THE question to ask now is whether, after Japan’s last golden decade, the dynamic is going to last. There are four reasons for fearing that it might not do so. Three of them will be all too familiar to people with experience of Britain’s economy in the last fifteen years; the other will be very unfamiliar indeed. The unfamiliar one, which we will deal with first, is that Japan has in the recent past probably been devoting too much of its gross national product to investment instead of consumption.
Fixed investment in private industry has been very much the main growth element in Japan in recent years; in 1961 it was actually four times as large as it had been even in 1955. There have been several instabilities in this situation, not the least of which is that the investment boom has been feeding very largely upon itself; something like half of the investment that was going on in 1961 seemed itself to be investment in the investment goods industries. One cannot really believe that this will last. Some of the equipment installed in 1961 was beginning to look a bit unprofitable by the time your correspondent was in Tokyo in mid 1962, especially since total demand and production had begun to sag in the spring of 1962 following measures taken to deal with the temporary balance of payments deficit. One’s own guess would be that, even after the tight money squeeze is relaxed, the new “natural” rate for total investment (including stocks) might prove to be, say, between 25 and 30 per cent of gross national product (which would still be a very high rate compared with most other countries) rather than the extraordinary 35 to 40 per cent that was being achieved in 1961.
If so the questions will be: what is to take up the other 5 to 10 per cent of GNP, and what is to take over as the main dynamic element to lead the next stage of the advance? There are two main possibilities: an increase in public investment in amenities as private investment in industrial equipment falls off and an increase in consumption. There should be plenty of scope for increases in both. In the field of public investment, Japan’s roads, harbours, housing, and, for example, sewage system (this is still most definitely an effluent as well as an affluent society) cry out for very large new expenditure indeed. Although real spending by the average worker’s household in Tokyo has more than doubled since 1951, consumption still takes a ridiculously low proportion of gross national product (only 52 per cent in 1960-61). But there are going to be problems in the way. One rather charming conversation which your correspondent had with a Japanese (not in an official position) is worth quoting. “To change from investment to consumption as you say,” said the Japanese, “would mean switching from profits to wages. Politically very difficult.” “Not in Britain,” said your correspondent. “Ha! We swop governments, eh?” Alternatively, a deliberate attempt to take up slack by a still bigger programme of public works, or by introducing more of a welfare state, would mean running the budget into deliberate deficit. And although Japan’s peculiar budgetary system has served it well by allowing the Ministry of Finance to introduce expansionary budgets during a period of continuing expansion, it would theoretically not make it easy to use the budget as a re-stimulatory force after a period of slow-down.
Moreover, there are some conservative people in Japan who are now advocating a policy of deliberate slow-down in the rate of expansion for other reasons. It will already have become apparent, from the whole tone of this survey, that your correspondent would regard such a policy of a deliberate slow-down as a bitterly disappointing mistake. Before going on to discuss the conservatives’ counter arguments, one had better define what one means in saying this. One is not suggesting that Japan should or could aim to keep up annually the extraordinary rate of increase of over 15 per cent in real national product which it achieved in 1961; that rate obviously did bring with it some element of undesirable inflation, both in prices and imports. One is not even suggesting that Japan can expect for very long to stick to the average rate of more than 9 per cent of annual growth which it has achieved since 1951; if private investment in fixed capital equipment is to account for a rather smaller proportion of GNP in future, productive capacity will no longer go on growing by its recent massive amount. But one is suggesting that Japan should deliberately aim to keep demand rising at the rate which will allow its expanded (and expanding) capacity to be fully used.
The conservative Japanese who deny this put forward three reasons for objection. First, they say that Japan has now run into a shortage of labour “just like England,” and they cite the figures for job openings and job applications by school leavers to prove this. The answer to this is that Japan cannot really be called short of labour so long as some even of its new young entrants into industry have to take jobs in firms where their productivity and eventual lifetime wages will still be only between 50 and 60 per cent of those that they would earn if expanding employment opportunities were continuously and progressively made available for them in the larger firms, and especially not so long as the retirement age for older men is at the ludicrously low level of 55. Even in Britain, it has been argued earlier in this survey, the right way to meet the so-called shortage of labour is not to keep on holding back the growth industries by restricting marginal demand, but to shake resources free from the less efficient industries and firms by introducing more competition and by using policies that are more deliberately designed to drive the weakest entities to the wall. In Japan it seems even more obviously desirable that the so-called “excess demand” for young labour should continue up to the point where (a) it gives more young men the chance to take up jobs in the modern and efficient industries, even if this means that they will go on bidding even more labour away from the much lower paying and less efficient ones; where (b) it makes more of the established firms feel that they will have to keep existing employees on past the age of 55; and where (c) it forces all employers in general to adopt a less restrictive attitude to the new employment of all “old men” over the age of 30.
