Japan's Abe faces challenge to broaden recovery

AP News
Posted: Feb 18, 2014 3:40 AM

TOKYO (AP) — Japan's prime minister Shinzo Abe has ticked off the easy items on his to-do list for economic revival.

Flashy indicators show that factories are churning out more cars and electronics. Corporate profits are up. Stock prices have surged 30 percent in the past year.

Despite his brash declaration that "Japan is back" in a speech last September to the New York Stock Exchange, Abe faces a thornier challenge in ensuring that his "Abenomics" recovery spreads beyond boardrooms to the Japanese people.

Over the past two decades Japan's system of salaried jobs with full benefits has crumbled as companies struggled to stay afloat in cut-throat global markets, shifting much of their manufacturing overseas. Steady jobs in manufacturing and finance that moved abroad or became obsolete were replaced by low-paying service jobs such as clerking in convenience stores and delivery work, especially for workers under 40.

About 40 percent of Japan's workers, or triple the figure of just 30 years ago, are employed under part-time or non-regular contracts that pay far less than "salaryman" type jobs of the past. That hollowing out is undercutting the domestic demand that powers nearly three-quarters of business activity within Japan, compounding the effects of a shrinking and aging population.

"Up to now, it's all been a minus," said retiree Takeshi Onodera, when asked about Abenomics. "I don't see any signs it's made a difference."

"Really, it hasn't reached us."

Economic growth picked up modestly last year to 1.6 percent but fell short of expectations in the fourth quarter, prompting the Bank of Japan to Tuesday top up its already plentiful stimulus.

Onodera's pessimism is shared by some experts. They say the social and economic forces at play in Japan for more than a generation, are too powerful to be overcome by Abe's prescription of big government spending, lavish monetary easing, a weak yen and dismantling barriers to competition.

Japan's median household income of 3.8 million yen ($38,700) in 2012 was down from 4.5 million yen in 1997. Today's workers are worse off than their parents and their incomes continued to fall in 2013 even as the initial successes of Abe's policies rolled in.

On top of that, living costs are rising as Abe's weak yen policy that favors Japan's exporters pushes up the cost of imported fuel and other goods.

Employers are reluctant to raise wages, a measure vital for an enduring recovery. Japanese consumers will take another hit in April when sales tax is raised to 8 percent from 5 percent to help bridge the government's yawning budget deficit.

"Our parents just saved money in the bank without really thinking about it. For us, it's really difficult to save money," said Hideo Sone, a 40-year-old machinery factory worker.

"We want to buy a house but it looks like repaying the money before retirement might be difficult," said his wife, Natsuko.

Many younger workers stuck in part-time or temporary jobs, with no benefits, only manage by living with their parents, said Seiichi Inagaki, a visiting professor at the Tokyo Institute of Technology. "It is unavoidable for them that the poverty rate will rise," said Inagaki, a former welfare ministry official.

Speaking in parliament this month, Abe acknowledged that rising company profits haven't gone into wages but insisted increases are inevitable as the economy picks up.

Flat or declining incomes were bearable until recently because the stagnation that followed the bursting of Japan's bubble economy in the early 1990s was characterized by falling prices, or deflation. Now, costs are rising, with consumer prices up last year for the first time in half a decade.

Many companies are balking at Abe's calls for higher wages, which they can ill afford. Some that have profited from the weaker yen are promising modest wage hikes for upcoming spring labor talks, but many other businesses, especially the smaller ones that employ a majority of Japanese, are being squeezed by higher costs for imported components and energy.

"Business and political circles do want to revive our economy, but without giving labor a bigger share of the economic pie obviously it won't happen," said Kenji Utsunomiya, a two-time candidate for Tokyo governor.

University Corruption
Walter E. Williams

As Abe's government weighs corporate and broader public interests, industry appears to have the upper hand.

Despite the famed efficiency of its automakers and other manufacturers, Japan ranks 20th out of 20 among the world's richest economies in terms of how productive its workers are. So the government plans to designate some areas of the country as "special zones" for reforming labor laws and restrictions that Abe says are hindering innovation and competition.

But proposals to make it easier to fire permanent employees and for exempting companies from giving white-collar workers overtime pay worry labor advocates.

"I'm especially concerned about the idea of special economic zones. They seem to be aiming for a situation in which companies can fire and hire people with really very little constraint," said Noriko Hama, a professor at Kyoto's Doshisha University.

With government finances strained by Japan's record-busting national debt, the country's already Spartan social safety net is being cut further.

Japan's unemployment rate is low compared with Europe and the U.S., but welfare rolls have risen to record levels as single parents and growing numbers of seniors lacking enough pension income seek help. To counter rising costs, monthly payments were cut by up to 10 percent last August, and further reductions are planned.

Toshio Hirota, 72, is feeling the squeeze as government cuts support payments for his wife and two young stepchildren.

Plans to cut corporate taxes to encourage companies to raise wages, step up innovation and boost investments don't sit well with him.

"The money is just going to the big companies, and they're just moving the jobs overseas," said Hirota. "We are not feeling any benefit from this."