politics

Japan's structural reforms critical to meeting inflation goal: IMF

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By Stanley White

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may be it's time for IMF to intervene and carry out structural reforms in Japan now then doing it after few years.

-1 ( +1 / -2 )

Without the reforms , especially of the labor market Abenomics will only end up as a giant pork barrel spending spree and a boon for exporters with a hangover and the average Taro picking up the bill.

3 ( +4 / -1 )

"2% inflation goal"

How about 2% wages increase instead? No good?

-2 ( +0 / -2 )

These so called structural reforms are what broke Europe's economic backbone (starting with Great Britain and Germany, then forced on the South by Germany). Since these so called reforms were initiated poverty and crime rates rose dramatically.

Structural reforms typically consist of

removing taxes for the wealthy and corporations, introduction of flat taxes like the consumption tax (as oppossed to a progresssive tax system), removing social welfare systems by privatising them (for example health care) privatising state enterprises and institutions (like train services, universities, schools, housing) removing state intervention in markets generally (for example remove susidies for families or even certain industries) deregulation of the markets (for example removing or not introducing health or environmental regulations)

The effects are usually:

sharp drop in the income of the average worker and familiy rising prices in privatised and or deregulated markets sharp rise in corporate profits sharp rise in incomes of top earners sharp drop in government revenue economic stagnation or recession low inflation or even deflation

it's time to stop this nonsense.

-1 ( +3 / -4 )

It was reported that Japanese people scored highest in the world in math testing, most recently. Well, please understand this Japanese people: your government is spending 9% of your GDP into deficit in order to achieve 2% growth. This will not work out. Do the math!

1 ( +2 / -1 )

@Icecreampoliticsfova, you are painting with a broad brush and are off tangent. The main reforms being discussed include the below:

Separating electricity generation from distribution Increasing female labor participation rates Setting up special economic zones to stimulate economic activity.

While bad implementation of the above may lead to your ill effects, smart implementation would lead to reignited economic growth.

-1 ( +1 / -2 )

I continue to be amazed at how little people understand economics, and how people don't understand the relationships between consumers, producers, and regulators. Nowadays the powers-that-be seem to make an effort to maintain this ignorance, just as the church did in earlier times.

The government of now is just like the church of old, and the bureaucrats who run the government are just as power-hungry as the clergy in the past. They promise to "protect" the people from hardships and problems, and promise to give them prosperity. They don't mention that the average person would have no trouble taking care of his or herself, or achieving prosperity without outside help.

The governments of the world control the people using tools like fear and hate. You need ony look at Washington now to see a picture-perfect example of how this works, and the problems ot has caused to all of us.

The political class is not a disinterested third party whose role is to maintain the common welfare and peace. It is a group of ambitous people who are always looking to increase their power, authority, and control, just like the church of old. Like priests in the past, they paint pictures of evil and hell, and promising to protect people from these. The Boehners, Reids, Bushes, McCains and Obamas are no different from many of the bishops and cardinals of old; the political class cares for the people only so far as it serves their own interests.

Over time, the governments have become vast bureaucracies, built on providing services and protections to the people. There have been some unintended consequences for these programs. By providing help to people for nearly every problem, people are increasingly less able to take care of themselves. By removing the consequences we face for making bad decisions, we are encouraged to make more bad decisions. The world's governments now affect every aspect of our lives. Everything we do, everything we buy is subject to a tax, fee, or permit of some sort.

The goal of these programs was not intended so much to help the people as it was to buy votes for the politicians who created them, and give power to the bureaucrats who administer them. The people, thinking mainly of themselves, don't think about the cost of these programs, or the added cost of the bureaucracy created to run them, or how involving a large third party into the equation affects the national economy.

