the great economic unravelling that saw asset prices plunge in 1991 and 1992. Land and stock market prices fell precipitously, causing many companies that had borrowed against fictitious rising land values to become technically insolvent. Corporate investment levels fell by 22% between 1990 and 2003.
Overly-leveraged Japanese banks and insurance companies were mired in bad debts, many remaining on government lifelines – in effect, zombie banks – a scenario less dangerous than a sudden series of major banking crashes. The most pernicious effect of the great contraction was that deflation (persistently falling prices) took hold, brought about by a protracted downward trend in Japan’s GDP. Between 1995 and 2007, GDP fell from $5.33 trillion to $4.36 trillion in nominal, adjusted for inflation, terms.
Deflation and its deleterious effects have continually dogged the Japanese economy for 30 years, with successive governments seeking unsuccessfully to vanquish it through countless economic stimuli packages. Glosserman sees little evidence that the Abe administration can break out of this malaise caused by the excesses of the 1980s – made worse by labour shortages, historically low productivity rates, intensifying competition between imperialist powers, and a Chinese super-power seeking hegemony in Japan’s former backyard.
The Junichiro Koizumi-led Liberal Democratic Party (LDP) government (2001-06) tried to kick-start the economy with a neoliberal programme. Privatisation was extended and non-regular workers more than doubled from 15% of the workforce in 2004 to 34% in 2006. This merely worsened workers’ living standards, however, and the number of households below minimum income levels jumped from 780,000 to 1,040,000 in three years. In Glosserman’s words, “the very fabric of society was being torn”.
The great recession
The great recession from 2008 mainly hit Japan in the form of a severe negative impact on its export markets to the US and Europe. Although its banks had only limited exposure to the toxic international derivatives trade, its financial institutions were very reliant on world capital flows. As liquidity seized up, foreign investors pulled their capital out of the Japanese stock market. Glosserman estimates that, as global demand shrank, “Japan sustained more severe damage than almost every other country in the world did”.
By 2010, it was clear that Japan’s industries were paralysed. Even before the 2008 world recession, the nominal rate of economic growth had averaged just 0.2% annually, compared to the OECD average of 5.8%. In an unusually frank assessment, the economy ministry stated: “Japan has rapidly lost competitiveness in all functions as the central stronghold of Asia”.
Since the second world war, political power had resided in the LDP. It had been formed in 1955 through an amalgamation of two capitalist parties closely enmeshed with the industrial and financial institutions. The LDP was governed by politicians from a cabal of families all committed to driving the ‘economic miracle’ forward while trying to maintain the mask of acting as a benevolent one-nation force for good.
Its 55-year (almost) uninterrupted rule was ended in 2009 with the election of the capitalist class’s second eleven, the Democratic Party of Japan (DPJ), catapulted into office as part of a post-recession backlash. Without a coherent programme, however, its three-year tenure was to end in chaos, underlining further the justifiable cynicism that young Japanese, in particular, now have in capitalist governments. An official cabinet office poll in 2012 showed that more than 80% said they did not believe the people’s will is reflected by the government.
The author correctly refers to the Diet (parliament) as a “political mechanism to approve the role of the bureaucracy” – bureaucracy, as used here, is a euphemism for the rule of the capitalist class. Moreover, the deep sense of alienation felt by workers and youth is not unique to Japan’s institutions. Nevertheless, the specific features of the Japanese political system are accurately described as ‘karaoke democracy’.
Japan’s diminished status
In the last decade, three issues have dominated Japanese politics. Each of them has laid bare the huge challenges facing its capitalist leaders in trying to recover its post-war status as the ‘miracle economy’. First, relations with China have changed decisively. By 2008, China had replaced the US as Japan’s biggest export market while, three years later, Japan was Beijing’s third-largest source of foreign direct investment.
Political tension between the two, already latent as a result of China eclipsing Japan’s GDP in 2010, has been further complicated by outright hostility between the two east Asian giants over contested ownership of the Senkaku islands. These rocky outcrops were of little apparent territorial consequence until the discovery of large oilfields in the 1960s. Since then there have been several flashpoints and ownership remains a source of deep friction between the two. Each periodically rattles its sabre as a useful means of fanning nationalism and diverting workers away from uncomfortable domestic discontentment. Glosserman describes the relationship today as “hot economics, cold politics”, and there is no doubt that the Senkaku conflict is a symbol for deeper rivalries that could assume a more aggressive form in the future.
A second shocking symbol of Japan’s diminished status was its response to the March 2011 earthquake and tsunami, and the subsequent catastrophic meltdown of the Fukushima Daiichi nuclear power facility. The complacency of the Japanese government, that an event like this could never happen, was savagely exposed. “No blackout could last for days. No triple meltdown could occur. Nothing like this could happen. Until it did”, comments Glosserman.