The conservatives’ second objection is that some element of price inflation will be inevitable so long as policies of “encouraging excess demand for labour” continue. Probably, it will be. Indeed in this respect Japan may well have a heavier cross to bear than Britain. The reason is that prices of some things in Japan (especially services and some things produced by the older and labour-intensive industries) have hitherto been kept very cheap because they have been produced by workers whose wages have been unduly low, and this “advantage” is now about to disappear. The price inflation in Japan in 1960-62 has been largely due to a rise in labour costs in branches of industry where labour has hitherto been exploited; part (though admittedly not all) of the loud complaints in Tokyo in 1962 that “prices of services have been rising too steeply” turned out to mean that “messenger boys” and other personal servants are more expensive than they used to be (a not unusual phenomenon in an enrichening society) and that those who worked even in the smaller shops were now taking more than one free day off a month. To say this is not to pretend that there have been no evils (particularly for retired people) in the sudden 10 per cent rise in prices which occurred in Tokyo during 1961-62; certainly it would be an excellent thing if the big Japanese companies engaged in more of the competitive price cutting which is also badly needed in Britain. But on balance especially if there were now to be a growth in social services, including pension schemes, for the less well off some rise in the domestic price of things hitherto turned out by low-wage establishments should not be regarded as an unmitigated misfortune. It would seem to be worth while if it is the requirement for keeping expansion and modernisation of Japan’s industrial structure pressing forward at the full stretch of advance.
The third objection to continuing demand reflation is that it might result in a continuing balance of payments crisis for Japan. Once again, one must define what one means here. If the argument is that the importing structure of Japan cannot easily afford each year the sort of 15 per cent real increase in domestic demand that was experienced in 1961, there may well be some sense in such talk. But if one is calling for a permanent slow-down in Japan’s whole recent regular tempo of advance because of balance-of-payments difficulties, then-here the argument must turn back to be addressed again mainly to western, rather than Japanese, ears one should sit down and think carefully where such an argument leads.
If conventional economics calls for such a slow-down there can surely be no sense left in conventional world economics at all. For everybody knows that Japan’s export problems do not arise from the fact that as it has giddily expanded its production of new style goods, those goods have progressively proved to be too uncompetitive and too dear; on the contrary, Japanese products are now being kept out of all manner of western markets by special restrictions, precisely because they have proved so good and so cheap.
It is easy and justifiable to reply that Japan does not throw its frontiers open to foreign goods either. Its attitude to imports will be discussed in a later chapter, and the conclusion will be that (despite high-flown phrases about its present advance to so-called misleadingly called 90 per cent import liberalisation) its record is still more than deplorable in one respect: it should do much more to implement the precept spelled out in its present long-range economic plan that while it is reasonable for its tariff and other policy “to give protection to incipient industries which have potentialities for development ... the government should refrain from giving (similar) relief to declining ones.” But really in this it is in the West’s own interests and also should be frankly its responsibility to set an example. For consider the prospect now before us.
All the goods that Japan could produce more cheaply than the West yesterday and today including especially the sensitive goods like textiles against which Britain wants to maintain the power to impose sudden import restrictions are likely to be the goods that other developing countries will be able to produce more cheaply than the West tomorrow or the day after tomorrow. It is most emphatically not in the West’s interests to try to keep alive its own doomed industries making these goods; even if Japanese industries are repulsed by special restrictions today, the West will only be left with a mass of declining industries that will have to fight overwhelming competition from a dozen or more new Japans, from Africa, Asia and even southern Europe tomorrow. By contrast the more “modern” goods that Japan itself is now newly becoming able to produce as efficiently as the West cover a much wider range. Probably indeed they will soon be conterminous with nearly the whole field of manufacture. There may be loud protests as this happens. But if the West follows a policy of reasonable liberalism, this does not mean that Japan will capture all our markets.
No country can capture all the world’s markets and thus run an export surplus for ever. The most that might happen would be a fairly shortlived yen problem, like the D-mark problem of the last decade and the dollar problem of the decade before that, which would eventually be solved (as the D-mark and dollar problems have been) by the rise of living standards and of import freedom in the export surplus country, or (less probably) by an up-valuation of the yen. The problem would in short be solved as, among the comity of rich Western countries, this first standard bearer of Asia at last arrived as an equally rich-living partner.
But in recent years the West has not been following a policy that will encourage this. On the contrary, in answer to pleas for protection from some of Britain’s own lowest wage industries and (to cite one actual example while your correspondent was in Japan) from American producers of zip fasteners, imports from Japan have been held down by intermittent special restrictions. And now, in consequence of this, the idea is gaining ground that Japan will have to slow down her exciting rate of advance; that she will have to delay her dramatic surge into tomorrow; that she may have to remain more static in her industrial structure of yesterday and today, a structure into which other developing countries should soon be advancing (although they too will be likely to be slowed, if Japan is left marking time across their route of advance).
And thus a whole absurd cycle of mutual misery could be brought into being. Thus the whole process of advance in Asia and Africa could be blocked, just after one Asian country has shown how breakthrough could be achieved; and the West, sadly pumping out aid funds to spur on the sort of economic development which it will have blocked by the export of its own economic stupidity, will be left wondering why the political consequences of this well intentioned bungling are so dire. And nobody who has seen the political forces operating among Asian students today or sensed what will happen if an economic slowdown prevents these young men from getting quite as good jobs as they at present expect will underestimate for a moment just how dire they could be.