Decades later, we have immensely huge governents. Ever-increasing numbers of people have subscribed to entitlement programs. The costs of the programs has become much higher than initially planned, but they must be paid for, so deficit spending ensues. The size and cost of government becomes a deadweight on the ecnonomy, as it consumes more and more of what the econnomy produces. The increasing costs lead to increased taxes and fees. This begins to effect growth, and business falters. Interest rates are lowered to make it easier for businesses to borrow, and this gets the boat moving again. But now that interest rates are lower, the government itself begins borrowing even more. Debt continues to pile up, and now more than 1/4 of revenue collected must be paid to service the debt.

The cost of living becomes very high. Families can no longer afford to have children, the birthrate begins to decline. The number of people entering government-funded retirement begins to skyrocket. The government responds with economic "stimulus" programs, which further increases the debt. Most of the stimulus money remains in the government, little makes it back to the people.

With taxes and fees so high, and the negative birthrate promising an ever-smaller future economy, companies begin to move operations to other countries. Companies cannot easily fire or lay off staff, so they simply pay the current staff less. Less income leads to less spending, so prices begin to decline, and delfation sets in. A decline in income results in a decline in tax revenue, the government responds by raising taxes again, and throwing in another stimulus program.

There is no amount structural reform which can be done to save the current system. It is not possible to save it. The people have paid for a vast government cathedral, and it is going to fall down on their heads.

0 ( +4 / -4 )

Nice post sang!

I would have just said Federal Reserve.

Infinite growth on a finit planet will not work. Japan should should adjust there thinking and stop trying to compete with the US and China. Follow New Zealand. IMO

2 ( +3 / -1 )

The situation is so bad that I can't help but see a little humor in it, kind of like the ending lyrics of "Detroit, Rock City".

In business I have met some of the top ministers and executives in Japan. Last night I was discussing the current economic situation with someone in Japan's biggest conglomerate. He is leaving Japan next year to work in a foreign office. Many others in his company have already done the same.

His opinion of the situation was interesting. "The economy will grow until the end of 2020" he said.

"What will happen after 2020?" I asked.

"Tragedy" he replied.

-3 ( +1 / -4 )

The biggest stumbling block with Japan is its fast aging population and one that has not been replacing itself adequately to position for economic growth for decades. The failures of the last two to three decades of governance and its general refusal to face facts and do what was necessary has led Japan to what it is today. With most of its labour intensive investments located oversea Japan is left with many small businesses and corporates that do not offer mass employment opportunities. While struggling to make ends meet the people have been under a great deal of stress. Abe's economic policies and political theatrics with Japan's neighbours put additional pressure on the security concerns of the people. In addition to this the Fukushima incident has caused even more dismay with the public with the government's handling and less than truthful reports on the situation. The day of public rebellion might have already started with signs of negligence being spotted almost daily with infrastructure and crimes committed by older folks who used to have pride in the country reduced to stealing to survive in the light of even more punishing tax policies and the increased cost of living brought about by the devaluation of the yen..

0 ( +0 / -0 )

@sangetsu:

I like your analysis of the government, but what are your solutions? A hands off economy like HK once was? A flat tax? less socialism?

0 ( +1 / -1 )

I like your analysis of the government, but what are your solutions? A hands off economy like HK once was? A flat tax? less socialism?

Nature will intervene, and the problems will solve themelves. Referring to the book of revelations, the term "eternal sea" is said to mean politics. To quote Dante: "before me things create were none, except for those things eternal, and eternal I endure". Politics and society are natural systems, and though they stray to the left, or to the right, they evetually run themselves out.

The current system will eventually collapse under it's own weight. A new system will arise, and it will eventually do the same thing. That is nature, and, left right or center, you are part if it.

Since I can't do anything about it other than to vent my feelings here, I find a way to profit from the system. There are as many opportuniities in the decline of a system as there are in it's rise. Unfortunately, most people are dependent on the system, and they are going to be in for a hard time.

-2 ( +1 / -3 )

It is known that IMF reports on Japan are written by staff dispatched to IMF by Treasury Ministry of Japan. So, they are nothing but propaganda by Japanese Treasury Ministry.

