Pacific Money

Interview With David Pilling

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Pacific Money

Interview With David Pilling

The Diplomat’s Justin McDonnell spoke with the Financial Times Asia Editor David Pilling.

The Diplomat’s Justin McDonnell spoke with The Financial Times’ Asia Editor David Pilling about his book on Japan’s economic experience, Bending Adversity: Japan and the Art of Survival.

‘Bending Adversity’ is an interesting title for your book.  Could you tell our readers what you meant by it?

The title comes from a Japanese proverb, which roughly translates as “Bend Adversity and Turn it into Good Fortune.” I first heard it in the days immediately following the earthquake, tsunami and nuclear meltdown of March 2011. The man who quoted it, an old friend and retired senior Bank of Japan official, was referring to what he felt was the resilience of his countrymen. He described, for example, how people in Tokyo patiently lined up outside convenience stores, but then bought only one or two items – a carton of milk, one roll of toilet paper – for their personal use. (Of course there was hoarding, and even crime. But this was on a very low scale and didn’t compare with the sort of social breakdown you saw in New Orleans after Hurricane Katrina.) Somehow, even after two so-called “Lost Decades,”the fabric of Japanese society had held together. Without in any way wishing to romanticize Japan, I wanted to explore its history of “bending adversity,” both in recent years and in more distant ones. Japan’s sense of itself has been shaped by this feeling of vulnerability, both to earthquakes, tsunamis and volcanoes and to geographical and political isolation. Japan can sometimes feel like a country, in Pico Iyer’s phrase, that is “primed for adversity”.

As you were writing the book and doing your research, what were some of the insights that surprised you along the way?

I’d lived in Japan for seven years from 2002-2008, so I had a reasonable idea of some of the things I wanted to write about before I started.

For example, I wanted to demonstrate that Japan is not the consensual society of repute. Of course, there is a self-image that sees the Japanese people as living as part of a group and as being part of a homogeneous society. But in truth, Japanese society is more divided and more vibrant than we – and even the Japanese themselves – often give it credit for. So the book has lots of Japanese people talking and arguing. They discuss urgent matters of the day, whether it be around economic survival, differing views of history or opinions about youth culture and relations between the sexes. Through these conversations and “voices,” I wanted to present a more complex, more nuanced portrait of modern Japan.

I also wanted to challenge the idea that the past 20 years have been entirely lost. Of course, 1990 was a big shock to the system. Since then asset prices have collapsed, deflation has set in and Japan has lost its “mojo”. No one is disputing that. But in some ways, Japan has not done as badly as people think. Strip out deflation and the fact that the Japanese population has not been growing and, on a real per capita basis, Japan holds its own against many other western nations, such as the UK. In the 1990s, which by many yardsticks was a dire decade for Japan, the economy grew at a real 1 per cent a year, the same as Switzerland. But whoever heard of Switzerland’s Lost Decade? Japan’s unemployment never rose much above 5 per cent. Crime has remained very low. Life expectancy is now the highest in the world. More than 50 of the top 500 companies of the world by revenue are Japanese. To describe Japan simply as a failure is to miss out on this, other, side of the story.

As for surprises during the research, I became captivated with the life of Yukichi Fukuzawa. I’d seen him many times on the back of the 10,000 yen note. But I didn’t know much about him. He was a low-ranking samurai and one of the intellectual powerhouses of the Meiji Restoration when Japan ditched feudalism and began to rapidly modernize. Many of Fukuzawa’s words read as though they were written yesterday. He describes how he abhors hierarchy and refused to bow to anyone or to have anyone demean themselves by bowing to him. To this day bowing is frowned up at Keio University, the institution he founded.

This was a time of extraordinary intellectual ferment. One of my favourite stories comes from a period slightly earlier than Fukuzawa.  A student of western science got hold of a German book of anatomy. At this time the Europeans were not held in great esteem, frequently described as “hairy goblins” who lifted one leg, like dogs, when they urinated. This student took the book to an execution ground and performed an autopsy on a recently executed woman, a petty criminal. To his surprise, he discovered that the European book was much more accurate than the Chinese one. You can see the intellectual lightbulb going off: the “goblins” were not so backward after all. The European Enlightenment had advanced scientific progress and allowed the individual to interrogate the world around, not just rely on the “wisdom” of his elders and betters as Confucianism tended to dictate.

When the Black Ships of Commodore Matthew Perry turned up in Tokyo Bay in 1853, a clique of samurai realised that unless Japan modernized, Japan would become dominated by technically superior foreigners. This triggered Japan’s rejection of Sinocentricism and its embrace of European learning. To me this had huge resonance and began to explain Japan’s sense of its own exceptionalism and the background to the bitter relations that still exist between Japan and China.

