Can Japan Reverse its Long Decline?

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Can Japan Reverse Its Long Decline?

Der Spiegel

Wieland Wagner

November 18, 2010

Japanese businessmen and women pray for a good business year at the Kanda shrine in Tokyo (January 2009 photo): Japan has been in an extended crisis for almost two decades.

Back in the 1980s, Japan was an economic powerhouse and the envy of the world. But there appears to be no end in sight to its current decline, as jobs are lost, pensions cut and companies move overseas. The country's much-vaunted social cohesion is also disintegrating as people find themselves forced to rely on their own resources.

The man who was listed in the records of the city of Tokyo as its oldest citizen had been lying dead in his bed for years. The body of the man, whose name was Sogen Kato and who was supposedly 111 years old, had become mummified. His 81-year-old daughter and his granddaughter told authorities that he had gone into his bedroom after a family argument and had never reemerged. That was decades ago. Since then, the Katos had been collecting the old man's pension and a government premium for centenarians.

In another Tokyo district, authorities found the skeleton of a woman, who was thought to be 104, in her son's backpack. The son, who was 64, said that when his mother died in 2001, he had washed her body, cut it into pieces and stuffed the remains into the backpack. He explained that he couldn't afford a funeral.

The macabre discoveries in Tokyo weren't the only bodies of elderly people the Japanese authorities had incorrectly listed as living citizens. After conducting a hasty, nationwide review, the government discovered that more than 234,000 people who were reportedly over 100 years old were in fact missing and presumably long dead.

Loss of Traditional Virtues

What shocked the nation most about the findings was not the fact that records were being kept so poorly, but the realization that so few of Japan's traditional virtues are still in evidence today, and that the country's once-vaunted harmonious society, with its supposed intergenerational solidarity, had fallen into such decline. Japan, formerly Asia's largest economy, has been in the throes of an extended crisis for almost two decades. Growing impoverishment is only one of the symptoms.

The country has become accustomed to a steady flow of bad news. In August, China replaced Japan as the world's second-largest industrialized nation. Tokyo's Nikkei stock index is only at about one-quarter of its all-time high at the peak of the boom in 1989, and this year the index fell by about 15 percent. Japanese real estate, too, is only worth about a quarter of its value in 1974.

Japanese politicians were determined that their high-tech country should at least serve as a role model for addressing the problems of an aging society, for example through using robots to care for the elderly. But even that effort was a failure. "If things go on this way, Nippon will go under," warns Shintaro Ishihara, Tokyo's 78-year-old governor, using the Japanese name for his country.

The Japanese were once obsessed with their goal of overtaking the West. Now they have succeeded -- but not at all in the way they had imagined. Today, industrialized countries like Germany can look to the example of the Japanese economy, with its collapse in 1991 and subsequent decline, as a harbinger of the doom they could also face.

End of the Boom

Japan's decline began in the mid-1980s. The economy was overheated. In response to pressure from the United States, Tokyo was forced to substantially revalue the yen, making its exports more expensive. To offset the losses, the Japanese government pumped massive amounts of money into the economy, and the central bank drastically lowered its prime lending rate.

With the cheap money, the Japanese began speculating in stocks and real estate. The property where the emperor's palace stood in downtown Tokyo was supposedly worth as much at the time as the whole of California. And because terrestrial profits were no longer enough for them, Japanese developers seriously began planning cities in the ocean and on the Moon.

But then the Bank of Japan began feeling queasy about the boom and raised interest rates. This led to a massive crash on the Tokyo stock market, followed by a sharp decline in the real estate market. After that, Japan kept launching new economic stimulus programs to save what was left to save. In the process, it accumulated more debt in relation to economic output than any other leading industrialized nation.

The stimulus programs didn't do much good. Admittedly Japan is by no means Greece, which profited at the expense of its European neighbors. Instead, the Japanese government borrowed from its own thrifty citizens. The Japanese are now doing their best to save face. It is a dignified decline, but in the process Japan is in danger of using up its own reserves.

