Jan 24
Japan: the roots of its economic growth in the 20th century and present challenges
A resilient nation aiming to rebuild its pillars of growth
I still remember the magic of discovering a totally alien world (flicking through pages of a journal, sponsored by Embassy of Japan to introduce the everyday Japan to citizens of then USSR — showing a world so distant and yet so alluring.
In a way, that added to the desire a decade after to pass a special curriculum on Middle Age Japanese history at the University, namely the Sengoku Jidai period and revel trough the Kurosawa, Shimada and of course Kitano and Miyazaki, and books of Mishima, Oe and Murakami.
For an exciting commercial opportunity in the region (hence no PDF this time aside from general yet still interesting learnings), I’ve put on my academic hat, learning in detail the roots of economic wonder post WW2, respectfully dispelling (a bit) a myth of nation-ascribed unique qualities that placed Japan on a steep rising curve of growth.
The model carefully created and oiled — allowed Japan to mantain high-marg exports position, converting FX cash earned by corporates via repo and government bond issuance — and then reinvested as FDI. It also allowed to control the bond yield — and provide near limitless cash to fund new capital investment in a country so proud for indeginous engineering.
The model started to experience several shocks:
On the cracks that led to today’s widening gap of output and government debt-financed stimulus — one can see a “lost generation” of the 1990ies, coming of age after the market crash, estimated at 17 million people (a sizeable still core segment of a decreasing population of 125 million people).
The exuberance of the 80ies and appreciation of the yen after the Plaza Accord in 1985 led to an Asset Bubble and subsequent Market Crash:
The exuberance of the 80ies and appreciation of the yen after the Plaza Accord in 1985 led to an Asset Bubble and subsequent Market Crash:
That formed, aside from thriftiness of a few maturing generations that failed to be hired (life employment system kept loyal “old” workers and denied entry for new cohorts), reliance on cash (followed deflation made it easier to transact with your “tansu” savings, named for the traditional wooden chests in which people kept their kimonos and family heirlooms), stress to find menial jobs to survive, instilling practise to defer marriage and having kids.
The savings pot is a nice cushion for banks to deploy in steady stream of new bond issuance, but what would happen, after the CPI pushes up the cost of capital: a situation where retiring population did not get enough in terms of percentage gains and cost of life only increases — while for government it becomes increasingly hard to ameliorate and subsidies “the autumn years”.
The doldrums of the 1990ies and early 2000 made Japan miss the merging of the software and hardware world — only 5 IT service unicorns out of 500 were born in Japan: and the reliance on special-case software paves way for new hardware. What the country had when it started, pushed by the world in need of reliable machinery 70 years ago — other countries like China and Korea repeated in early 2000 during era of outsourcing.
“Japan’s relatively low digital competitiveness is in stark and unexpected contrast to the country’s economic strength. In 2020 the country ranked 27th in digital competitiveness and 22nd in digital talent, and it has single-digit penetration in areas such as e-commerce, mobile banking, and digital government service usage. The country has produced just 5 out of more than 500 unicorn startups globally (startups with a private or public valuation of more than U$1B). These metrics fall far short of Japan’s full potential.” — McKinsey — Japan Digital Agenda 2030
Japan is presently searching for options for a comeback — and there are several exiting opportunities, can only wish these materialise. The cultural aspects of the Japanese society can add a lot to present challenges around climate, ESG, tending for the elderly and so much more.
