Post-war Japan on the German Economic Model

I've been noodling on this for a while, given the very different economic experience of Germany and Japan after the 1980s. Japan at the time looked like it soon would simply buy the world, until the bubble burst. From that point on, Japan has struggled to escape a deflationary environment and sustain steady nominal growth.

So, what if Japan's economy developed instead to more closely resemble its German counterpart? I'm thinking particularly of the legion of German SMEs that focus on business-to-business sales and emphasize quality over total output. Unlike American firms, these tend to be privately or at least closely-held family firms that have no plans to grow up and launch a big IPO.

Could something like this be achieved if post-war Japan saw the complete dismantling of the zaibatsu, such that a more competitive domestic environment precludes the dominance of keiretsu conglomerates?

In any event, what does a steadier Japanese economy through the 1980s and 1990s do for Japan's political scene, or its geopolitical position? Perhaps Japan's demography is unaffected, but stable and steady economic growth would surely greatly ease the burden of a rapidly aging, shrinking population.

Any thoughts?
 
Well, for one, I suspect that the Zaibatsu would help the application of the German model in Japan, but perhaps I'm wrong on that point. Regardless, it's difficult to see the Japanese pening up to immigration in the way Germany ultimately did.
 
Im not sure whether the zaibatsu were that different. There was a saying that spoke of the "Deutschland AG", thus German economy as a whole being considered as a single company. This was due to German banks being highly involved in German insurances and the other way round - and both holding a major share in big German industrial corporations. That model is not that far from zaibatsus - in fact one could consider it worse...

And the German SMEs are often suppliers for the larger companies. I'm from Baden-Wurttemberg, which is famous for its smaller industrial firms - many of which, though, are suppliers for the big car makers or machine builders. I think the same applies to many suppliers in the zaibatsu.

I guess immigration and European cooperation - guaranteeing a free and open market for German products - is far more important for the differences in the economic outlook. Maybe the love for austerity is another difference - I don't see a German government amassing that much government debt as in Japan, not even an SPD-led administration.
 

Anderman

Donor
The term "Deutschland AG" was a more ironic but this cross links between major companies it made hostile take overs quite difficult.
 

Sumeragi

Banned
This goes back to my usual rant, but with naive MacArthur never managing to purge the financial elite who are the ones that established the zaibatsus and the keiratsus, we're always going to see oligopolies.

Furthermore, Japanese SMEs far more established and embedded than the German ones. I'll let quotes from a paper speak for me.

Development of these types of small firm-large firm relationships appear to have played a major role in the highly successful business practices of the vertically integrated Japanese keiretsu financial-industrial groups over most of the post-war period.......

The classical form of Japanese large firm industrialization has involved large industrial groups which include large numbers of companies within a familial grouping, held together by a holding company structure (called zaibatsu before World War II and keiretsu afterwards) cross-ownership relationships, and sharing the use of a common general trading company and group bank. The large companies of such a grouping formed elaborate long-term relationships with small supplier firms, usually not involving ownership but creating over several decades relationships of the closest cooperation and trust. Numerous aspects of the Japanese industrial model developed prior to the crisis of the 1990s are based on the existence of this close, and often exclusive, association of large Japanese companies with their subcontractors.

The development of the efficient system of ‘just-in-time’ (kanban) inventory management system is an example of the implications of this type of small firm-large firm relationship. As this system had been imitated all over the industrial world, it has become clear that it makes extraordinary demands on the parts suppliers, who are mostly sub-contractors. Similarly the ability of large firms to offer ‘life-time employment’ depends on the flexibility of employment at the sub-contractors who offer no such benefits. Close and well-established relationships between large companies and sub-contractors were probably a necessary condition for the original development of this production management system in Japan. Periods of slower economic growth, such as during the early 1980s and much of the 1990s, tend to strain these relations.
 
The debt doesn't really matter. Japan holds one of the world's largest account surpluses. In fact Japan is doing pretty well, economically speaking.

I brought up economics in this thread.

Indeed the debt is not causing economic crisis in Japan every few years in part due to the high personal savings rates. However, Japan has not been growing quickly anymore, and I believe one important reason is the debt has effectively done what would be expected by following rough models on lower steady states and crowding out of investments.
 

Anderman

Donor
If the government debt reaches 200 % of GDP then there is a problem, simply because the state doesn´t own the GDP but have to tax it.
 
Indeed the debt is not causing economic crisis in Japan every few years in part due to the high personal savings rates. However, Japan has not been growing quickly anymore, and I believe one important reason is the debt has effectively done what would be expected by following rough models on lower steady states and crowding out of investments.

That's not true.
 
The debt doesn't really matter. Japan holds one of the world's largest account surpluses.