'All People Think about Now Is Money'

Akira Nemoto, 59, has been running the department charged with caring for the elderly in Tokyo's Adachi district -- where the mummified remains of Sogen Kato were found -- for the past 10 years. His staff is currently combing the district on bicycles for other forgotten old people. Nemoto points to a thicket of wooden houses and apartment buildings. "Nobody here knows their neighbors any more," he says. In this neighborhood, residents' only contact with the tentative recovery that Japan's export industry is experiencing this year, thanks to demand from booming China, comes through the evening news.

At first, the small suppliers in Adachi went under, or they migrated to China together with larger companies. Then the stores closed, and finally the last places in the neighborhood where local residents could meet disappeared.

The Japanese are withdrawing more and more into the private sphere, from the elderly to their unemployed children, who are living on the pensions and savings of their parents. Many of the elderly are being downright exploited by their children, says Nemoto. "All people think about now is money."

For many families, Japan's thrifty older generation represents the last financial hope, and has replaced the state in many cases. The other nucleus of Japanese society, the company, pays very little attention to its employees these days.

Defrauded of a Lifetime of Hard Work
Japan Airlines filed for bankruptcy at the beginning of the year and is now being restructured with government assistance. The airline, which once had grand national ambitions, is now being forced to cut about 16,000 jobs. Its existing and retired staff members have had no choice but to agree to a reduction in their pensions.

Similar problems are emerging in more and more industries. Seiji Suguro, 69, is one of those who feels defrauded of a lifetime of hard work. The retiree is sitting in a Tokyo sports center, where he can read the paper for free and spend time without having to order tea. For Suguro, being thrifty is a question of survival.

Suguro began working for a major bank when he was 18. The company served as his pseudo-family, and he entrusted it with his life planning. He did without a large part of his vacation allowance. In return, he felt confident that his job was safe, he would be consistently promoted and he would receive the promised company pension.

Little Treats

But since 2003, Suguro has been receiving 300,000 yen (about €2,640 or $3,600) less per year in pension payments than he had been once promised by the company. "That was the money I thought I could use for small treats, like the trip to the Alps that I've always dreamed of," says Suguro. But his current pension is no longer sufficient to pay for such extras. This year, the country's highest court rejected a lawsuit Suguro and former colleagues had filed against the company.

It is not clear who Suguro should direct his anger against. Should he direct it at politicians? Japan has had 14 prime ministers since the country's bubble burst. The current prime minister, Naoto Kan, 64, has only been in office for five months and has so far failed to inspire much hope that he can save the nation. Although his Democratic Party of Japan, which drove the Liberal Democratic Party out of power a year ago, holds a majority in the lower house of parliament, the opposition can block decisions in the upper house.

Tokyo is politically paralyzed, and there is no public debate on the country's many problems. A mood of quiet resignation has taken hold throughout Japan, even in Tokyo's government district, where civil servants are nervous about their own future.

'It Can't Be Helped'

Yoshihiro Yanagisawa, 62, worked as a financial expert in the Ministry of Agriculture, Forestry and Fisheries until his retirement in the spring of 2008. Now Yanagisawa, a slight man with rimless glasses, lifts 30-kilogram (66-pound) sacks of rice in a rice mill from 8:30 a.m. to 5:00 p.m., five days a week. He makes 900 yen (€8 or $11) an hour.

Yanagisawa is entitled to 10 days of paid vacation a year, but he doesn't take it for fear of losing his job. He can't stop working, because he doesn't receive his full retirement pension until he turns 65.

From a German perspective, this sounds normal enough. But Yanagisawa had to watch as the retirement age in Japan rose from 60 to 65. He lost his job at the ministry two years ago amid government cutbacks. Yanagisawa applied for work with more than 20 companies before finding his current back-breaking job through a temp agency. "Shikata ga nai," he says. "It can't be helped."

