Micro and Macro Policies in Japan - Essay Example

Calling the 1990s the lost decade for the Japanese economy is a mistake - the loss has extended well beyond the 1990s. The economy is now smaller that it was in the first quarter of 1991, so Japan is actually approaching the second lost decade B.Klinger & D.Scissors (2009). 1. Introduction In order to understand the policies followed by governments worldwide it is necessary to identify the criteria used for the formulation of these policies – or else the reasons that lead governors around the world to proceed to specific strategic choices. When these choices are related with the position of the country in the international community the development of criticism against them is a challenging task especially when there are no alternatives available for the effective handling of a crisis. It should be noted at this point that the perceptions of people on successful governmental policies might be differentiated in accordance with their social and financial status but also of their personal experiences. However, there are cases of countries – like this of Japan – where the expectations of people as of the performance of the economy are high taking into consideration a series of critical economic indicators – like the GDP – but also the country’s scientific – referring especially to the technology – development. Current paper focuses on the examination of the various aspects of the Japanese economy with reference to a specific period – divided into two different sub-periods: the 1990s decade and the current decade. It seems that the status of the Japanese economy for both the above periods presents many similarities. In the first period – the 1990s – the country had to face specific challenges regarding the administration of its finances. Despite the fact that the war – the Second World War – was not anymore in the scene, still the difficulties in the strengthening of the country’s economy remained strong. In a relevant study it is noted that the development of the country’s economic policies – those related with the macroeconomic factors but also those involved in various microeconomic projects – was gradual (Ronald et al., 2006, 2467). The view that the 1990s can be characterized as the only ‘lost decade’ for the Japanese economy can be considered as no fully justified; in fact, in current decade the weakness of the Japanese economy to face the challenges of the international crisis has been clear. Moreover, it has been proved that currently the position of the country’s economy within the international community has been deteriorated while it could be expected that the Japanese economy is strong enough to pass the crisis with minimum losses - an assumption that was never verified. 2. Japan’s economy – overview of data related with 1990s and the last decade Japan has been a country well known primarily for its strong cultural and social traditions. Moreover, the organizational structure and the management techniques applied on firms around the country are characterized as innovative and unique and for this reason they have been used as patterns for the development of successful management policies even in firms that are based in countries with different social and cultural characteristics. The country’s economy has been benefited by the strong support offered by the state to the enterprises but also to the individuals – especially as entities valuable for the country’s cultural and financial development. The economic policies introduced by the Japanese government during the 1980s led to the improvement of the economy’s performance. It was during that period that ‘the Japanese economy grew at a faster rate that of most industrialized countries’ (Karan, 2005, p.315). The development of the country’s economy has been radical since the decade of 1980s. The position of the Japanese economy in the international community proves the success of the measures taken by the Japanese government of that period – referring to the macroeconomic and microeconomic policies introduced in Japan from 1980s onwards. The indicator that can be used in order to prove the above assumption is the following one: the GDP – gross domestic product. In Figure 3 – Appendix section. GDP can be used in order to produce reliable tables, which can be used as the basis for the development of other films. The success of the country’s economy in the past has been proved to be the result of various strategic choices – which were implemented successfully. These strategic choices have been summarized to the following ones: ‘place-based, small – firm networks, supported by local institutions and strategic government policies’ (Fujita et al., 1998, p. 181). From another point of view, Hasegawa (2005) identifies three main factors – named as structural changes – that characterized the economic activities in Japan during the 1980s: these factors are: ‘(a) a shift from a manufacturing to a service economy, (b) urban redevelopment, and (c) government policy shifts toward deregulation and privatization’ (Hasegawa, 2005, p. 989). The efforts of Japan to increase its influence on the global economy characterize the country’s strategic policies in the particular field during 1990s and onwards. Primarily, the main target – referring to the achievement of a competitive advantage – has been the economy of USA. Through the years, the improvement of Japan’s position towards many