Sunday, April 24, 2011

Is Japan the Future? (part 3)

4. The No-Relationship Society

"Decreasing suicides would be one way to build a society with a minimum level of unhappiness”
Japanese prime minister Naoto Kan

One of the main objections to the mass consumer society is that it impoverishes human relationships. It is a fundamentally materialistic view of the world - one that says we can only achieve happiness and satisfaction by producing and consuming more and more. Certainly having a certain basic standard of living is necessary for well-being. But countless psychological studies and surveys have shown that once a certain standard of living is met, more work and consumption has no effect whatsoever on happiness. Often happiness has more to with the type of society you live in and what your expectations are than with some objective material standard like whether you have a flashy car or the latest cell phone.

A Japanese villager of a hundred years ago could not even comprehend the lifestyle of his great-great grandchildren. Color TVs, video games, foreign travel, automobiles, high-speed trains, karaoke bars, pachinko parlors, 3D movies, Manga, the Internet, robot pets, automated toilets; by all measures the material standards of the average Japanese person are greater than even the emperors of past eras. Thus, the Japanese people today must be infinitely happier than their ancestors, who must have been miserable working in rice paddies all day long. The evidence does not bear this out, however. Japan has probably the world's highest rate of suicide. On average about 90 Japanese people take their own lives every single day, and the sucide rate has been over 30,000 for 12 straight years. Instructions on how to commit suicide abound on the internet in Japan, including how to mix common household chemicals to make poison gas, and how to use a charocal grill to asphyxiate yourself ("death by hibachi"). A survey by the Japanese government in 2008 showed that one in five Japanese men and women had seriously thought of taking their own life. The government in Japan says suicides and depression cost its economy almost 32 billion dollars in 2009. The figures refer to lost incomes and the cost of treatment (by way of comparision, Japan's export surplus was 38 billion dollars).

How is this possible? What's going on here? If material wealth is supposed to make people happy, shouldn't the Japanese be the happiest people on earth? Even Japanese people who lose their jobs do not face anywhere near the destitution that would be faced by the average person in a "developing" country. Even in some of the poorest parts of the world, the suicide rate is nowhere near as high.

In 2010 NHK (Japan's televison network) aired a documentary called Muen Shakai - The no-relationship society. It explored the epidemic of Japan's elderly dying alone, often with no one knowing they were dead for weeks, or even months at a time:

Traditional community relationships withered with modernization in the late 19th century and died in the mid-20th. Family relationships are faring little better. An economy denying many people a foothold, combined with communications technology that joins us virtually but isolates us concretely, have left the individual largely on his or her own – for better and for worse.

Dying alone is something one naturally associates with the elderly, but Shukan Jitsuwa (Feb 24) finds it increasingly common among young people too.

A certain “A-san,” a 37-year-old Tokyo IT professional, offers a cautionary case study, though he survived. His social instincts never developed, his work keeps him glued to his computer screen, and although he lives in one of the most crowded cities on Earth, people are simply not part of his life. Convenience store bentos see him through three meals a day; the containers pile up in his apartment because he fell out of the habit of taking out the garbage and there was no one around to prod him. It’s not the healthiest lifestyle, and last year when the flu was going around, he succumbed. His fever rose. Helpless, he eventually lost consciousness. He might have died if his octogenarian parents, worried over his failure to answer his cell phone, had not paid him an unaccustomed visit, and called an ambulance.

There’s a company called Keepers whose business it is to dispose of possessions left behind by those who die in solitude. Its director, Taichi Yoshida, tells Shukan Jitsuwa, “Lately we’re seeing more young people dying alone. Nearly 20% of our business involves people in their 40s and 50s.”

One thing he’s noticed: “Many young people who died alone owned several computers but not a single TV.”

And something else: “Nowadays there’s a style of dining that exists somewhere between dining out and dining in. When you go out to eat, you interact with people in the restaurant. When you cook for yourself, you make some sort of personal connection in the store where you buy your ingredients, with the staff or with other customers. But when you eat prepared foods exclusively, something you just pop into the microwave, you connect with nobody.”

Modern hyper-convenience, by making isolation easy, indirectly encourages it, he finds.

Yoshida’s unusual calling has made him philosophical. “In today’s Japan,” he observes, “neither the family nor society has any control over the individual. Things are set up in such a way that the individual can live exactly as he or she likes.”