"Structural reforms will be critical to open up the additional policy space that may be needed to bring inflation up to the 2% target, "the IMF said in its report.

This is the most stupid thing one can hear from IMF. Reforms will make economy more efficient and reduce the price of goods. What kind of reform would increase the cost of goods?

0 ( +3 / -3 )

@sangetsu

Your shoganai attitude is very understandable, but its also part of the problem. I dont think its so simple as things will fall apart and a new order appear. As long as the shoganai attitude persist, the same cronism in government will continue as we see in Japan. It will take a very long time for things to collaspe in Japan, the people will just gaman and keep marching in step to whatever their unelected government tells them. They did it under Noda, Kan, Abe etc. etc. China might be the game changer if they start to challenge international movement through Japanese controlled sea lanes. The region might become so polarized against China, that japan reclaims its place. Japan might be seen as the lesser of 2 evils. That might all fall apart once the nationalist in Japan reveal their unchanged imperialistic racist ideas towards the rest of Asia.

I think change in domestic local economics (not corporate) must start at the micro level. The government should eliminate all barriers to business except the ones only required for public health and safety. For example, local governments, instead of concentrating on public work fiascos, could provide reclaimed or purchased land and accomodations in a sort of FTZ for start ups. These zones would be excempt from all the non compete barriers with corporations etc. as well as any protectionism. As long as the service or product met the mininum requirements for public safety then nothing would be excluded. All entreprenuers wanting to enter would be required to take and pass a rigorous business startup exam administered by the government...not for more regulation but to prevent failures. They would submit to the administration their business plan, and be given a 6 month probationary access to the zone. Rent would be absorbed by the gov as well for a predetermined amount of time as other support from taxes from successful entreprenuers already in the zone as well as money redirected from useless programs and waste. . If, after 6 mos, the business shows no profit or break even, then a careful analysis would be done for an extension, or removal. If the business shows profit, then after 1 year there would be a tax on their income. if their income exceeded that, then another tax would be used to help out entering entreprenuers...a way for the government to get a return on its investment That way, the successful entreprenuers would put pressure on the incoming to succeed. The key is to flip the current situation, making the zone the protected area for start ups, not gov or big corporations. Currently, the weight of government regs, taxes, etc is crushing. Dont neccessarly limit the gov involvment, just limit their ability to control.

-1 ( +0 / -1 )

The problem with Japan is the Japanese. The majority of Japanese are entirely passive. They are like ants or termites who will work themselves until they drop, but only at the direction of someone else. Without having someone tell them what to do, the average Japanese simply doesn't do anything.

At the end of the war, the zaibatsu were more or less banished. Their land, businesses, and industries were given to the common people. Only the farmers (who had never actually owned the land they had farmed) were able to figure out what to do. The large businesses and factories faltered; the regular people didn't have the courage or self-motivation to make them work. They were worker ants or bees. Washington became tired of subsidizing Japanese industry, so the zaibatsu were allowed to return. Things improved.

Unforunately, the average Japanese today still has the same level of ambition his parents and grandparents had, but has perhaps a little less of the hard work ethic. Most Japanese still wish only to work for a large and famous company, even if this means a lifetime of drudgery and mediocre pay.

There is nothing of the free market in Japan, absolutely nothing. The government subsidizes many industries heavily, the financial institutions have little or no interest in SME operations. Anti-trust enforcement is non-existent, and collusion between retailers and service providers is business-as-usual. As a result, entrepreneurship in Japan is only 1/5 what it is in America. Hence, no growth.

The powers-that-be in Japan are part of the fundamental culture here, and the people will do nothing to change the situatution. Such is the largest drawback to having an almost entirely mono-racial and mono-cultural country, especially when trying to compete in a multicultural world economy.