other states in the international community has been achieved by setting priorities that are related with the global market – and not the national one as in the case of USA. In the literature it is noted that ‘the various "voluntary" export restraints Japan has adopted under U.S. pressure have dark implications because of the cartel arrangements by which they are enforced’ (Hollerman, 1982, 127). Today, Japanese economy has not the power to face the challenges set by the global crisis – see also Figure1, Appendix. The growth rate of the country’s GDP has been decreased – Figure 1 – for the years 2000 up to 2009, i.e. the last decade. The data presented in the relevant graph can prove the limitation of the power of Japanese economy – especially if compared with the data presented in Figure 3, Appendix. The reference to a series of critical data related with the performance of Japanese economy both in 1990s and the last decade is necessary in order to realize the potential effects of wrong fiscal policies on a country’s economy. A first criterion to realize the deterioration of Japan’s economy from 1990s onwards can be the level of the country’s wealth; the latter has been estimated to 1,360 (in trillion yen) in the beginning of 1990s. During the decade that followed, i.e. during 1990s this figure was increased reaching the 3,533 (in trillion yen) – however this increase was based on the increase of property value – price of land – across the country, i.e. it does not reflect an actual improvement of the country’s economy. The specific problem was revealed in the years that followed. In 2007 Japan’s national wealth was decreased to 2,794 (in trillion yen) in accordance to the date published by the Statistics Bureau, see also Figure 4, Appendix. The limitation of the performance of Japan’s economy is clear in Figure 5 – where the growth – in fact the decline – of Japan’s economy for the years 2000 up to 2009 is made clear. The reasons for the limitation of the power of Japan’s economy could be possibly identified to the macroeconomic and microeconomic policies applied to the specific country from 1990s up today. A detailed analysis of these policies – with a special reference to the last decade is presented in the sections that follow. Proposals for the improvement of the country’s economy are also made – taking into consideration Japan’s social and cultural characteristics but also its industrial needs and prospects. 2.1 Overview and analysis of critical changes on Japan’s recent microeconomic policies The choice of the microeconomic policies implemented by the government in Japan seems to be based on specific criteria. One of them is the financial status of the majority of people living in a particular area. The identification and the evaluation of human needs are therefore of critical importance in order to understand the basis on which microeconomic policies have been developed. Furthermore, people across the country are likely to be engaged in different activities – related with a variety of economic areas, like the agriculture, the fishing, the industrial production, the technology, the retail and the services sector. Within this context, the microeconomic policies developed by Japan’s governors should be aligned with the work trends but also the needs of people all around the country. In order to evaluate the microeconomic policies used by the Japanese government the last decade it would be necessary to describe these policies criticizing their appropriateness under current market conditions. The microeconomic policies developed in Japan during the last decade refer to different economic sectors. In the organizational sector, the vote of shareholders is critical but when the continuation of the firm is under threat there is always the option of opposition of the majority of shareholders – this opposition can lead to the cancellation of any plan for a firm’s liquidation or merger (Cohen, 2001, 64); even the minority of shareholders can influence the development of such a decision – while in Britain and USA the power of the controlling shareholder is almost absolute. Another sector where the microeconomic policies applied on Japan are revealed is the research and development (R&D) one; more specifically, Japan is strongly based on the investment of the private sector for its R&D projects (Cohen, 2001, 64) – a practice that is not followed by all countries. The microeconomic policies in Japan can be also characterized as industrial policies – referring to the development of specific industrial activities. The above assumption is supported by Lincoln (2001, 42) who focuses on Japan’s economic performance and refers to a series of practices, which are developed under the influence of microeconomic policies. These practices are: a) the protectionism, i.e. the support offered to domestic firms by offering specific suggestions to foreign firms that wish to operate in Japan; b) the development of rules for regulating the financial transactions across the country, c) the offer of financial support to the private sector – i.e. loans given to the public under specific criteria, d) establishment of a less restrictive antitrust framework, so that the entrepreneurial activities to be promoted, e) the offer of support to specific trade activities – referring especially to exports and f) introduction of tax laws that are aligned with the people’s needs – an example is the financial support offered by the country to the persons that meet specific criteria. The promotion of specific economic activities in Japan can be verified by the fact that in the above country there are particular economic sectors that face a significant growth – manufacturing and the service activities are at the top of the relevant hierarchy – see Figure 6, Appendix. 