Last week (February 15, 2024), the Japanese Cabinet Office released the latest national economic accounts forecast for the 12th quarter of 2023— October-December GDP Quarterly Estimate 2023 (First Preliminary) – This shows that the economy has officially entered recession (two consecutive quarters of negative GDP growth), and in the process has jumped from the third largest economy in the world to the fourth largest economy after the United States, China and Germany. According to media reports—— Quick GDP report for the fourth and half periods from October to December 2023 – Quarterly growth rate of -0.1% (annual growth rate of -0.4%). Domestic demand was weak, contributing -0.3%, while net exports contributed +0.2%. Part of the reason has to do with “lower valuations” as the yen has depreciated in recent months, weakening the value of exports and increasing the value of imports. However, despite the hysteria surrounding the results from “the market” and mainstream economics, caution is needed as the data will be revised as more data comes in (this is preliminary only) and the negative results may well turn negative result. positive. However, I also take a different perspective on this than the mainstream narrative in the media, as you’ll find out if you read on.
Following the dramatic real estate collapse of the early 1990s, there are many misconceptions about Japan's so-called “lost decade.”
The current narrative builds on these misconceptions and constructs GDP results as if low growth was a problem.
If you look at the next picture, you'll start to understand this.
It shows a population growth index of 100 for Australia and Japan in 1980.
In 1980, Australia's population was 14.8 million and will reach 25.9 million in 2022, with an average annual growth rate of approximately 1.6%.
Early in the outbreak, population growth fell as the government closed external borders and immigration was severely restricted.
In sharp contrast, Japan's population is currently slowly decreasing and is expected to be approximately 121 million in 2025
The next chart, from Statistics Japan, provides a different perspective on Japan’s population over a longer period of time.
It's clear that Japan's population is declining, and the rate of decline is accelerating.
Japan has one of the world's oldest populations, leading to a shrinking workforce and increased spending on health care and pensions.
Policymakers must address many practical aspects of this dynamic, such as how to shift productive resources from serving children to serving older adults.
The government must aim to stimulate productivity growth (note: this is a different concept from GDP growth) so that the shrinking labor force can increasingly meet the material needs of growing retirement communities, as net inflows of immigration are unlikely to alleviate this One question. shortage.
But a comparison of population dynamics between Australia and Japan helps put the Lost Decade narrative into more meaningful perspective.
Gross domestic product per capita tells us how the size of the economy changes in relationship to underlying population dynamics.
Given differences in population growth, it is not surprising that most economies have grown faster in GDP than Japan over the past few decades.
But how has GDP per capita evolved?
The chart below compares Australia and Japan from 1980 to 2022 (1980 index is 100).
Before Japan's asset collapse in 1991, the country's per capita GDP grew much faster than Australia's.
The 1991 crisis ended Japan's period of increasing prosperity, and GDP per capita has grown slowly since then.
In the early 2000s, the per capita GDP growth rates of the two countries were almost the same.
The global financial crisis (GFC) was more damaging to Japan than to Australia, partly because of the latter's relatively greater government fiscal support.
We can also see evidence of Japan raising its sales tax in May 1997, when household consumption growth fell and GDP fell.
In the context of this comparative analysis, the most important point is that the evolution of GDP per capita in both countries over a 40-year period does not justify classifying Japan as a failed economy, as the “lost decade” narrative does , while making Australia a well-performing economy.
The chart below compares the evolution of GDP per capita after the epidemic (data index in 2020 is 100).
From 2020 to the end of 2023, Japan's per capita GDP grew by 7%, while Australia's per capita GDP only grew by 6.5% (considering that official data has not yet been released, Australia is expected to be in the last quarter of 2023).
However, Japan's data includes recently released national accounts data, which included two quarters of negative GDP growth (September and December).
If we conclude that the evolution of gross domestic product per capita (an average measure) was broadly similar during this period, the next question focuses on the distribution of national income during this period.
