William J. Holstein

Seven Myths About Japanese “Decline”
TOKYO, July 29--

There is such a stunning gap between the images of Japan being promulgated by the American media and the reality of being on the ground in Japan, a subject I will keep turning to in coming days.

I thought it might be useful here to simply name the various myths, and briefly rebut them.

1. MYTH: Japan’s population is declining and aging, so the nation is failing.
REALITY: Yes, the population has started declining from 127 million, but the Japanese see this as positive in many ways. Their islands have become too crowded and too expensive, so some easing of population pressure is a good thing, as Japanese women defer marriage and child-bearing. And the nation does not need as many people because it has achieved the vast majority of its national objectives--economic parity with the West and a world-class technology base. Since it emerged from isolation, the Japanese built up their population from a mere 30 million to the current level. This was a tool of nation-building. It is no longer necessary.

2. MYTH: The nation’s economic growth rate is only 2 or 3 percent, so it is failing.
REALITY: With its population in decline, the Japanese don't need 4 or 5 percent growth, which is the rate that most American economists deem "healthy." One reason Americans assume the U.S. needs that rate of economic growth is because we have to accommodate so many immigrants. American commentators project that set of values in assessing the Japanese economy. But Japan has only minimal immigration (some 2 million people out of a population of 127 million) and its population is declining, so it does not need any real growth. Plus, its economy is so large--still the second largest in the world--that even modest growth creates a great deal of wealth.

3. MYTH: Japan has such a large national deficit that it is on the brink of becoming “another Greece.”
REALITY: It's true that the government has racked up $9 trillion or so in debt, but the government owes that money to the Japanese people and their financial institutions. In sharp contrast with the situation facing the United States, the Japanese do not have foreign governments in a position of exercising influence over their domestic affairs. Japanese household assets are estimated at $15 trillion, so Japan is still a net creditor nation. The American government, including state and local levels, owe perhaps $100 trillion, and the Americans saving rate is still near zero.

4. MYTH: China is about to become the second largest economy in the world, passing Japan, so therefore the Chinese are “beating” the Japanese.
REALITY: Yes, it appears certain that China will become the second largest economy in the world, and quite soon, but that does not mean the Chinese are beating the Japanese. Owing to the size of their population alone, China should be the second largest and ultimately the largest economy in the world. The key litmus test is not the size of economies, but their relative sophistication and their relative living standards. By those measures, the Japanese possess huge advantages over the Chinese in most every respect--technology, infrastructure, living standards and the like.

5. MYTH: Japan’s politics are a mess, so therefore the Japanese are suffering economically.
REALITY: As in my previous blog, yes, Japanese politics are in complete shambles, but politicians don't really govern Japan, as they do in the United States. They are like a daily soap opera, meant to entertain the masses. Real power in Japan is exercised by key ministries and large industrial groups. It's very difficult to pin down precisely who makes what major decision because it happens away from public view. These bureaucrats and industrialists are the society's elite, and they have done an excellent job in promoting Japanese wealth and well-being.

6. MYTH: Japan is suffering deflation, and that is bad.
REALITY: With the yen at 87 to the dollar, it's hard for the foreigner to get a sense of any deflation in Japan. A cup of coffee at a hotel in central Tokyo is $10. If there is any deflation in Japan, it is probably a positive thing because it means that real estate prices and the overall cost of living may decline. The notion that a burst of deflation is going to rip the Japanese economy apart is just Western fantasy.

7. MYTH: Japan has suffered through two "lost decades."
REALITY: Yes, the Japanese financial and real estate bubble of the late 1980s burst and that inflicted real pain on the banking system. But the society and economy, taken as a whole, have clearly advanced during those decades. Tokyo is now arguably the finest, most modern city in the world, making New York look increasingly like a faded capital. The quality of life that the Japanese are enjoying is excellent on the whole. Plus, they have the peace of mind in knowing that they are a net creditor nation. They have wealth and a strong technology base.