-3 ( +0 / -3 )

The problem with Japan is the Japanese. The majority of Japanese are entirely passive. They are like ants or termites who will work themselves until they drop, but only at the direction of someone else. Without having someone tell them what to do, the average Japanese simply doesn't do anything.

You're entirely missing the mark. The problem is really the flawed system. Blaming the people instead is a regular tactic deployed by the system to shift their responsibility to the people. It's not their fault, it's the people's fault! And you're buying right into it.

Ooooooh, the Japanese are so passive! Right... and who made them passive? That's right...

They are passive because they have no other choice. They work like beavers because leaving their workplace means they won't be hired anymore. It's what they've been taught their all lives, etc.

Such is the largest drawback to having an almost entirely mono-racial and mono-cultural country, especially when trying to compete in a multicultural world economy.

You have no idea what you're talking about. This whole "mono-cultural" thing is all just a propaganda by the system, and again, you're buying right into it, unknowingly contributing to the artificial worldview created by the system.

-2 ( +0 / -2 )

You're entirely missing the mark. The problem is really the flawed system. Blaming the people instead is a regular tactic deployed by the system to shift their responsibility to the people. It's not their fault, it's the people's fault! And you're buying right into it. Ooooooh, the Japanese are so passive! Right... and who made them passive? That's right...

Japan is a democracy, and therefore the people themselves are supposed to regulate the system. If the system is bad or is not working, it is directly the fault of the people, is it not?

Who would you blame? The politicians whom the people elect? The corporations the people trade with or work for? The people have unlimited control over both, yet they don't bother to exercise their control. They quietly accept their government putting their nation hopelessly into debt. They quietly accept company cultures which demand long hours for low pay. They quietly accept their declining income and spending power, and they quietly stand by while their nation slidws down the steep slope of decline.

Japan as a culture has been taught from it's youth not to be the nail that sticks out. The teacher or boss is always right, wthout exception. All actions require permission from someone else, who often will not take the authority, or is simply afraid to make the decision. As a result, you end up with the current system, which is governed entirely by a group of elderly males who are as secure in their positions as they could possibly be.

In America there is no specific culture. Waves of new immgrants brought new cultures and new ways of doing things. These people were strong enough to refuse to endure the conditions in their homelands, and, at huge risk and expense, moved elsewhere. After arriving, they didn't speak the language or have any friends or connections. Many couldn't find traditional work, so they were forced to work for themselves, to create small businesses or open shops and stores. These people were the source of the independent spirit in America, and even now are the source of the mainspring of the economy.

This class of people is almost entirely lacking in Japan. Here in Japan "foreigners" make up only 1% of the population. The majority of foreigners in Japan are Asians from China, Korea, etc. These foreigners are disproportionately self-employed compared to the native Japanese. They are much like the immigrants to America long ago. They have become restaurant owners, pachinko shop operators, or even street vendors. Unfortunately, their numbers are far too small to make much of a difference in the economy, and, quite interestingly, are looked-down upon by native Japanese.

If Japan wants to reform itself into a functioning economy, it must do several things. First, strong anti-trust laws must be enacted and severely enforced. This "customary" practice of price-fixing and excluding competitors must be stopped. "Amakudari" is part of this custom, and must also stop. Second, the government must stop subsidizing businesses and agriculture. Businesses which cannot compete on their own are detrimental to progress and improvement of the economy. Third, tariffs and fees must be eliminated from imported goods. The Japanese have almost the lowest disposable income among developed countries, largely due to the 300% to 600% taxes added to many imported foods. Next, government must pass a balanced budget amendmant. The government can live within it's means if programs and spending are determined by the same cost/benefit analysis used in the private sector. Next, bankruptcy law needs to be reformed, bankruptcy is nearly a death sentence in Japan. A bankrupt person loses their right to vote, and will not be hired by any "respectable" company. Fear of bankruptcy makes it even more difficult for risk-averse Japanese to consider self-employment or starting a business. Lastly, the Japanese government is largely controlled by the non-elected bureaucracy, which, backed by "relationships" with big-business, is the real leader of Japan. The elected politicians literally have no control over this bureaucracy. The bureaucracy needs to be employed in an "at-will" system, under the control of the elected politicians (who are supposedly under the control of the people).

