The Economy

The Economy

When people call Japan the “Miracle of the Orient,” they are usually referring to the country’s economy. In this chapter,you will learn how the Japanese had to overcome many obstacles in order to become one of the world’s foremost economic powers.You also will learn why the country’s economy has been in a decade-long slump and why many Japanese are concerned about their country’s economic future.

JAPAN AND THE GLOBAL ECONOMY 

To better understand Japan’s position among the world’s economic giants, think for a moment about your own family possessions. Perhaps you own a vehicle,television,camera,or other item made by a Japanese company.A typical American family has many thousands of dollars worth of items manufactured by Japanese corporations.

Now,try to identify those “big ticket”items that were manufactured in Europe. If you can only find a few items, or perhaps none, you are not alone. You also have just learned a very important lesson in changing patterns of global economic and regional geography! Nearly a quarter of a century ago,the center of world trade shifted from the North Atlantic Ocean (North America and Europe) to the Pacific Rim. Today, about three-fourths of all world trade is conducted among Pacific Rim countries. The primary “engines”of this multi-trillion dollar trade, of course, are the United States and Japan. In fact, according to 2002 World Bank data,the combined economies of the United States and Japan amounted to a staggering $14.42 trillion. To put this figure in perspective, it is roughly equal to that of the next 35 countries, those ranking number 3 through number 37, combined!

HOW WELL OFF ARE THE JAPANESE? 

There are many ways to measure a country’s economic health.One way is to look at its gross domestic product (GDP). The GDP is the total value of all goods and services produced in a country per year. Japan ranks second among the world’s nations in its GDP.This tells only part of the country’s economic story,however.For example,when Japan’s GDP is divided by its 127 million people, the country drops to 14th place among world nations in terms of per capita (per person) GDP. This means that people in at least 13 other countries produce more wealth per person. In terms of purchasing power,the Japanese rank 13th in the world, and are not as well off as Americans. Because prices of most items are much higher in Japan than in the United States, it costs more to live there. To help rank countries by buying power, economists have developed the concept of purchasing power parity (PPP).A country’s PPP indicates how much buying power its people have. In 2002, the United States ranked number 3 in the world,with a per capita PPP of $34,870.Japan ranked 13th in the world, with a per capita PPP of $27,430. In other words, the average American can buy nearly $35,000 worth of goods in a year, while the average Japanese can purchase just over $27,000 worth of goods in a year. By any measure,however,most Japanese are quite comfortable economically. Few countries enjoy a better distribution of income. Most Japanese belong to the economic middle class and few citizens suffer from grinding poverty. The Japanese also save a greater percentage of their income than do almost any other people.In fact,several years ago it was estimated that the typical Japanese family had $40,000 in savings,whereas the average American family was $40,000 in debt! Until the economic downturn that began in the early 1990s, few Japanese were unemployed. Today, for the first time in many years, unemployment is rising. In early 2003, an estimated 5.5 percent of the Japanese work force was without jobs. This number represents an all-time high figure and is a source of great pain,embarrassment,and concern to the country. This figure is quite low, however, when compared to that of many other countries.To the Japanese,a loss of a job can result in a loss of pride. A number of unemployed people are ashamed to face their family and friends. Moreover, suicides have risen at an alarming rate—to one of the world’s highest. Faced with possible loss of employment, the Japanese have developed perhaps the world’s best work ethic. In fact, they have a word with no equivalent in the English language: karoshi. This is a Japanese term for “death from overwork,” a condition in which Japan may be the world leader.

OVERCOMING OBSTACLES 

Few countries have faced a greater number of obstacles to economic growth than has Japan.Certainly very few nations have been more successful than Japan in overcoming such hurdles. In this respect, Japan truly is the “Miracle of the Orient.” Japan is confronted by several major physical obstacles to economic growth and development. These obstacles include small area, fragmentation and elongation, devastating environmental hazards, remote and insular location, and limited natural resources. Most of Japan is composed of rugged,mountainous land. In fact, only about 30,000 square miles (77,700 square kilometers) is relatively flat land suited to farming and urban development. This is an area roughly the size of South Carolina, a state which is home to fewer than 4 million people. Japan, with a population of some 127 million,packs roughly 35 times more people into a comparable area. Small size, however, has not proved to be a significant handicap. Few of the world’s people use land more effectively than do the Japanese. Much of the country is built at what appears to be a “micro scale.”The Japanese are extremely efficient in the use of land, whether in farming, urban development,  transportation, or other aspects of living and producing. Agriculture is extremely productive, much of it relying on intensive hand labor. Japanese farms produce the world’s highest yields of many crops. The Japanese diet depends heavily upon marine resources. Throughout most of the 20th century, Japan was the world leader in fishing. The country also is a major importer of seafood. Japan does not need to raise a large percentage of its own food. The country’s strong economy enables it to import food and other commodities from countries throughout the world. The United States, in fact, is Japan’s leading source of imported foodstuffs. As you know, Japan is composed of four major islands and more than 3,000 smaller islands and islets. Additionally, these