Abe’s plan to revitalize the country, dubbed “Abenomics” seems to be working to some extent. Monetary easing and fiscal expansioave succeeded. However, uncertainty abounds with Japan’s long-term structural reforms. Much will depend on encouraging more women in the workforce and finding a solution to Japan’s population crisis. Are you optimistic about Abe’s turnaround plan to reinvigorate the economy?

I think if Abe’s plan works – and that is a big if – Japan will be in a better position to tackle many of its other problems. If it can achieve stable inflation of around 2 per cent and real growth of say 1 per cent, or preferably a little more, then it will be growing in nominal terms at 3 per cent or above. That is far better than being stuck in deflation. It could make everything look much better: tax collection would improve as would corporate profits and the incentives to spend and invest. With mild inflation, the debt situation would also look less worrying, so long as Japan can avoid a sudden spike in interest rates.

However, as you rightly point out, sustainable inflation alone would not address many of Japan’s other problems. As a colleague of mine put it, “you can’t print babies”. You can’t solve Japan’s demographic challenge through inflation. You can’t radically change Japan’s attitude to women in business, you can’t change immigration policy. You can’t print an entrepreneurial culture or a venture capital infrastructure. Monetary policy can achieve only so much.

 Why are women Japan’s most “neglected resource?”

Women are every bit as well educated as men in Japan. In fact, they attend university in greater numbers. But this level of education and expertise is not reflected in the workplace. Women tend to do far more menial jobs and are more or less expected to give up their careers when they marry. If they return to work, as many do, it is generally in lower-level positions, or in part-time jobs.

When Japan was a catch-up manufacturing economy you could argue that – from a purely economic, if not a social point of view – this didn’t matter too much. Japan’s economy, after all, was growing at 10 percent a year for much of this period. But in today’s information age, when Japan would benefit from being more open, more international, more innovative, bringing a whole new perspective could help achieve that. Women could play a big role in this.

Also, unless women feel as though they can “have it all” – a rewarding career as well as a family – they will continue to have fewer children. Japan needs women to work more and have more children. But women have effectively refused to accept these demands under current conditions. They have gone “on strike.” That is one important reason why the fertility rate has fallen to 1.4, well below the level of 2.1 needed to keep a population stable.  Japan will need to transform its attitude to women if they are to contribute to society as fully as they are able.

Ties with South Korea and China have been strained, largely due to Japan’s imperial past, aggravated most recently by Prime Minister Shinzo Abe’s visit to the Yasukuni shrine, honoring convicted war criminals.  Both countries also say that Japan needs to apologize for their wartime atrocities. Japan says it has apologized for its past, yet neither China nor South Korea are willing to recognize it.  Has Japan admitted its past mistakes, or is something else driving the ongoing political drama between neighboring countries? Could it be Abe’s moves to abandon Japan’s pacifist policy and reinterpret Article 9 of the Japanese constitution?

Japan has not come as clean about its war record as have the Germans. (There are important reasons for this, including the exoneration of the Emperor by the Americans and the nuclear bombings of Hiroshima and Nagasaki.) On the other hand, Japan has apologized numerous times in fairly fulsome terms and spent billions of dollars in both China and South Korea in lieu of war reparations. It is fair to say that Beijing has found it very useful to keep anti-Japanese sentiment alive and to refuse to accept Japanese apologies. The Chinese Communist Party needs a nationalist narrative for its own legitimacy. It has also radicalized a whole generation by emphasizing Japanese atrocities. Having unleashed this force, it is hard to control it. Abe is both a reaction to this and a provocation. Japan and China are in a dangerous phase of upping the ante, with each action prompting a counter-measure that escalates things further. Abe would like to change the constitution. In reality he will find it hard to do so because most Japanese remain attached to the pacifist clause 9 in that document and will not want to repeal it. Any constitutional change must be ratified in a referendum.

Japan also needs to implement trade liberalization to remain competitive, but faces hurdles with tariffs on Japanese farm produce and greater access to the auto industry.  It’s also facing opposition at home to joining the Trans-Pacific Partnership. How important is it for Japan to be a part of the proposed TPP? 

I think joining the TPP would help shake Japan up a bit and this would largely be for the better. Japan’s future, as a shrinking, ageing economy, lies in becoming ever more global. To some extent it will become a rentier economy, employing its capital and knowhow to generate income from foreign markets and foreign investments. The more open and competitive it is, the better it will be able do at this. However, we shouldn’t exaggerate. Japan’s farming sector makes up about 1 percent of GDP. Even doubling the productivity of agriculture would not, on its own, move the needle much macro-economically. Whether or not the TPP is a success is also largely beyond Japan’s control. At the moment, the biggest single obstacle to concluding a deal is the absence of Fast Track [authority] for Barack Obama. Without this, it seems very unlikely that a deal will be struck at all.