Friday, 28 January 2011 22:24

The Land of the Falling Sun

by Manuel Rodriguez

Post-Industrial Japan’s Developing Caste and Generational Inequality are Strangling Younger Workers

In an ominous warning to other, post-industrial developed economies, Japan seems mired in an economic straitjacket decades in the making. A majority of its younger workers are unable to find permanent, regular jobs, and feel increasingly marginalized. Instead, Japan’s corporate structure is geared towards protecting its aging population and bloated pension systems.

A recent article in the New York Times, here, highlights the individual distress felt by its young workers. Amazingly, this has resulted in a “brain-drain” of highly educated Japanese to other countries and threatens to stunt economic growth for generations. This generational inequality is partly to blame for Standard & Poors recent downgrade of Japan’s sovereign debt.

Last year, nearly 45% of young workers held “irregular” jobs, akin to contract labor in the United States. These jobs offer low pay, no benefits, and no pension. Only 56.7% of university seniors received job offers in 2010, an all-time low.

The graying of Japan and its reluctance to undertake the structural changes necessary to include young adults in its economy is producing a new, “lost generation” of disenfranchised youth. These second-class citizens will endure a rapidly-declining standard of living and a widening gulf between the “castes”.

The cultural ethos prevalent in Japan encourages conformity and obedience. Japan’s economic engine thrived on this ethos and their ability to mold university graduates to the firm’s culture. This allegiance to the firm produced a robotic, nearly mechanical worker whose primary goal was the maximization of firm profits and revenue growth.

Unfortunately, this ethos is obsolete, and Japan’s near absolute reliance on this standard has stunted the growth of individualism and entrepreneurship. Japan has few initial public offerings, and Japanese entrepreneurs primarily skew older.

Japan has faced a stagnant economy for the last 20 years, which shows no sign of abating. As workers age and consume even greater resources, the failure by Japan to nourish its newest workers will eventually condemn the country to a permanent, downward spiral.

The United States and the rest of the post-industrial world should view Japan as a cautionary tale. Although the United States and Japan are dissimilar in many respects, both have aging populations that are consuming greater resources with every passing year.

The United States faces a similar pension, municipal and state crisis that has only recently begun to manifest itself. The great boom of 2002-2008 merely masked the dire conditions of municipalities and the staggering amount of unfunded pension liability throughout both the public and private retirement systems. Similar conditions exist throughout many other post-industrial societies and economies, some better, and some worse.

Ignoring these problems will only produce much greater and more intense pain at some point in our near future.  In Japan, the need to reduce deficits will ensure that younger Japanese will never receive the level of retirement benefits currently enjoyed by retirees today. The same is true in the United States. Already, much of the private pension system in this country has been dismantled; the destruction of the public retirement system has just begun.

As a result of its booming growth throughout the 1970’s and 80’s, Japan began confronting these issues much sooner than the rest of the post-industrial world. Japan’s free-fall began in the 1990’s, a period of positive growth in the United States. That Japan has been unable to halt this economic decline throughout the last 2 decades is a chilling reminder of what may confront other post-industrial economies. 

A thoughtful study and analysis of Japan’s “lost decade” might illuminate the path forward for our country, and prevent the aggressive stagnation that has taken root, like wild grass, in our own economy. A failure to understand the similarities and differences, and learn from them, would be a grave mistake indeed. 

 

 

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