That sounds good, but the isolating impact of absolute freedom has yet to be sufficiently explored.

Comments to the article on Shukan Jitsuwa seen to bear out the isolating nature of modern Japan:

- How many times do you see people smile in Tokyo? I’ve lived here for years, months go by without seeing someone smile. Trains are like libraries, the streets are quiet. People in this country just don’t communicate or interact effectively with other human beings. They’re all “in the zone” – oblivious to what’s going on around them, unable to respond or deal with humans on a one-on-one or spontaneous setting.

- Everything in Tokyo is insular and isolating. Cell phones, Ipods/pads, game players. How often do you see a circle of teens all on their phones and not even talking to each other? At least three or four times a day and I don’t spend much time around kids.

- At work no one talks. On the train people are too busy fighting for that 1cm of space. No one smiles. No one talks. And the 30-50 year old guys on my train route have the expressions of reanimated zombies who are not happy to be back from the grave.

- Tokyo is a a social desert. X million people living in isolation in the same physical area. Sex is in decline, friendship rare, social circles a myth and interpersonal skills illusory. Sad!

These comments paint a grim picture of urban alienation and anomie. The situation is much the same everywhere in the age of cell phones and "personal entertainment." We prefer what is on the screen to interacting with other human beings. We are so wrapped up in our cell phone games, our iPods and our Sudoku that we do not notice the world around us. Everything is "personalized" and convenient so we do not have to rely on others. Relationships fade away. Yukio Shige, a retired policeman, voluntarily patrols Tojimbo Cliffs, above the sea of Japan, where many people go to commit suicide. He has saved 150 people - more men than women - who planned to end their own life.

"Takanori", a young man in his mid-20s who asked not to have his real name used, is one of them.

A few months ago he came to the cliffs intending to throw himself into the sea after losing his job.

Standing on the cliff edge, he recalls what drove him to such desperation.

"I went to the unemployment office, but there was only training and help for older people," he says.

"People of my age were supposed to cope with this difficult situation alone. There was no help for me at all."

Was the situation the same a hundred years ago? Two hundred years ago? Was suicide just as common in pre-industrial Japan? Is more growth going to solve this problem, or make it worse? Maybe the Japanese are just different from everyone else in the world. The economic situation for most Americans is even more precarious, yet we do not have as high a suicide rate. What is known is that suicides everywhere follow the trajectory of an economy - they increase in economic downturns, and according to the magnitude of the downturn. What is the human cost of our roller-coaster economy? Things like job security, a secure retirement, personal relationships, vacations and lack of stress are anathema to the cult of economic growth. Wouldn't these be more valuable to the average person that more consumption? It is worth noting that according to surveys, Americans reported a maximum level of life satisfaction in 1959. If all our increasing material wealth isn't making us happier, what's the point?

5. Nihonkeizairon (Theories on the Japanese Economy)

Imagine a future world history where, fifty years from now, we look back and decide that Japan was the one country that made a semi-success of near-zero growth. Which means we are now watching a Golden Age there of sorts. I'm not betting on that, but if you're looking for strange scenarios that's my suggestion for the day.
-Economist Tyler Cowen

If Tyler Cowen's suggestion is right, we should consider how the Japanese have managed to live through two decades of low growth and yet still maintain one of the world's highest standards of living. Why is Japan still standing, whereas some countries are crumbling after only two years of recession? What ingredients made this possible, and what can the rest of the world learn from it? Let us consider a few characteristics of Japan's economy and culture:

1. The Japanese bent over backwards to preserve jobs. Unlike in the United States, Japanese firms have loyalty to their workers, and do not treat them as disposable commodities. Bailouts went to preserve jobs, rather than ending up as bonuses for super-rich bankers and hedge-fund managers. According to Wikipedia:

But Tokyo's bail-out package came at a price. Free to lend again, banks simply used funds to keep countless "zombie" companies afloat, so great was the desire to avoid bankruptcy and mass unemployment. [emphasis mine].

Consider also this snippet from the BBC News article cited above:

...But smaller businesses cannot do that and are seeing profit margins on their export sales hit hard.

"We will get the people together to re-think the new strategy. That is our way to survive," says Hideyuki Amamiya, president of a third generation family company, Atago, which provides high-tech testing equipment to the food industry.

But when asked whether he will lay off staff, he shakes his head.

