The world’s inconsistent attitude to Japan is captured brilliantly by the vicissitudes of Nintendo
The world’s inconsistent attitude to Japan is captured brilliantly by the vicissitudes of Nintendo

Scandal, debt and poverty, but Japan's stock continues to rise

posted by Paul Simpson
25 January 2017

Japan is probably the definitive example of a country where a little knowledge is worse than complete ignorance.

There is, as David Pilling, formerly the FT’s Japan correspondent, wrote a “relentless pessimism, a sneering bitterness in much writing about Japan that I found hard to reconcile with the comfortable society around me.”

Pilling was assigned to Japan after the end of the country’s first ‘lost decade’ of economic and social stagnation and at the start of another such decade – at least that is how the Western media would have it. He sums up the foreign consensus succinctly: “Japan, we are told, is unable to rejuvenate and so must continue to sink. Its industry is dying, its women are suppressed and its people are suicidal, it’s society closed and its debt unpayable.”

There is plenty of debt: standing at 125% of GDP, which sounds scarily high, but most of it is held in Japan so sudden outflows of funds are unlikely. It’s true, too, that the country’s industry is no longer the force it was. Scandals have plagued Japan Inc with Toshiba, Dentsu, Mitsubishi Motors, Olympus, construction giant Toa (which admitted to saying its airport projects were more quake-resistant than they actually were) and cosmetics giant Kanebo (which had to restate profits for four out of five years) all hitting headlines for the wrong reasons.

The revelations also raised questions about the quality of corporate governance; an issue prime minister Shinzo Abe has addressed with legislation, which even the august Financial Times admitted, has improved matters.

As Pilling concedes, there is poverty in Japan – one in six children are poor – but it is significantly lower than average for a major economy and is complicated, in some instances, by a social stigma that prevents families from claiming benefits they are entitled to.

What Japan doesn’t have is the exponentially increasing wealth gap between CEO and ordinary salaried worker. The top 1% own around 9% of the wealth which makes, according to the Credit Suisse Research Institute, it more egalitarian than even Norway or Sweden. (The comparable figures for the UK and US are 24% and 40% respectively.) There is a gap between salaried workers and temporary staff – the latter earn half of the former’s wages.

There has also been a spate of well-publicised deaths directly or indirectly caused by over-work – one such incident led Tadashi Ishii, president of Dentsu, Japan’s largest ad agency, to quit in December. Keidanren, the organisation that represents Japanese business, has responded by calling on firms to curb excessive overtime and, for the fourth year running, to raise wages.

Yet few Japanese citizens seem to be gripped by the populist anger, or furious sense of betrayal, that fuelled Brexit and Donald Trump. Although Japan, like many other societies, is in a period of transition – and remains unclear about what it is transitioning to – you get a sense, travelling around the country, of a society that remains largely comfortable with itself in a way that the US, UK and Germany genuinely aren’t. 

This is the kind of asset, though that is hard to factor in to the data-driven analyses of GDP growth and so popular with economists, consultants and organisations like the IMF and the World Bank.

How do you put a financial value on social cohesion? This resilience helped, as Pilling points out in his book Bending Adversity, the country come back from the 2011 Fukushima disaster – the shock from the quake and tsunami that sent the nuclear plant into meltdown was so great it knocked the earth ever so slightly off its axis – and that recovery was, as he puts it, driven by the fortitude of the people, not the government. The initiative shown by ordinary citizens in this catastrophe suggests that the idea that Japan is a society driven by top-down authority and deference is yet another simplification.

Japan may no longer be seen as the country where the future is being invented, as it was in the late 1980s, when management gurus and CEOs from all over the world flocked there to discover its secrets. Yet to portray it as an economy and society in inexorable decline – as so many Western commentators gleefully have – is an absurd over-simplification.

The world’s inconsistent attitude to Japan is captured brilliantly by the vicissitudes of Nintendo. Originally hailed as an innovative pioneer of computer games, it was perceived to have lost its mojo, then praised for breaking the mould with the Wii console (which all the family could use) and then vilified for the mediocre Wii U.  Then late last year, the global success of the Pokemon Go augmented reality smartphone app sent Nintendo shares soaring 25% until analysts realised, which the company had already made clear, that it didn’t wholly own the app. No doubt the whole cycle will resume when its next console, the Switch, is launched in March.

Nintendo – and Japan – will continue to do better than their critics insist and a bit worse than they might hope. In both cases, as Pilling argues, a little knowledge is probably less useful than complete ignorance.

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