Japan economics thread.

[tygyg1111]

This is retarded and self-inflicted. The Japanese consume a lot of their own media content. There is little reason to be dependent on these US companies to act as intermediaries to content. Japan has massive music, manga, anime, TV novel, etc publishers. Which could easily have made the transition into the digital space if they wanted to. It is amazingly stupid how fragmented the Japanese online space for reading manga is for example and how much is still physical media exclusive in some cases.

It is flabbergasting how there is no Japanese equivalent to Tencent really. The closest thing is probably Rakuten and its digital content sites. But it has evolved slowly and still seems to have a convoluted structure and low marketshare even in Japan for whatever stupid reason. They only started selling books online like a decade ago, and they had to buy a foreign book company to even start the business. Like WTF.

I was equally flabbergasted to find out the Japanese 'national' metro / rail system is a hodgepodge of several different providers, each with their own lines that do not cooperate with each other. To get from A to B, you often have to swipe out of the station, walk around to the other side of the station and swipe back in to access the 'other' line.

That and they still use cash for just about everything, with some places still taking cash only (and I doubt it's for tax fraud).

One of the main things that stuck with me was that the attitude of "there has to be a better way" seemed totally absent across their society.

 

[gelgoog]

That is because of Japanese rail being owned by several separate private companies. They do not have state owned railways basically.

If you think that is stupid the Japanese do not even use the same electricity standard all over the country.
It is 60 Hz in some places and 50 Hz in others.

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So their country's electric grid is basically split in half. With 1.2 GW of transmission capacity between both networks. Which needs to be HVDC because of the frequency difference between both halves. In a country of 125 million people.

The Soviet Union, a country with way larger area, had a unified synchronous electric grid.

 

[Eventine]

This is retarded and self-inflicted. The Japanese consume a lot of their own media content. There is little reason to be dependent on these US companies to act as intermediaries to content. Japan has massive music, manga, anime, TV novel, etc publishers. Which could easily have made the transition into the digital space if they wanted to. It is amazingly stupid how fragmented the Japanese online space for reading manga is for example and how much is still physical media exclusive in some cases.

It is flabbergasting how there is no Japanese equivalent to Tencent really. The closest thing is probably Rakuten and its digital content sites. But it has evolved slowly and still seems to have a convoluted structure and low marketshare even in Japan for whatever stupid reason. They only started selling books online like a decade ago, and they had to buy a foreign book company to even start the business. Like WTF.

Japan has been stagnating since the "lost decade" of the 1990s. If you start counting from that time, you'll see that they missed the biggest trends in the market after 1990, and so failed to establish influential companies in critical emerging industries like smart phones, e-commerce, social media, internet search, cloud computing, 5G, electric vehicles, drones, and so on.

It's not just "why isn't there a Japanese Tencent" but "why isn't there a Japanese Amazon, a Japanese Apple, a Japanese Tesla, a Japanese Huawei, a Japanese DJI, etc."?

This is the fate of societies which, for one reason or another, fail to keep up with industry trends and just keep doing what they're strong at. Japan still does have a viable economy based on old favorites like precision machinery, camera lenses, arts and crafts, food, anime, ICE automobiles, etc. But their presence in emerging industries is extremely weak compared to back in the day when they had leading companies across the board.

It's tempting to say this is the natural result of its demographic decline, but I know certain people refuse to accept that as an explanation because of its implications on China. In any case, Japan provides a great example of a society in decline and a cautionary tale of what not to do with an economic lead.

If I had to guess, South Korea will be next, even though nobody has yet called South Korea's declining economic growth a "lost decade."

 

[Michaelsinodef]

Japan has been stagnating since the "lost decade" of the 1990s. If you start counting from that time, you'll see that they missed the biggest trends in the market post-1990, and so failed to establish influential companies in critical emerging industries like mobile phones, e-commerce, social media, internet search, cloud computing, 5G, electric vehicles, drones, and so on.