That would be unthinkable, such is his loyalty to the workforce. [emphasis mine]

Contrast this to the employment at will regime in America. Japan's official unemployment rate is half that of the U.S. While the lifetime employment system of post-war Japan has started to unravel, part-time and temporary contracts are still better than being without any job at all. Work has been shared, and sacrifices have been born by employers and employees alike, rather than put all on the backs of workers. This has also no doubt helped lessen the need for public assistance and kept Japan’s crime rate low. Contrast this with the United States:

The squeeze is widespread. A survey of American businesses conducted by the Society for Human Resource Management found that over the last six months of 2010, almost four in 10 companies laid off workers, froze wages and suspended bonuses. Twenty percent reduced employee benefits and six in 10 said they hadn't rehired any laid-off workers. Only 11 percent had “restructured executive compensation” – those in the executive suite appear to be doing OK.

And let's not forget the laid-off and furloughed government workers and widespread union busting.

2. Japanese society does not have the extremes of wealth and poverty as the United States. Consider the following article:

When Japan Airlines hit hard times in 2009 and began to lay off its staff, JAL CEO Haruka Nishimatsu cut his own pay to less than that of his pilots and eliminated all his perks. He now rides public transit to the office and eats in the employee cafeteria, standing in line with his colleagues.

Contrast this with the following story from the Associated Press on April 22:

Unions locked in wage negotiations with American Airlines accused the CEO of greed on Friday because he got an 11 percent boost in compensation, to $5.2 million, while the company was losing money.

Garry Drummond, director of the airline division at the Transport Workers Union, said CEO Gerard Arpey's increase was "almost beyond belief and certainly shameless."

The airline's other two unions also attacked the CEO's compensation. "Whatever happened to pay for actual performance?" said flight attendants' president Laura Glading.

Labor unions said their members haven't gotten raises since at least 2008. All three are in contract negotiations.

American has resisted wage increases, saying its labor costs are already too high. Two of the unions have asked federal officials for permission to start a countdown toward strikes, but the requests have not been granted.

In a regulatory filing Thursday, parent company AMR Corp. disclosed that Arpey received compensation valued at more than $5.2 million in 2010, when AMR was the only major U.S. airline operator to lose money. That was up from $4.7 million in 2009 because the value of Arpey's 2010 stock grants and options was higher than similar grants the year before.

The company said Arpey was paid below the median of CEOs at similarly sized companies.

Nor is this behavior unique:

Although pay for Japanese executives has more than doubled in the past decade, the government says, fewer than 300 people at Japan's 3,813 public companies earned enough in 2009 to require disclosure, according to PricewaterhouseCoopers. Companies listed on Japan's stock exchanges paid their chief executives an average of $580,000 in salary and other compensation last fiscal year, PWC estimates, about 16 times more than the typical Japanese worker. Average CEO pay at the 3,000 largest U.S. companies is $3.5 million, including stock options and bonuses, according to the Corporate Library, a research group.

Contrast this with CEO behavior in America, American CEO’s continue to award themselves ever more lavish salaries and bonuses, along with golden parachutes, no matter what the status of their company of the economy in general.

Last year, total compensation for CEOs averaged $11.4 million, up 23 percent from the previous year, according to data for 299 major companies.

CEOs at those 299 companies raked in a total of $3.4 billion. That's enough to support over 100,000 jobs that paying the median wage of just over $33,000.

Average CEO compensation is 343 times that median wage.

Ray Irani, the outgoing CEO of Occidental Petroleum Corp., took in $76.1 million in compensation last year. Over the last decade, he received $857 million. "We're not in the business to employ people. We're in the business to make a profit," Irani has said, according to the AP.

Evan at large financial services companies -- where the furor over bonuses was focused -- total compensation rose 5.7 percent in 2010, to a record $149 billion.

In 2010, median CEO pay in the United Sates jumped 27 percent, while worker wages rose 2.1 percent (and was quickly wiped out by inflation). Much of this growth that has justified these pay increases have come at the expense of American workers:

The fact that CEOs’ pay is rising along with stock prices underscores the disconnect between pay and companies’ true underlying performance, Lazonick says. While companies in the S&P 500 boosted profit 47% last year, much of that was due to cost-cutting and layoffs, not from the creation of businesses and growth, Lazonick says. Revenue, a gauge of the money flowing into businesses for selling goods and services, grew at a much slower pace than profit — and ended the year up just 7%.