Account surplusses do not necessarily imply that debt doesn't matter. The US had an account surplus for years - they only had a trade deficit, but foreign capital inflow made that up. If the Japanese government wasn't indebted within the country to pension funds, insurances and banks, they'd have far more serious problems than any Euro-country. It's as Anderman has stated.

In fact Japan is doing pretty well, economically speaking.

Then why is every developped country in the world trying to avoid a "Japanese lost decade" if they are economically well off? Japan has deflationary tendencies since the 80s. You won't get deflation if your economy is well off.
 
Account surplusses do not necessarily imply that debt doesn't matter. The US had an account surplus for years - they only had a trade deficit, but foreign capital inflow made that up. If the Japanese government wasn't indebted within the country to pension funds, insurances and banks, they'd have far more serious problems than any Euro-country. It's as Anderman has stated.

Anderman: "If the government debt reaches 200 % of GDP then there is a problem, simply because the state doesn´t own the GDP but have to tax it."

Which is nonsense, because it's an arbitrary number (also who said "the state owns the GDP"? He's rebutting an argument no has made, and no one will make). If the government can reasonably expect to be able to afford interest payments on the debt indefinitely then they can keep going. Less debt would of course help, but as the UK has shown austerity is a fool's game. So when the world economic position improves Japan will have the opportunity to reduce spending.

They might not have the political will to take it, but Japan is rich as hell and they can handle the interest payments on vast amounts of debt for a very long time.

Then why is every developped country in the world trying to avoid a "Japanese lost decade" if they are economically well off? Japan has deflationary tendencies since the 80s. You won't get deflation if your economy is well off.

Because most columnists that use the phrase "Lost Decade" don't understand what the lost decade was. Japan likes being thought of as the poor cousin, and actively works to promote that image.

Now yes there were things in the "lost decade" that actually count as lost, including the chance for economic rationalization in some sectors and major banking reform as well as other structural things but that has nothing to do with what people think of when they hear the "lost decade".

Did you read the article I linked?

Eamon Fingleton said:
The unemployment rate is 4.2 percent, about half of that in the United States.

Japan’s current account surplus — the widest measure of its trade — totaled $196 billion in 2010, up more than threefold since 1989. By comparison, America’s current account deficit ballooned to $471 billion from $99 billion in that time.

Luckily there is a yardstick that finesses many of these problems: electricity output, which is mainly a measure of consumer affluence and industrial activity. In the 1990s, while Japan was being widely portrayed as an outright “basket case,” its rate of increase in per-capita electricity output was twice that of America, and it continued to outperform into the new century.

One should note that, for example, a construction job in Japan that requires two people is told by the Yakuza to employ four people (to pay off the Yakuza) and then backed by the bureaucrats to lower reported unemployment figures. Still, better that than no job.

William J. Holstein said:
“There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan,” he said. “The Japanese are dressed better than Americans. They have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models. I have never seen so many spoiled pets. And the physical infrastructure of the country keeps improving and evolving.”
 
If the government can reasonably expect to be able to afford interest payments on the debt indefinitely then they can keep going.

That's the point. They cannot reasonably expect to pay interest once they leave their deflationary period.

By the way, no country amasses that much debt without having serious economic problems - or during wartime.

Japan likes being thought of as the poor cousin, and actively works to promote that image.

:rolleyes:
 
How old are we? I present source data and you roll your eyes.

1. Japan is trying to end deflation and has been for two decades. Do you really think that a return to zero-rate or mild inflation will suddenly mean they will be unable to pay their loans? Because it doesn't.

2. If anyone feels like making an argument and looking up sources and presenting a compelling economic theory of why Japan is screwed (and I could make one myself, just not the one you're attempting to make) feel free. Otherwise I don't know why you bother.

3. To get back on topic, if one wanted Japan closer to the German economic model (or just more stability or whatever) then one can find an excellent case to be made with a late 1970s/early 1980s POD:

Electric Monk said:
[…]US Savings and Loan scandal. i.e. they are revealed to have a great deal of non-preforming loans (NPL) which supports a large amount of corporate debt, and have covered this up via accountancy. Furthermore it's shown that this was supported by the Ministry of Finance.

A number of large Japanese corporations are badly hurt by this, and other corporations now become concerned about their debt levels. Furthermore banks will now move to a more normal system of loans.

Following the Lockheed scandal of 1976 this deals another major blow to the LDP's political fortunes, so we posit a reformer break of the LDP, advocating banking reform to prevent more scandals.

And so on. One could get banking reform by 1981 or so and possibly revamp the Diet enough to end the LDP's built-in advantages. Banking reform in turn and the LDP being unable to buy votes could lead to a rolling reform ball. Probably lose some early '80s growth and Japan wouldn't look so hot (which, as I keep pointing out, the Japanese government likes) but going forward you could get some longer term stable growth.

All sorts of interesting changes from then on.

