Month: June 2016

Showing a little flexibility?

In the short time since I began blogging, I seem to have focused entirely on Japan, and largely on issues related to labor markets. This was not my original intention, but for now, let me add one more piece on this theme.

There have been a number of articles in recent months along the lines that ‘Womenomics’ is failing in Japan and, specifically that targets set in this area by the Abe administration will not be met ( Many of these pieces make excellent points, and commitments by the government need to  be monitored closely. At the same time, we should perhaps not be surprised that changes in this area may not come as quickly as many of us would have liked.

Still, data in the last several years do offer reason for at least cautious optimism. First, the rise in overall labor force participation in Japan has been driven for the last several years by women. At the same time, the well-known “M-shaped” profile of female labor force participation in Japan is becoming less pronounced, suggesting that the pattern of women leaving the labor force for child-rearing, never to return, is being challenged (see Figures below, courtesy of Chie Aoyagi).

And in the last several days, there are some tentative signs thatJapanese employers are increasingly open to the sorts of flexible work environments that can make labor force participation by both women and men easier, including by allowing families to care for children and the rapidly-increasing elderly population while maintaining careers. Toyota recently announced ( a plan to allow around 20 percent of its workforce almost unlimited work from home. Of course, Toyota is just one company, but its not just any company, so others may well follow. Similarly, the central government announced  ( that workers will be encouraged to work more flexibly during the summer and to leave the office by 5:00 pm. (Admittedly, the fact that Tokyo’s Kasumigaseki district will experience “lights out” only at 8:00 pm makes one a bit skeptical and I can’t shake images of my Ministry of Finance friends working late into the night by flashlight!)

Can it be that the tightening labor market of the last several years and the longer-term decline in the Japanese labor force are finally beginning to push the public and private sectors to make changes to ease “work-life balance” and raise worker participation and productivity? And what sorts of broader social changes will a shrinking and aging population bring about? As usual, more questions than answers…




The half-life of institutions

I’m continuing my travels back to the days when Japan’s economy was the envy of all. This time, I’ve been reading a 1979 best-seller, “Japan as Number 1,” by Harvard Professor Ezra Vogel. Not everyone’s idea of a beach read, I know, but I’ve found it interesting from a number of perspectives, most notably for the view it provides on shifting views of what makes for good political and economic institutions.

Vogel was writing at a time when Japan’s economic success was viewed in the US with a mix of fascination and alarm. What’s fascinating is that many of the characteristics seen as critical to Japan’s success in 1979 are nearly identical to those pointed to as holding Japan back now:

* A lifetime employment model was seen as providing incentives for on-the-job training while strengthening worker loyalty, both raising productivity.

* A strong nexus among big business, banks, and government. Close links between firms and banks assured stable financing, while government–led by the Ministry of Industry and Trade (MITI)–implemented a sort of “industrial policy lite.” This was viewed as generating a more rational industrial structure and aiding in Japan’s competitiveness.

* Limited shareholder pressure. The relative lack of equity financing allowed firms to eschew a focus on short-term profit-making and to take long-term strategic positions, including by investing in new plant and equipment and R&D.

* Political stability. Japan’s politics was (as today) dominated by the conservative LDP. A pipeline of Prime Ministers was developed well in advance, while an elite bureaucracy exerted significant control over policy, even as political leadership changed. It is argued that this, again, allowed a more rational and long-term approach to policy-making.

* Decision-making by consensus. More than simple “splitting the difference” compromise, the need for broad societal agreement was baked into policy design and supported by formal and informal participation by key interest groups–what we now disparage as “special interests.”

The overall view one gets is of a hyper-rational system, making use of information from a broad range of sources to bring about rapid and equitable growth with economic security. And who could really argue with the results? Over the 30 or so years following the end of World War II Japan created from the rubble a wealthy, highly educated and long-lived society that, in many ways, was Number 1.

What went wrong? Much has been written about the enormous equity and real estate bubble, the bursting of which led to the “Lost decades” beginning in 1992. And it is well-known that the historically unprecedented aging and shrinking of Japan’s population is weighing down economic growth and contributing to an enormous debt burden.

But what about Japan’s institutions? The highly praised lifetime employment model now represents a bit more than half of a dual labor market, with a large and growing group of non-regular worker, reform of which is seen as key to reviving growth. The close and complex relationship among large companies, banks and government is seen to have contributed to a delayed response to the financial difficulties of the 1990s. Corporate governance is a current focus of reform in Japan, with firms criticized for insufficient attention to efficiency and shareholder returns. And political stability and consensus decision-making is seen as standing in the way of much needed reform.

Why, in Japan’s case, did good institutions “go bad”? Were they simply overwhelmed by economic and demographic shocks? Were they optimal for long-run planning but less nimble in response to risks? Or were they designed for a period of economic catch-up but became less effective as society evolved and social cohesion declined? Do Japan’s institutions need tweaking or a major overhaul?

Answers to these questions are important not just for Japan, but for other Asian economies that borrowed at least pieces of the Japanese economic model in the 1979s and have experienced their own successes over a number of decades. I’m thinking here of Korea, which has had its own economic miracle but is now questioning the sustainability of its economic model. But other “Asian tigers” as well as China, may be wondering whether new institutions and policy frameworks are in order.