But these changes will not occur. They are too much, and the time is too late.

-3 ( +0 / -3 )

"Washington became tired of subsidizing Japanese industry, so the zaibatsu were allowed to return. Things improved"

Thats the first time I have read Washington subsidized the Zaibutsu. Are you talking about during the Korean war? The post war constitution broke up the zaibutsu, least that was the intention. Do you have any documentation about this?

I think San has made some obvious observations. Japan is complicated, and I think the average Japanese would like to have a business and could care less about the government. Why they are ants is still a mystery to me. It is a fundamental cultural problem-risk adversion and dependancy. I think my zone idea, green lighted by somebody up above as to not seem radical, would work.

-1 ( +0 / -1 )

Japan is a democracy, and therefore the people themselves are supposed to regulate the system. If the system is bad or is not working, it is directly the fault of the people, is it not?

No, because Japan is not nearly as democratic as most people think it is. I mean the Meiji Restoration was a coup, and when the Meiji oligarchs couldn't control the military, it turned into a military fascist state. During the Meiji period the powerful bureaucrats and PMs made sure that the politicians could not hold sway over any matters and that bureaucrats should control from the top. And then came the US occupation, but unfortunately the US didn't actually know how things really operated in Japan, so much of the things stayed the same, in fact they unknowingly gave bureaucrats even more power than before.

Lastly, the Japanese government is largely controlled by the non-elected bureaucracy, which, backed by "relationships" with big-business, is the real leader of Japan. The elected politicians literally have no control over this bureaucracy.

You've said it yourself.

It is true that it's up to the people in Japan to do something about it. But if you really want to change people on a massive scale, then you'd have to change the environment. There's no use blaming the people when in reality, there is no other choice. You can't blame them for being "passive", when say, they're too busy with work to be involved in politics (which is deliberately made that way by the system), or because they wouldn't hire someone who just left his company. The problem has more to do with the environment than the particular individuals.

But these changes will not occur. They are too much, and the time is too late.

So you've already made the choice, you have given up. Let me guess... you're Japanese, or at least you sound like one, particularly those on the left who tend to "whip" the Japanese and harshly condemn them because they don't quite measure up to their lofty standards. That kind of "moral" argument and blaming are not conducive to bringing actual, tangible changes.

-2 ( +0 / -2 )

So you've already made the choice, you have given up. Let me guess... you're Japanese, or at least you sound like one, particularly those on the left who tend to "whip" the Japanese and harshly condemn them because they don't quite measure up to their lofty standards. That kind of "moral" argument and blaming are not conducive to bringing actual, tangible changes?

I am not Japanese, but I am the third generation of my family to live in Japan since my grandfather came to Japan with MacArthur in 1945. I have seen Japan during it's rise, and now in it's decline.

I believe that people are responsible for their own destinies, and that self-interest, ambition, and critical thinking are essential qualities for the success of people and nations. These qualities are scarce in Japan, because they are not encouraged.

For myself, I own a trading company based in Tokyo. I am an international exporter, and sell a wide range of Japanese products around the world. In the course of my business I deal with many people, most of whom are in the financial industry. I also meet with the executives of other companies on occasion, having the title of "president" opens many doors here. My father-in-law is also a company president, and this has opened more doors. Our conversations revolve mainly around economics and business. A precious few whom I have met are dynamic and powerful people, most are inert. None are optimistic.

Having lived in America, and having worked in Los Angeles and New York City, I can easily compare the political climate and company cultures between America and Japan. Japan's system is inflexible, and resistant to change. Everyone I know laments the situation, but there are problems which are unsolvable, or to which the tools or strength necessary to perform the solution don't yet exist.

