Katz on the potential of Japanese economic reform
Richard Katz of The Oriental Economist has a very good op-ed in the WSJ, Japan’s Stress Test, on the topic of the challenges facing Japanese economic reform. Katz summarizes his points in a recent post to NBR.
To quickly summarize my views, I see two obstacles to growth, one on the supply side and one on the demand side.
1) Supply side obstacles. Growth is the sum of how many additional people are working plus how much more each person can produce. With the working age population falling and more people working only part-time, the sole source of GDP growth has been productivity growth. Reforms that exposes firms to fiercer Darwinian competition will bring Japan’s myriad backward sectors up to world benchmarks, and improve overall potential growth. This can certainly be combined with social safety net features and other measures so that, while some current firms and jobs will disappear, individuals are protected, true security is enhanced and income equality is restored.
2) Demand side obstacles. In my view, anemic consumption is not the result of culture, but of lack of money. Real wages per worker have fallen 2.7% since 2002 and so people have lowered their savings rate drastically to maintain consumption. This problem is simply the exacerbation of a longterm structural problem stemming as far back as the mid-1970s. The household share of disposable income–e.g. wages, interest, dividends, rent, income of self-employed–has been too low a share of national income relative to support consumer-led growth. Give them money and they will spend.