Committing Suicide Politely

The Japanese are suffering their losses in silence. That stoicism is part of Japanese culture, which already children with a pronounced sense of shame at an early age. Instead of looking for solidarity from society, the Japanese try to take care of things by themselves.

Even the homeless living in Tokyo parks neatly place their shoes in front of their makeshift cardboard shelters before crawling inside. People committing suicide bow politely before throwing themselves in front of trains. In Tokyo, a railway line had special, bluish lamps installed along its tracks to calm potentially suicidal commuters. Of the more than 30,000 Japanese people who commit suicide every year, many are victims of the economic decline.

Fears about the future have been driving down consumption in the island nation. "Gekiyasu" ("super-cheap") goods are now in demand, pushing prices down and putting pressure on corporate profits. In some cases, the downward spiral continues until companies go bankrupt.

Going Out of Business
Japan's most famous producers still exist. The city of Toyota is about a three-hour train ride west of Tokyo. The city, which used to be called Koromo, has completely conformed to the needs of its largest employer.

A large share of Toyota's population of more than 400,000 depends solely on the auto industry. Outward signs of the crisis are not immediately apparent. Nevertheless, many suppliers in the surrounding vicinity are still going out of business. Many have been forced to reduce costs and prices for so long that they are no longer profitable.

When the "Toyota shock" gripped Japan more than two years ago, because Europeans and Americans were suddenly buying far fewer Japanese cars, the company laid off thousands of temporary workers. Along with their jobs, the workers often lost the right to live in company-owned apartments, and many returned to their hometowns, where they no longer had places to live.

Takanori Shimokawa, 38, worked for a temporary employment agency, organizing the deployment of low-wage workers. They came from companies that had already fallen victim to the crisis and took jobs at Toyota, a giant that was still growing and was at least hiring temporary workers.

Shimokawa worked around the clock. He was constantly being asked to provide new workers, because many weren't working fast enough on the assembly line. "The temporary workers resented me, because they felt that I was the bosses' henchman," says Shimokawa, "and the bosses treated me like their errand boy." Soon even Shimokawa lost his job. The company still owes him 6 million yen for overtime he worked.

A City Dependent on Cars

But despite the crises and the worldwide recall of defective cars this year, the city of Toyota has not turned into a Japanese Detroit, an achievement for which it can thank its mayor, Kohei Suzuki, 71.

Suzuki greets visitors in his office, which is the size of a car showroom -- a holdover from better times. The painting behind his desk depicts a sun so red that it could be sinking below the horizon.

Suzuki, too, is becoming increasingly affected by the apocalyptic mood. The figures he quotes sound grim. His revenues from corporate taxes declined by an unusually drastic amount last year, he says. This is the sort of thing that happens when an entire city depends on a single company, he adds. "I was shocked," says the mayor.

The planned expansion of the city hall was temporarily put on hold and only restarted in order not to cause additional bankruptcies among local contractors. The acquisition of new paintings for the city's art museum has been postponed. At least Suzuki hasn't had to cut social spending, thanks to a reserve of several billion yen he established during better times.

When asked what the future holds, Suzuki pensively pushes a model of a Toyota hybrid back and forth on his desk. The Japanese version of the German "cash for clunkers" scrapping premium, with which Tokyo sought to support the auto industry, expired recently, and sales plunged. At the same time, the value of the yen went up, mostly because of the weak dollar, making exports more expensive. Japan is becoming unattractive as a place for Toyota to build its cars and trucks.

What will he do if Toyota decides to produce all of its cars overseas? "Unthinkable," says Suzuki. "Our city can't survive without cars!"

I just heard a radio report on how China is going to force Japanese manufacturers to move in, gut their ancient rival of its industrial life force.

Dr. Heywood R. Floyd

People used to buy Japanese cars because they were cheap & reliable. Now they're just reliable. Maybe they should try cheap again? Perhaps there are reasons why that's not workable, but American & European cars have become so expensive, it seems like a possibility. Although it almost seems like people WANT to pay $30-$40K for a new car these days. I'm a little unclear on the advantage they imagine that affords them.