In a country already eternally scarred by Hiroshima, an earthquake 600 million times more powerful than ‘Little Boy’ (the atomic bomb dropped by US imperialism on that city), had ripped away illusions that nuclear power was safe. Fukushima resulted in the largest ever accidental release of radioactive material into the ocean. The environmental effects will be felt for decades, but the political shock – the third factor – has also been immense, with workers railing against the private power companies and nuclear industry and beginning to draw conclusions about the lying elite and their real agendas.
Abe’s wayward arrows
Into this crisis, which occurred under the DPJ’s watch, came new elections in 2012 which saw Shinzo Abe leading the LDP back into power. He has embarked on a series of economic reforms (‘Abenomics’) which seek to finally propel the Japanese economy forward, deal with the embedded structural problems unresolved since the ‘lost years’, and re-establish Japan’s role as a pivotal player around the international table.
Abenomics initially comprised of three initiatives (‘arrows’). These were: a monetary policy that aimed to create 2% inflation annually to drag Japan out of nearly 20 years of deflation; a fiscal (government spending) policy that created huge public works projects in an attempt to jump-start the economy; and a series of reforms targeting perceived structural obstacles to growth, including more ‘flexibility’ in labour laws allowing workers to be fired more easily.
The arrows have proven to be blunt, however, and Glosserman quotes from an independent assessment which dismisses Abenomics as a paper tiger: “Japan’s recovery from the global financial crisis was no better than that of the eurozone, with consumer spending continuing to fall and government spending staying largely flat for two years… The 2% inflation target announced by the Bank of Japan remained stubbornly out of reach despite nearly three years of unprecedented monetary stimulus including zero and later negative interest rate policy…”
In July 2017, the Financial Times added witheringly: “It will not be too long before the term Abenomics will join ‘Cool Britannia,’ ‘the end of history’ and ‘Brics’ in the cupboard of cast-offs”. Another commentator adds: “Abenomics stands revealed as another attempt to revive an industrial system that died even before Abe’s previous stint as premier… what is Abenomics, with its monetary easing, yen depreciation and corporate welfare other than a futile ploy to reanimate an economy that existed in 1985?”
Japan’s role in the global economy is diminished. It is the greyest country in the world, struggling to curb healthcare costs for the elderly. Life expectancy, at 84, is the highest in the world. Japan still retains huge excess capacity through zombie firms kept alive by the government for fear of igniting workers’ discontent. A deep cynicism towards politicians, exacerbated by constant headlines of political corruption, has led to growing alienation and widespread questioning of the way society is constructed. Fifty-one per cent of Japanese now disagrees with the statement that people are better off in a free-market society, with more preferring a greater role for the state.
The social force for change
Glosserman provides compelling evidence for the decline of Japan. He approvingly quotes fellow author R Taggart Murphy who states that changes would “involve a form of suicide by Japan’s entrenched elites and elites do not commit suicide”. Yet he does not reflect within the otherwise comprehensive scope of this work what social force may bring about such change. This challenge falls to the working class, hitherto woefully let down by its parties. The Japanese Communist Party has over 300,000 members but is distrusted by many workers. It clings to the utterly discredited idea that Japan requires “a democratic revolution instead of a socialist revolution”.
Brad Glosserman has spelt out the dismal future that exists for ordinary people in Japan but stops there. No warmed-up capitalist recipes can bring back the ‘glory days’ in which, in truth, the working class never won more than a few morsels from the table. Especially now, with capitalism internationally in a new acute phase of geopolitical and economic conflict where rivalries between nation states are becoming ever sharper, the post-war model on which Japanese capitalists built their fortunes is disappearing.
With fresh statistics highlighting a sharp contraction in Japanese GDP in the first quarter of 2019, the task is to build a new workers’ party, based on the independent trade unions, citizens’ groups and the youth. It must oppose the creeping subcontracting of the workforce, liberalisation of employment laws and exploitation of guest workers often employed with no rights in menial occupations. The AI revolution will destroy many other jobs, particularly in the health sector, and this must be fought alongside a programme that takes up the struggle for a universal healthcare system free at the point of delivery and a living pension for all.
On 1 May, in anticipation of the accession to the throne of crown prince Naruhito, a new era entitled ‘Beautiful Harmony’ will be proclaimed by the government. This dream will be stillborn. As Peak Japan recedes, millions of Japanese workers and youth will seek out the road to joining the worldwide struggle for socialism, bringing to a close forever the pernicious capitalist system and all its attendant ills.
‘Peak Japan: the end of great ambitions’, published by Georgetown University Press, 2019, £24.50.
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