islands are scattered over a huge area measuring roughly 3,000 miles (4,800 kilometers) along a relatively narrow northeasterly to southwesterly axis. Geographers realize that fragmentation and elongation often lead to internal isolation. This, in turn, often contributes to a number of forces that tend to tear a country apart, such as regional conflicts. To the south, the island country of Indonesia offers an example of this situation. The country has nearly 600 different languages,a weak government, and suffers from a long history of internal conflicts. In spite of its scattered physical geography, Japan is one of the world’s most cohesive countries. The Japanese share a strong common heritage and sense of nationalism. Few countries in the world can match Japan’s strong social, cultural, and racial cohesion, or sense of national unity. This means that nearly all Japanese people are willing to work and sacrifice for their country and for the well-being of their fellow countrymen. Japan has overcome fragmentation by developing one of the world’s best transportation networks. Railroad, air, water, and automobile facilities provide quick and easy access to nearly the entire country. People, materials, ideas, foodstuffs, and other items can be quickly and efficiently moved from place to place. Japan faces several environmental dangers, including earthquakes, volcanoes, and landslides. Yet, the Japanese have been able to minimize the impact of nature’s wrath in a number of ways.They lead the world in emergency training and warning systems.When disaster strikes,the Japanese know how to respond. Nearly all Japanese construction is designed to withstand most earthquakes. Japanese engineers are world leaders in developing means of protecting the country’s coastal regions from storm and tsunami damage. Finally, smart planning and zoning limit the development of sites that are hazard prone.Because of these measures, when disaster does strike, damage often is minimal. When the 1995 earthquake hit Kobe and nearby cities, Japan’s strong economy and government assistance enabled people to recovery quickly. Great distance to global ideas and markets has posed few problems for the Japanese. Japan has overcome its remote location in a number of ways.In terms of the flow of ideas and information, during the last half of the 20th century, Japan became a world leader in communications technology. To overcome great distances by sea, the country became the world’s leading shipbuilder and ship owner.To reduce transportation costs, Japanese industry has specialized in high value/low bulk manufactured goods. Cameras, watches, small tools, and other high value manufactured goods weigh very little, hence, cost little to ship—regardless of the distance. Because it is an island nation, all but the smallest and most valuable goods are transported by ship.This is the least expensive means of transportation. The per unit cost of shipping a new car from Japan to the western coast of the United States, for example, is less than trucking the vehicle from Los Angeles to a dealership in Phoenix,Arizona. Japan has almost no natural resources upon which to base industrial development. In the West, the Industrial Revolution was fueled by huge deposits of inexpensive and readily available coal. Abundant and inexpensive energy is often the key to a country’s economic growth. Metals and other minerals also can be extremely important. Yet, Japan must import fully 97 percent of the natural resources and raw materials used in its industry. The only resource the country has in abundance is hydroelectric potential, which for all practical purposes is 100 percent developed. Geographers, economists, and other social scientists have long recognized that well-educated, hard-working people— rather than abundant natural resources—are the key to economic development. The Japanese are highly disciplined, ambitious,and work extremely well as teams.They have perhaps the world’s strongest work ethic. One survey found that more than 90 percent of all Japanese adults preferred work to leisure, and the government had to pass a law requiring Japanese workers to take their annual vacation! They also are very well educated and highly skilled. Their sales force may be the world’s best trained and most successful. Japan’s huge success in competing in the global marketplace can be attributed to a simple “P-Q-R-S-T” formula: “P” stands for productivity and pride.Japanese workers strive for a high level of productivity and take great pride in what they produce. “Q” means quality. Japanese products are world famous for their quality of design and manufacture.“R”indicates robotization. The Japanese are world leaders in using robots, rather than humans, to do many industrial tasks. This frees people to do more important things that better use their knowledge, energy, and skills.“S” refers to sales and savings, two categories in which the Japanese are world leaders. To the American salesperson, “time is money.” The Japanese use a completely different approach.They seek to gain the confidence, friendship, and loyalty of a potential buyer before attempting to make a sale. Relative to people in most other countries, the Japanese save large amounts of their income. This provides capital that can be recirculated into the nation’s economy (as bank loans,for example).Finally,“T”stands for technology, an area in which the Japanese have become world leaders on par with the United States. In fact, Japan and the United States often vie for the top position in the number of new patents issued annually.