It's not just "why isn't there a Japanese Tencent" but "why isn't there a Japanese Amazon, a Japanese Apple, a Japanese Tesla, a Japanese Huawei, a Japanese DJI, etc."?

This is the fate of societies which, for one reason or another, fail to keep up with industry trends and just keep doing what they're strong at. Japan still does have a viable economy based on old favorites like precision machinery, camera lenses, arts and crafts, food, anime, ICE automobiles, etc. But their presence in emerging industries is extremely weak compared to back in the day when they had leading companies across the board.

It's tempting to say this is the natural result of its demographic collapse, but I know certain people refuse to accept that as an explanation because of its implications on China.

Why? Could you actually throw some good reasons for that?

In any case, Japan provides a great example of a society in decline and a cautionary tale of what not to do with an economic lead.

If I had to guess, South Korea will be next, even though nobody has yet called South Korea's declining economic growth a "lost decade."

SK's decline/stagnation isn't a complete mirror of Japan though, although it's likely that they are gonna stagnate.

 

[In4ser]

Why? Could you actually throw some good reasons for that?

SK's decline/stagnation isn't a complete mirror of Japan though, although it's likely that they are gonna stagnate.

Correct it is worse than Japan in almost every metric. South Korea is in a worse spot than Japan. Lower GDP, less people and lower fertility rate but higher suicide rate and higher median age. Japan may have a higher Debt to GDP ratio than South Korea but its debt is held by the government while in South Korea its imposed upon the people via crushing household debt levels.

 

[Eventine]

Why? Could you actually throw some good reasons for that?

SK's decline/stagnation isn't a complete mirror of Japan though, although it's likely that they are gonna stagnate.

Japan's economic fate was determined by two factors - one immediate, the other gradual.

The immediate crisis was the Plaza Accords, which drastically weakened its exports while facilitating a property bubble that, when it popped, decimated the Japanese financial system. This meant that, for most of the 1990s, there was a credit crunch and a liquidity trap. The Japanese sat on cash and couldn't invest massively in emerging sectors because 1) impending deflation meant that they got better returns on their money just saving it and 2) their banks couldn't lend for pretty much the same reasons.

So, when the new industry trends hit, Japan was stuck in a place where they couldn't join the party, and so was rapidly overtaken by South Korea, and later China. Imagine if the Chinese central banks didn't have the money to subsidize the likes of electric vehicles because Chinese house holds held onto their cash and didn't invest it in anything because of deflation. That's what happened to Japan.

However, the credit crunch and liquidity trap both ended in about a decade, so in theory Japan could've returned to the game in the 2000s. This is where, in my view, demographics came into play. Japanese companies are, by and large, considered stuck in their ways by industry observers. But why is that? Why does Japan lack the entrepreneurial drive?

Simple - it's cultural stasis. Japan is dominated by large, powerful corporations (similar to South Korea today), where the culture is hierarchical, stagnant, and resistant to change. These are all logical developments - American corporations have the same problem with "dinosaurs" like GM, IBM, etc., where the company culture becomes determined by "stay the course," "don't shake the boat" executives, legacy workers, and processes that have no stomach for risk, and so naturally get left behind.

But the difference is that in the US, new generations of entrepreneurs rise to "disrupt" the old. This is what happened with the emergence of the great tech. companies of the 2000s - the likes of Google, Facebook, Amazon, Steve Jobs Apple, Netflix, etc. These companies took the place of the old dinosaurs and revolutionized the way business was done. They were, in turn, joined by those dinosaurs that were willing to change, like Microsoft.

One commonality for all of these companies is new blood - relatively young faces like Larry Page, Mark Zuckerberg, Steve Jobs, and so on. Indeed, there's even more youth among the "unicorns" - Lyft's founders, for example, were straight out of college students, as were Open AI's main leaders.

