Economic demise greatly exaggerated: Bright spots are fast emerging in Japan - even if the West can't see them, writes Terry McCarthy in Tokyo

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The Independent Online
SINCE Japan's economy started slipping into recession in 1991, the Western media, particularly in the US, have taken great satisfaction in declaring that the 'Japanese economic miracle' is over, the eccentric threat from the Asian nation of samurai-style workers has been overblown, and that at the end of the day, good old free-market capitalism, as practised in the US, has triumphed over the restrictive, centrally stewarded Japanese model.

In many cases these schadenfreude fiends were the publications that several years earlier, during Japan's economic bubble, were warning 'your next boss might be Japanese', or 'how Japan is buying the West' and other alarmist themes.

In each case, the pendulum of critical judgement seems to have swung too far from centre and the pundits are having to reverse themselves again.

In Japan's 'worst recession since the war', unemployment has soared to a chilling 2.9 per cent, no important company has gone bankrupt or been taken over, no bank has defaulted, the yen has soared in value despite record low interest rates, and the 97.1 per cent of those who do have a job are still earning some of the highest salaries in the world - despite a reduction in overtime and bonus payments.

Structural unemployment, housing estates where no one goes to work in the morning, entire industries laid waste, looted pension funds, large-scale lay-offs, despair and juvenile delinquency? Not in Japan.

Again the country has confounded critics. It has braved, and is now apparently on the verge of emerging from, a recession, without the tearing of the social fabric as happens during similar downturns in the West.

The country is now in the 36th month of an economic downturn, according to the Economic Planning Agency (EPA), and although no one wants to be the first to say the recession is over, 'bright spots' are starting to show in the economy, as the official terminology puts it.

Everyone has jumped on the concept of bright spots - Yasushi Mieno, governor of the Bank of Japan, Hirohisa Fujii, the finance minister, as well as the EPA. The most lustrous of these bright spots, according to Tsutomu Tanaka, the administrative vice-minister of the EPA, is in consumer spending, which for months had virtually dried up in Japan.

Citing statistics from retail sales, Mr Tanaka said last Friday that, although spending was still below the levels of three years ago, for the first time the rate of decline had reversed, and sales of consumer goods were starting to pick up.

This is particularly important for Japan in the current recession, since the trusty old formula for restarting the economy - increases in capital expenditure by industry - is not going to operate this time.

Across the board companies are planning further cuts in fixed expenditure as they try to digest their over-investment in plant and capacity at the end of the 1980s.

'We are cautious, and haven't said the economy has bottomed out yet,' Mr Tanaka said. 'But we are happier than last year.'

His agency expects positive effects from the large sums of public investment on roads and infrastructure pledged in a series of economic stimulus packages over the past year. Much of this spending has been held up by the scandals affecting the construction industry. Now that arrests have been made and a ritual cleansing of guilt has taken place, the system is preparing for more flows of money.

Another bright spot for the EPA is the apparent avoidance of high unemployment. Last year, as companies aggressively sought measures to cut costs and return to profitability, there were fears that the old job-for-life system would be demolished, and that hundreds of thousands of Japanese would find themselves on the streets.

This has not happened - largely because of strong government pressure and generous public grants to companies to keep workers on their books, whatever the costs.

For those looking for an excuse to gloat over Japan's fall from economic grace, there is no reason to let economic reality get in the way of a bit of malevolent scoffing. Take the debacle over high-definition television.

In February, Akimasa Egawa, the director-general of the Ministry of Posts and Telecommunications' Broadcasting Bureau, held a press conference in which he said that despite 30 years and some dollars 10bn in investment, Japan's analog standard for HDTV was being outdated by the digital revolution, originating in the US.

Digital technology would ultimately be cheaper, and also more flexible: its computer-coded digital codes would be able to accommodate interactive television, which the analog format could not do.

There was an uproar in Japan, as the nation's NHK broadcasting channel and the large electronic companies, which had all been cooperating in developing analog HDTV, objected that all their work and investment would be wasted if Japan accepted the US format - which is also being adopted in Europe. The next day Mr Egawa was forced to hold another press conference where he said he did not mean the analog format would be abandoned right away, and that digital technology was something that would have to be looked at in the future.

Predictably, there was a spate of articles in the West screaming with delight at Japan's apparent technological dinosaur, analog HDTV.

The whole mess seemed to illustrate perfectly the shortcomings of Japan's collusive system, where a government-affiliated company (NHK) linked up with private industry to develop a technology that ultimately proved to be outmoded before it even took off.

Only 20,000 HDTV sets had been sold in Japan, at pounds 3,750 each, and now the companies were being told to scrap it all and start again.

The reality, of course, is slightly different. First, digital was not even an issue when Japan began developing analog HDTV in the 1960s. And the reason for the uproar at Mr Egawa's comments was not a fear of future change - of course all the large electronics companies in Japan are well advanced in digital technology as well. But having invested billions of yen over the past 30 years, they want to recoup some of their losses with domestic sales before switching to digital.

Making the Japanese consumer underwrite the costs of developing competitive products for the world market is nothing new.

'At a time of a weak economy, companies want to recoup losses on analog, make it pay for four or five years, and then move to the digital system,' said Kenneth Courtis, economist for Deutsche Bank in Tokyo.

And when digital HDTV does finally appear in the US and Europe, there is little doubt that most of the sets will have Sony, Panasonic or Pioneer stamped on them.

(Photograph omitted)