If we consider the Gini coefficient measure, Japan has lower income inequality than Australia on comparable data.
All in all, while Japan's GDP growth is very low, population growth is equally low, which means the country can maintain stable or improving material living standards.
In comparison, Australia would have to achieve a higher GDP growth rate to maintain a similar time trajectory of GDP per capita because its population growth rate is much higher.
Therefore, discussions focusing on Japan's low GDP growth rate fail to understand the background of low population growth.
If Australia's GDP growth rate falls to the level that has prevailed in Japan over the past two decades or so, its unemployment rate will rise significantly, because population growth and productivity growth will require higher real GDP growth for unemployment stability.
In terms of productivity growth potential, I checked out some interesting data over the weekend from – Global Innovation Index 2023 – Published by the World Intellectual Property Organization (WIPO), headquartered in Switzerland.
We know that:
In 2021 and 2022, Asia will be the leading force in PCT applications, accounting for 54.7% of all PCT applications filed in 2022, with China, Japan and
South Korea is the strongest international patent filing country in Asia. In contrast, international patent applications fell in certain developed economies, such as the United States (-0.6%) and the United Kingdom (-1.7%).
The top tech cluster (i.e., “the geographical area with the highest density of inventors and scientific authors in the world”) is Tokyo-Yokohama (Japan), “followed by Shenzhen-Hong Kong-Guangzhou (China and Hong Kong)), Seoul (South Korea), Beijing (China) and Shanghai-Suzhou (China).”
The top ranked applicant is Mitsubishi Electric and the top ranked institution is the University of Tokyo.
WIPO also provides this appendix table showing ranking groups by patent applications and scientific publications.
As can be seen, the Tokyo-Yokohama cluster accounts for 11.7% of the total, followed by China's Shenzhen-Hong Kong-Guangzhou cluster (11.1% of the total).
This means that the highest-ranking cluster is well ahead of other countries, including the United States.
Australia's ranking at the bottom (42/50 in Melbourne and 46/50 in Sydney) reflects the moribund nature of our corporate sector, which is more willing to cheat workers to make profits through privatization or loot public assets than to invest in research and development and innovative technologies.
The Global Innovation Index also provides an interesting chart (Figure 9 Lifespan Over 60), which I reproduce here.
It states:
People over 60 years old in Japan have the longest healthy lifespan, with a healthy lifespan extended by 14 years and a healthy lifespan extended by 10 years.
growth potential
Japan's aging population has prompted commentators to view the issue as a major problem for the government and promote a variety of spurious remedies.
Clearly, the skills shortage scenario often reported in the media is closely related to the debate on aging societies, with developed countries facing a so-called demographic “ticking time bomb” producing fewer and fewer working-age people for a growing population. People who no longer work.
The dominant narrative portrays these trends as major problems that governments must face and proposes deeply flawed solutions, often driven by a misunderstanding of government fiscal capabilities.
I see these challenges in a very different light.
Rather than constructing the difficulty that businesses may face in attracting enough labor (the “skills shortage” narrative), I prefer to view this situation as an indicator of constraints on economic activity or the room for growth that countries must implement immediately. Strategy.
I discussed this issue in this article – Degradation, deep adaptation and skills shortages – Part 4 (October 31, 2022).
I will expand on this in a new book, which I hope to publish in early 2025 in collaboration with research colleagues at Kyoto University.
The point is, a low growth scenario (where people remain wealthy, live long, have good health care and nutritional possibilities) seems better than pushing for a high growth rate (where people are unhappy and sick) (I will report on some new data soon ).
All of this is intensified by the global emergency to reduce our demand for the world’s resources and decarbonize our economies.
Japan will need less output because its population will decrease.
The policy challenge is to manage this shift rather than declare the need for more growth.
in conclusion
I will be writing more about how Japan unfolds to grow while maintaining social integrity.
That's enough for today!
(c) Copyright 2024 William Mitchell. all rights reserved.