For fun:

Sony doesn't have the loans to go into Hollywood as a result of the banking reform and when Steve Jobs wanders around for investors Sony bites (instead of Canon, OTL) and all of a sudden Sony Computers has an OS and—probably—a license to use it. Windows is infamously bad at Kanji (and the rest) and NeXTSTEP was just fine at it.

Maybe then Sony sees the Newton, acquires General Magic and mixes them in with the NeXT guys and somewhere around 1995 we have stylus based smartphones (albeit with really slow data) running on NeXTSTEP and probably Newton style tablets as well.

Heck if Sony has an OS maybe they understand that MiniDiscs should be used for data and the MiniDisc revolution sweeps the land as of course they'll be on all those popular Sony computers.
 

Anderman

Donor
Anderman: "If the government debt reaches 200 % of GDP then there is a problem, simply because the state doesn´t own the GDP but have to tax it."

Which is nonsense, because it's an arbitrary number (also who said "the state owns the GDP"? He's rebutting an argument no has made, and no one will make). If the government can reasonably expect to be able to afford interest payments on the debt indefinitely then they can keep going. Less debt would of course help, but as the UK has shown austerity is a fool's game. So when the world economic position improves Japan will have the opportunity to reduce spending.

They might not have the political will to take it, but Japan is rich as hell and they can handle the interest payments on vast amounts of debt for a very long time.
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The 200 % of GDP maybe a arbitrary number or not but so is any % number of GDP because the GDP is not something like the income of the japanese state. Taxes could be interpreted as the state income but taxes are only a %of the GDP not the whole.


Maybe you are right that the japanese Government can pay the interest for a long time but there are not paying back any credits quite the opposite the debt is increasing. BTW in % GDP it´s higher than Greece.


Here is another take on Japans so called lost decade:

link
 

amphibulous

Banned
I've been noodling on this for a while, given the very different economic experience of Germany and Japan after the 1980s. Japan at the time looked like it soon would simply buy the world, until the bubble burst. From that point on, Japan has struggled to escape a deflationary environment and sustain steady nominal growth.

So, what if Japan's economy developed instead to more closely resemble its German counterpart?

It wouldn't matter. Japan's real problems are demographic.

I'm thinking particularly of the legion of German SMEs that focus on business-to-business sales and emphasize quality over total output. Unlike American firms, these tend to be privately or at least closely-held family firms that have no plans to grow up and launch a big IPO.
You've just described the host of Japanese companies that supply the bigger fish, I believe.


In any event, what does a steadier Japanese economy through the 1980s and 1990s do for Japan's political scene, or its geopolitical position? Perhaps Japan's demography is unaffected, but stable and steady economic growth would surely greatly ease the burden of a rapidly aging, shrinking population.

Any thoughts?
Given their aging population they've done staggeringly well. If you want them to do better, I suggest you need to defuse their artificially created real estate bubble and make them friendlier to guest workers.
 
As the articles listed so far point out about Japan's economic performance in recent records during which spending and debt rose: Japan's real growth has slowed, unemployment has gone up, and it's stock market has suffered.

The articles merely point out to those who refer to a "lost decade" in Japan that they have still had real growth in production and standards of living that match the levels of some countries in Europe (which, by the way, used to grow faster as well). Whoever they are directing their articles to is also to whom you should quote these articles (such as people who said that Japan not only slowed but declined in absolute terms, and I'm sure a lot of every day casual observers of that type exist).

Or, instead of redirecting people who said that Japan has slowed to articles that write that Japan has slowed but now as much as many people thing, you could merely make a point yourself such as that Japan did not slow as much as some people think.

From the New York Times article titled "that's not true" in reference to my comment about Japan slowing but which is actually an article about the overstated decline of Japan:

"It is true that Japanese housing prices have never returned to the ludicrous highs they briefly touched in the wild final stage of the boom. Neither has the Tokyo stock market..."
"As longtime Japan watchers like Ivan P. Hall and Clyde V. Prestowitz Jr. point out, the fallacy of the “lost decades” story is apparent to American visitors the moment they set foot in the country. Typically starting their journeys at such potent symbols of American infrastructural decay as Kennedy or Dulles airports, they land at Japanese airports that have been extensively expanded and modernized in recent years.William J. Holstein, a prominent Japan watcher since the early 1980s, recently visited the country for the first time in some years. “There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan,” he said."

FYI, I didn't use the phrase lost decade, but I could see why some people would use it to describe their deceleration and RELATIVE decline. Japan is still one of the world's wealthiest countries and it is true that Japan has been growing about as slow as Europe.

There is no denying however that Japan has slowed, not in the article, not elsewhere.
There is no denying that they have more debt.
There is no denying that they've lost ground in relative terms to other nations in their world.

Hopefully they will take care of those difficulties and find a renewed path to faster growth.
 
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