In Japan, this did not and does not happen, and I attribute it to 1) the lack of opportunities, due to the dominance of the old dinosaurs, which actively keep the start up scene down for their own interests and 2) the relative lack of young people as a strong population segment. The first is facilitated by demographics as in an aged society, there are more old people around, and so their interest groups are more powerful - they're not going to let young people determine the course when they have both the numbers and the money. The second results in an economy that is focused on the status quo, since it's young people who are typically drawn to change, innovation, and risk taking, while old people enjoy what they already know.

There is research here that I can pull up, but this post is already getting too long, so I'll end it here for now.

 

[gelgoog]

I agree. South Korea is in much deeper trouble than Japan is. Just not widely visible yet. South Korea will likely start to stumble this decade.

Where I disagree in some things is that Japan could have been a leader in several sectors like electric vehicles. They had the Nissan Leaf for example. But they were slow to make improvements to the platform.

The Japanese economy values job stability and corporate stability to the detriment of economic efficiency in general. Which is why you see so much market fragmentation. You could claim this is the major issue they have economically.

 

[Michaelsinodef]

Japan's economic fate was determined by two factors - one immediate, the other gradual.

The immediate crisis was the Plaza Accords, which drastically weakened its exports while facilitating a property bubble that, when it popped, decimated the Japanese financial system. This meant that, for most of the 1990s, there was a credit crunch and a liquidity trap. The Japanese sat on cash and couldn't invest massively in emerging sectors because 1) impending deflation meant that they got better returns on their money just saving it and 2) their banks couldn't lend for pretty much the same reasons.

So, when the new industry trends hit, Japan was stuck in a place where they couldn't join the party, and so was rapidly overtaken by South Korea, and later China. Imagine if the Chinese central banks didn't have the money to subsidize the likes of electric vehicles because Chinese house holds held onto their cash and didn't invest it in anything because of deflation. That's what happened to Japan.

However, the credit crunch and liquidity trap both ended in about a decade, so in theory Japan could've returned to the game in the 2000s. This is where, in my view, demographics came into play. Japanese companies are, by and large, considered stuck in their ways by industry observers. But why is that? Why does Japan lack the entrepreneurial drive?

Simple - it's cultural stasis. Japan is dominated by large, powerful corporations (similar to South Korea today), where the culture is hierarchical, stagnant, and resistant to change. These are all logical developments - American corporations have the same problem with "dinosaurs" like GM, IBM, etc., where the company culture becomes determined by "stay the course," "don't shake the boat" executives, legacy workers, and processes that have no stomach for risk, and so naturally get left behind.

But the difference is that in the US, new generations of entrepreneurs rise to "disrupt" the old. This is what happened with the emergence of the great tech. companies of the 2000s - the likes of Google, Facebook, Amazon, Steve Jobs Apple, Netflix, etc. These companies took the place of the old dinosaurs and revolutionized the way business was done. They were, in turn, joined by those dinosaurs that were willing to change, like Microsoft.

One commonality for all of these companies is new blood - relatively young faces like Larry Page, Mark Zuckerberg, Steve Jobs, and so on. Indeed, there's even more youth among the "unicorns" - Lyft's founders, for example, were straight out of college students, as were Open AI's main leaders.

In Japan, this did not and does not happen, and I attribute it to 1) the lack of opportunities, due to the dominance of the old dinosaurs, which actively keep the start up scene down for their own interests and 2) the relative lack of young people as a strong population segment. The first is facilitated by demographics as in an aged society, there are more old people around, and so their interest groups are more powerful - they're not going to let young people determine the course when they have both the numbers and the money. The second results in an economy that is focused on the status quo, since it's young people who are typically drawn to change, innovation, and risk taking, while old people enjoy what they already know.

There is research here that I can pull up, but this post is already getting too long, so I'll end it here for now.

Point 1 some people might put some blame on demographics collapse, but the core of point 1 really isn't demographics though.

Point 2 is more convincing when it comes to blaming demographics collapse, but it's more like the demographics collapse in Japan is exacerbating some more core problems.