CULTURAL AND HISTORICAL OBSTACLES 

On the road to becoming a leading economic power, Japan also had several cultural and historical obstacles to surmount. They include a long period of cultural isolation, a late start in the Industrial Revolution, and the devastating effects of World War II. For 300 years prior to the mid-19th century,Japan deliberately isolated itself from the rest of the world.The door to Japan was cracked open slightly by Commodore Perry in 1853. By 1868, the Meiji Restoration threw the door open wide and what came to be known as Japan’s “economic miracle” began. During the Meiji period, several important developments set the stage for Japan’s future in the world. Japan’s rulers place great emphasis on education. Literacy among Japanese people soared. It was a period of relative political stability and the government enthusiastically supported economic development.Western technology was readily adopted and quickly adapted to Japan’s culture and society. Finally, as a unified people, the Japanese worked together for the good of their country. By the 1860s, Japan was lagging a century or more behind the already industrialized West.It had a long way to go if it was to catch up. During the Meiji Restoration, the Japanese eagerly adopted a number of Western ideas and techniques associated with the Industrial Revolution. So successful was this transformation that by 1935, manufacturing surpassed agriculture as the most important contributor to Japan’s economy. Industrial growth also allowed Japan to aggressively challenge the world’s greatest military powers. Japan became involved in World War II for two primary reasons. First, it sought to gain control of vital natural resources and additional territory on the Asian mainland. Second, it attempted to create a “buffer”in the Pacific Basin as protection from the United States. The ultimate result of this venture was near total devastation. Once again, the Japanese successfully overcame what seemed to be an almost insurmountable obstacle.After the war, the United States invested millions of dollars in rebuilding Japan. From the ashes of war rose hundreds of new factories using the most modern technology available. The Americans helped the Japanese draft a new constitution that contributed to a more democratic government and society. The document also limited Japan’s military expenditures to 1 percent of the country’s annual gross national product. With virtually no military expenses, the Japanese could pour huge amounts of capital into industrial growth and development. Japanese scientists and inventors also were able to emphasize commercial,rather than military, innovations. Within several decades, Japan once again held a high place among the world’s economic powers.

TROUBLED TIMES 

Since the early 1990s, Japan’s economy has weakened. By some measures, it has even slipped from second to third place among the world’s economic giants, behind the United States and China. The country has undergone the worst economic slump since the Great Depression ravaged the global economy in the 1930s. Its stock market has lost nearly 80 percent of its value since 1990. Real estate values have plummeted and countless banks and businesses have failed. Its national debt is four times greater than that of the United States. The value of production and services is dropping and retail sales have plunged as Japanese have tightened their spending habits. Guaranteed lifetime employment, enjoyed by many Japanese for decades, is disappearing and unemployment has risen to record levels. These surely are troubled times for the country’s economy and its people. What went wrong? During the 1980s, many observers predicted that Japan would soon surpass the United States as the world’s strongest economy. Several factors contributed to Japan’s weakening economy. First, as the world’s leading exporter of manufactured goods,Japan is extremely vulnerable to changes in the global economy. During the past decade, the United States and most other industrial economies have undergone economic hard times. When this occurs, people are less apt to buy high-quality, relatively expensive, Japanese goods. Many people point to the Japanese government as another significant problem. Political corruption is widespread in Japan, and many people have lost faith in their government. Japanese leaders have failed to pass much needed political reforms (such as within the banking industry, which is on the brink of collapse because of trillions of dollars in bad loans). According to many social scientists,no end is in sight for Japan’s economic woes. The problems are many and the solutions are both complex and painful. Is Japan finished as a leading economic power? The answer, almost certainly, is no. The country has surmounted many obstacles to reach its current level of economic strength.Today, the Japanese are still well-to-do by most standards, including those of the United States. According to surveys, nearly twothirds of the country’s people remain satisfied with their lives. And satisfied, well-educated, hard-working people, we must remember, remain Japan’s primary resource and hope for continued economic success.