2.2. Analysis of the role of Japan’s macroeconomic policies The macroeconomic policies that were applied on Japan the last decade are based on specific rules. These rules have been set by the country’s government or by individuals – referring also to the organizations of the private sector. The effectiveness of these rules can be criticized – being depended on the country’s market condition but also on the conditions of the international market. After studying specifically the macroeconomic policies used in Japan, Wadhwani (2008, p. 25) notes that ‘even if the bubbles themselves are not significantly affected by LATW (lean against the wind), macroeconomic performance can be improved if monetary policy reacts to asset price misalignments over and above the reaction to fixed horizon inflation forecasts’ (Wadhwani, 2008, p. 25). There is no specific guarantee that the development of individually – customized measures – like the decrease of tax on particular transactions – could positively affect the national economy. In this way, the explanation of the macroeconomic policies used by the Japanese government should be generic – not limited by specific geographic area or by specific characteristics of the beneficiaries. In this way, these policies are more likely to be accurately explained – in terms of their mission and their characteristics. In accordance with Noguchi et al. (1996, 95) ‘macroeconomic policy has two distinct policy instruments: fiscal policy and monetary policy’. These two aspects of macroeconomic policy should be identified and evaluated in order to have a clear view of the Japan’s power to confront its rivals – especially in the long term. In the case of fiscal policy, one of the most characteristic initiatives has been the one related with the establishment and the development of the consumption tax (Noguchi etla., 1996, 95). As for the country’s overall monetary policy, this is characterized as ‘expansionary’ (Noguchi et al., 1996, 96), i.e. being characterized by the promotion of Japanese monetary initiatives – commonly these projects are in opposition with the ones developed under the administration of the relevant state authorities. One of the main problems of Japan’s macroeconomic policies is that these policies are not harmonized. The particular problem has been identified by Patrick et al. (1986) who support that the improvement of Japan’s economy would be depended on the realization of the harmonization of ‘microeconomic and macroeconomic policies and of institutions’ (Patrick et al., 1986, 211). In 2008, the government in Japan has tried to keep the value of its currency stable – taking into consideration the turbulences in the exchange rates globally under the influence of the global financial crisis. In order to achieve this target, the government has offered a significant amount of money for the support of the country’s financial institutions – which had to face severe pressure because of the continuous decline of the house market and the increased number of loans with negative performance. However, the country’s banks and financial institutions had already benefited from the funds offered to them by the state during the period 1998-1999 but also on 2001 – for facing the crisis caused because of the events of the September the 11th. Under these terms, it could be normally expected that the position of the country’s economy would be deteriorated. The development of innovative fiscal policies could not particularly help to the improvement of the country’s economy – only if a combination of these policies with appropriately customized microeconomic policies would be arranged – for example, a limitation of the tax obligation of firms operating across the country could be combined with the elimination of certain requirements for the entry of foreign investors in the Japanese market. 3. Events that supported the implementation of Japan’s current economic system In accordance with the above, the implementation of Japan’s economic policies – referring especially to the last decade – has been based on the following events: a) the country’s increasing population, b) the industrial and agricultural activities developed across the country, c) the intense presence of foreign investors who participate directly or indirectly to the country’s economic projects and initiatives, d) the strong turbulences in the international market and e) the changing hierarchy of materials used for the support of industries worldwide. Other events that could also influence the development of economic policies in Japan would be: a) the increasing rate of unemployment – a global phenomenon, b) the limitation of funds available for R&D – due to the decline in profitability of private firms which are the main supporters of R&D schemes in Japan and c) the expansion of the so-called ‘tax-heavens’ worldwide – a fact that led to the limitation of foreign investments in most countries that have a common tax system with no particular benefits for foreign entrepreneurs that wish to enter the market of the specific country. 