So earlier when you wrote:

It's tempting to say this is the natural result of its demographic collapse, but I know certain people refuse to accept that as an explanation because of its implications on China.

It's probably more accurate to say that the demographics collapse in Japan hasn't helped it and is likely a factor in why its economy has stagnated as it has, rather than saying it's the natural result of demographics collapse.

 

[Eventine]

Point 1 some people might put some blame on demographics collapse, but the core of point 1 really isn't demographics though.

It isn't, but similar forces are at play in China due to parallels in the economic strategy. Like Japan, China followed an export-led manufacturing model based around its cheap currency and a large, skilled labor force, along with massive government investment in infrastructure. And like Japan, this has contributed to a massive property bubble that is growing increasingly dangerous.

The benefit China has vis-a-vis Japan is that, as a sovereign country, it has not been possible for the US & allies to force it to appreciate its currency. Even today, the yuan trades at 0.14 to the dollar, which is merely a ~15% appreciation compared to twenty years ago.

By contrast, the Japanese yen was forced to appreciate ~90% against the dollar in just a few years after the Plaza Accords. So Japanese exports basically became twice as expensive relative to US exports, erasing its over all competitiveness and creating the modern impression that Japanese products are "nice but expensive."

Nonetheless, the property bubble, if allowed to grow, will lead to a similar credit crunch and liquidity trap as Japan suffered during the lost decade. We're already feeling it in Chinese consumers' recent reluctance to spend and invest.

Point 2 is more convincing when it comes to blaming demographics collapse, but it's more like the demographics collapse in Japan is exacerbating some more core problems.

So earlier when you wrote:

It's probably more accurate to say that the demographics collapse in Japan hasn't helped it and is likely a factor in why its economy has stagnated as it has, rather than saying it's the natural result of demographics collapse.

Here's the issue - a country with a youth bulge can get away with a lot, assuming it is competent. Credit expansion, for example, is very easy to argue for a country with TFR > 2.1, because the assumption is that a growing population = larger economy in the future, so lenders and investors are perfectly willing to extend lines of credit, betting on future growth. This is much harder to argue for countries with < 1.5 TFR, because investors and lenders simply have a hard time believing future generations will be able to pay back what their parents borrowed.

Just the same, in terms of company culture, you can get away with a lot more with young people - long hours, quick turn arounds, rapid pivots, lots of risk taking, and of course, low pay. This is why start ups tend to favor youths - they're cheap, they're aggressive, and they're willing to bet on work that's high risk, high reward.

By contrast, older people, particularly middle aged and later, just aren't willing to do any of those. And that affects company culture, leading to the inevitable creation of "dinosaurs" that are set in their ways, filled with bureaucratic red tape, and which aren't willing to take risks. Older people want security above all else, and that results in an economy that is more about preserving the status quo than challenging it.

This is why, even though the effects of demographics often aren't immediately obvious, I am convinced that they are, in fact, massively significant in determining the trajectory of a country and its economy. Aged countries - whether it's Europe, Japan, or South Korea in the near future - are less innovative, less entrepreneurial, less risk taking, and in general, less competitive in emerging industries. Where they do well is relatively stable, legacy industries where experience counts for everything. This is why Japan remains strong at industries with high barriers of entry and minimal disruption, like ICE cars and high precision components.

But they're terrible at emerging industries, and as emerging industries overtake legacy industries, Japan and countries like it will inevitably decline. This is why I keep saying, "demographics is destiny."

 

[Moonscape]

in an aged society, there are more old people around, and so their interest groups are more powerful - they're not going to let young people determine the course when they have both the numbers and the money

I think China is at least partially resistant to this. Not necessarily because old people are any less powerful in China, but because the CCP isn't going to get a bunch of old rich business people dictate the future of the country (see, e.g., Jack Ma). By actively keeping the wanna-be oligarchs in check, the CCP maintains space for new entrants and young blood. In contract, neoliberal regimes like Japan and South Korea end up fully captured by entrenched business interests.