Japan's situation is not unlke Humpty-Dumpty, "all the king's horses, and all the king's men" and all that. The collapse has already occurred, the sound just hasn't reached us yet.

Personally, I am more optimistic than I may sound. A general collapse will be painful, but the sooner the collapse, the sooner the recovery. Japan did it before, it can do it again.

-3 ( +0 / -3 )

@San

"The Japanese have almost the lowest disposable income among developed countries,"

I agree with everything you said except this. Japan has one of the highest levels of disposable incomes... in savings.The problem is nobody is spending. The huge population concentration in certain areas could be an entreprenuers dream; but protectionism, mafia extortion, tarriffs, regulation, and all the other reasons you have listed are whats keeping business out of Japan, and keeping small start ups shut out. The tarriffs are to keep the domestic products affordable, while keeping the gajin out. It doesnt mean there is no money to be spent. Why would anybody pay 3 times the price of a bottle of foriegn shampoo when they can get the local shinsedo for a few hundred yen? The income is there, its just kept in Japan by using tarriffs and ridiculous regulations to keep out foriegners. Otherwise, I agree with you on all your points. The apathy and ant mentality is ingrained at school and throughout life in Japan.

@Eji "And then came the US occupation, but unfortunately the US didn't actually know how things really operated in Japan, so much of the things stayed the same, in fact they unknowingly gave bureaucrats even more power than before"

Actually McAuthur knew, and was skeptical about anything he left up to the Japanese to reform. They hijacked the constitution he asked them to draft, so he had them redraft it until it was to his satisfaction. Unfortuanetly, what is known as the reverse course took place when McAuthur left. The U.S. allowed the nationalist to play for its own interest in the region, that is to squash communism. The nationalist have been at it ever since, and now inform us that McAuthur really didnt know Japanese culture and the constitution was drafted too hastily....its almost comical to listen to their explanation of events, their quite clever at manipulation. McAuthur did know, but after he left, there was nobody around to steer the ship.

-3 ( +0 / -3 )

Japan has one of the highest levels of disposable incomes...

The median income in Japan is a little over 4,000,000 yen per year. But, in Japan, unlike other countries, those who collect pensions or subsidies are not included in the formula, thus the actual number is likely much lower.

Next, in America, food cost makes up 4% of household spending. In Europe the number is 5% to 6%. In Japan households pay more than 12%. The amount of disposable income the Japanese enjoy is about 450,000 yen per year. In America, the figure is little over $12,000. The Japanese hold a lot in savings, but the less money you make, the less you can save.

Japan has used tariffs and taxes to "protect" the domestic manufacturers, but at the expense of the domestic people, who actually spend more for domestically-produced goods than they would were there competition in the market. Common Japanese products cost as much as 40% more in Japan than they do in America. My Sony television and Nikon camera were much less expensive in Los Angeles then they are at Bic Camera.

And your hobby is posting long-winded comments on JT? Good for you, man. Good for you.

I am a little under the weather today, my schedule is generally 7 days a week. My wife is out of town with her sister, my father in law is playing golf at St Andrews, despite the weather. I have the entire place to myself, and am sharing pizza with my dog. But on my other screen I am writing my orders for the next week, and writing an email to a small company in Shimane which makes something I think I can sell. Never a dull moment...

-2 ( +0 / -2 )

The amount of disposable income the Japanese enjoy is about 450,000 yen per year.

I have serious doubts about that. This year I got a 300,000 yen tax break for my housing loan and I get 30,000 yen a month for "child allowance." That's 660,000 yen the government gives me in one year, which adds to the amount of disposable income I already "enjoy."

0 ( +1 / -1 )

Yes, Japanese have much more disposable income than most in the U.S. In the U.S. most of it goes towards fuel cost. Public Transportation is usually paid by most companies in Japan. Some housing is subsidized as well. Most Japanese have allot of disposable income, it just stays in savings.

-2 ( +0 / -2 )

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