Saturday, February 5, 2011

New challenges for Japan and the region












Japan's economic malaise could spread to other Asian countries if the problems aren't tackled and warning signs aren't heeded says academic Dr Shigeyuki Abe Dr Shigeyuki Abe, a professor at Japan's Doshisha University and a member of Chulalongkorn University's global network, believes that Japan should now start to revive its domestic economy and improve its people's quality of life.

His remarks follow two lost decades in which economic stagnation has resulted in high unemployment and a hollow-out of the Japanese economy.

According to Abe, Japan's official jobless rate is 5.1 per cent, but the past 20 years have seen the active opening ratio, which indicates the number of jobs available, falling to 36 per cent for full-time jobs and 73 per cent for part-time jobs, compared to over 200 per cent for full-time jobs during the economic boom of the 1980s.

This means there are now many applicants for only one full-time job, while many workers are part-time, getting only 60 per cent of the full-time wage.

"During the good times, a person might get two jobs. Now there is only one job for three, so the recruitment is very selective.

"In my opinion, Japan over-relied on exports while its domestic economy was weak. Now we need to be more domestic-oriented and enhance our quality of life.

"The Japanese labour market is now similar to that of the US. It's lamentable as more Japanese can get only part-time jobs, resulting in a widening income gap.

"In other words, poverty has been rising over the past two decades. In addition, Japan is facing the issue of an ageing population, and there will be fewer workers to support the welfare for the elderly.

"In addition, our national debt has risen to a high of 200 per cent of the country's GDP," says Abe, 63.

According to Abe, the so-called East Asian Economic Growth model has come to an end. Over the past two or three decades, Japan was seen as the leader of this model, which led to massive economic development in several Southeast and East Asian countries, including Thailand.

This model was export-oriented and manufacturing-centred as Japan moved from low to higher-technology industries.

Electronics, automobiles and machinery were among the major industries promoted by Japanese firms, which had to build overseas plants in other Asian countries to stay competitive due to the rising yen following the 1985 Plaza Accord.

Along the way, Japan also had to overcome trade friction with the US, its largest market.

In the end, manufacturing activities in Japan were reduced and high unemployment followed.

Abe cautions that comparative advantages in Asia are similar, and the region as a whole could become "another Japan".

Based on the region's similar industrial structure, parts and components are manufactured regionally and then exported to Japan, the US and Europe, where demand has weakened in the past few years.

Given this, it is necessary for Asian countries to boost their purchasing power in regional markets and to reduce dependence on traditional export markets in the West.
The same remark is valid for Japan, now the world's third largest economy after the US and China, as it needs to upgrade its industrial structure and develop new and unique comparative advantages.

"It's sort of going back to the basics. In the old days we used the gold standard, and if we exported more than we imported, the net result was settled in the form of real physical gold.

"Later on we adopted the international reserve system of currencies to replace gold reserves. During the boom, Japan, however, did not adequately enjoy the benefits of its huge reserves but kept piling up surpluses [mainly in the US dollar] and now it seems to have lost [its value].

"China is now a little smarter as it tries to diversify its huge international reserves out of the dollar denomination," he says.

By Nophakhun Limsamarnphun for The Nation, Bangkok

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