4. Conclusion - Changes required on Japan’s economy in order to become more vibrant The development of a country’s economy can be achieved only if a series of measures are combined. The social and cultural characteristics of the specific country would be used – in any case – in order to formulate – and to control – the rules on which the trade should be based. The country’s production could be led into further expansion – and improvement – if specific criteria would be used for the evaluation and the development of its economy, an issue also highlighted in the study of Karan (2005). In that study, it is made clear that each area in Japan has its own geographical characteristics – however, in this way the unity of the effort will be under risk. The economy of Japan could be promoted through the introduction of specific measures – taking into consideration the needs of each area but also the resources available. As an example, in Okinawa the main sources of the economy are the tourism and the bases of the army; the choice of the appropriate means of production would be achieved taking into consideration the actual needs of people – as they can be captured through the style of life of people living across the country but also their perceptions of work. The number of people living in Japan would be another criterion for the development of effective economic policy. The person – as a powerful entity within a particular community – could influence the effectiveness of economic policies – especially if no appropriated measures of comparison or intervention have been developed (Shimizu et al., 1999, p. 170). In this context, the potential benefits offered to the people across the country would be estimated in accordance with the number of people – criteria might be required for the implementation of the specific scheme taking into account the continuously increasing population of the country and the level of funding that would be required for the realization of such projects. On the other hand, the lack of sufficient funds for the realization of various governmental projects – and the improvement of the economy – in Japan is an important obstacle, which cannot be faced unless appropriate foreign investment plans are introduced. In accordance with Karan (2005, 318) ‘steps toward deregulating segments of the economy will have to be combined with efforts to increase transparency and reduce nontariff barriers to trade’. The above study is aligned with the view that the current tax law in Japan is rather restrictive for foreign investors that want to enter the specific market. Under these terms, the following changes would be required for the Japan’s economy in order to become more vibrant: a) establishment of favourable tax treatment for the foreign investors who wish to enter the Japanese market, b) introduction of specific incentives for local people to be engaged in activities that are currently at low level – referring to the agriculture, fishing, forestry, finance, insurance, construction and natural resources (gas, oil), sectors that under-perform, see also Figure 6, Appendix, c) change of current legislation regarding the antitrust law – establishment of less restrictive rules and d) development of commercial activities with countries in the greater South – East Asia. It is clear from the above that Japan’s economy currently faces significant challenges; the development of microeconomic and macroeconomic policies has not helped the country to exit from the crisis that started in 1990s. In fact, it seems that the turbulences in Japan’s economy are now more intense – even if the country remains a strong competitor in the international trade. Current decade could be characterized as another lost decade for Japan. No sign of change of these conditions seems to exist – at least for now; the development of appropriate microeconomic and macroeconomic policies could possibly offer to the country’s economy the chance to recover. References Banno, J. (1998) The Political Economy of Japanese Society: Internationalization and domestic issues. Oxford University Press Brown, C. (1980) Industrial Policy and Economic Planning in Japan and France. National Institute Economic Review, Vol. 93, No. 1, 59-75 Fujita, K., Hill, R. (1998) Industrial Districts and Economic Development in Japan: The Case of Tokyo and Osaka. Economic Development Quarterly, Vol. 12, No. 2, 181-198 Hasegawa, M. (2005) Economic Globalization and Homelessness in Japan. 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National Institute Economic Review, Vol. 206, No. 1, 25-34 Appendix Figure 1 – Japan’s GDP through the years 2006-2009 (source: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=JPY) Figure 2 – Japan’s exports for the years 2000-2009 (source: http://www.ronanlyons.com/2009/04/14/a-brand-new-scare-graph-japans-collapsing-exports/) Gross domestic product Billion US dollars, current prices and PPPs, 2002 Figure 3 – GDP in Japan for the year 2002 (source: http://stats.oecd.org/viewhtml.aspx?QueryName=14&QueryType=View&Lang=en) Figure 4 – changes in Japan’s national wealth between 1980 and 2007 (source: http://www.stat.go.jp/english/data/handbook/c03cont.htm) Figure 5 – Growth rate of Japan’s economy (source: http://www.stat.go.jp/english/data/handbook/c03cont.htm) Figure 6 – GDP in Japan – categorized by economic activity, 2007 (source: http://www.stat.go.jp/english/data/handbook/c03cont.htm) Read More