The results are plain to see. According to the Economic Policy Institute, a liberal-leaning research group, the richest 20 percent of Americans saw their share of all Americans’ wealth increase by 2.2 percentage points between 2007 and 2009. The remaining four-fifth of Americans saw their wealth decline by the same amount. The top 20 percent of Americans by wealth controlled 87.2 percent of all wealth as of 2009, leaving the rest of the country with just 12.8 percent of all wealth. The top 20 percent did see their wealth shrink between 2007 and 2009 with a 16 percent average annualized decline in household wealth, while everyone else saw a 25 percent average annualized decline in household wealth during the same period.

3. Japanese have universal health care and an excellent educational system. The Japanese have the longest life spans in the world (although this is probably as much due to diet and genetics as health care). Still, Japan’s health care is widely regarded as among the world’s best systems, covering all its citizens at a tiny fraction of what the United States pays for healthcare, even with a large elderly population. Costs are tightly controlled by the government - every two years the Japanese health care industry and the Ministry of Health negotiate prices for every service and drug. Insurers must cover everyone are forbidden from turning down applicants, even with preexisting conditions. The government picks up the tab for those who cannot obtain coverage through work or are too poor to afford it (a ‘public option’). Japanese go to the doctor three times as often as Americans and get twice as many MRIs. Because there are no gatekeepers they can see any specialist they want. Eighty percent of hospitals are privately owned (more than in the U.S.) and almost every doctor’s office is a private business. Rather than gouging the citizenry for health care costs, hospital profits and doctors wages are actually considered to be too low! (an overnight stay in a hospital costs $10.00).

Again, compare to the United States:

- According to a report published in The American Journal of Medicine, medical bills cause more than 60 percent of the personal bankruptcies in the United States.

- According to that same study, approximately three-fourths of those that do go bankrupt because of medical bills actually do have health insurance.

- If you have an illness that requires intensive care for an extended period of time, it is really easy to rack up medical bills that total over 1 million dollars.

- It is estimated that hospitals overcharge Americans by about 10 billion dollars every single year.

- One study found that approximately 41 percent of working age Americans either have medical bill problems or are currently paying off medical debt.

- Health insurance premiums for small employers in the United States increased 180% between 1999 and 2009.

- Even as the rest of the country struggled with a deep recession, U.S. health insurance companies increased their profits by 56 percent during 2009 alone.

- Between 2000 and 2006, wages in the United States increased by 3.8%, but health care premiums increased by 87%.

- According to a report by Health Care for America Now, America's five biggest for-profit health insurance companies ended 2009 with a combined profit of $12.2 billion.

- The top executives at the five largest for-profit health insurance companies in the United States received nearly $200 million in total compensation in 2009.

- Health insurance premiums are once again soaring in 2011. Blue Shield of California recently announced plans to raise health insurance rates by an average of 30% to 35% this year, and some individual policy holders could actually see their health insurance premiums rise by a whopping 59 percent.

- There were more than two dozen pharmaceutical companies that made over a billion dollars in profits in 2008.

- Approximately 46 million Americans do not currently have any health insurance at all. That means that 46 million Americans are just one really bad day away from financial ruin without any protection whatsoever.

The public education system in Japan is excellent, offering a quality education to all citizens regardless of income. Private schools are relatively rare compared to other countries. Japanese students consistently rank near the top of educational achievement:

Japan has outperformed the U.S. in math and science on several international assessments of educational achievement. For example, the average math achievement score for 15-year-old Japanese students was 523 on the most recent Program for International Student Assessment (PISA). American students only scored 474. In science, Japanese students outperformed American students 531 to 489.

The Japanese school system is teaching math and science to students more effectively than the American school system, and it still has enough resources left over to implement a social curriculum, offer healthy food, and allow students to stay physically active during the school day. These are all great practices that American schools should consider borrowing.

Higher education is still, expensive, however, and many Japanese have to work and take out loans to attend college. It is still cheaper to attend college in Japan than the United States: the average cost for tuition, fees and living expenses per semester is $10,000 (1.4 million yen) as opposed to $12,000 at a public university and over $20,000 at a private university in the U.S. (and tuition and fees at public universities is rising due to budget cutbacks).

4. Japanese have advanced infrastructure and dense, compact cities. Due to Japan's geography, there was not much of a chance of urban sprawl. Still, the remarkable density and compactness of Japanese cities are legendary. Japanese homes are compact, efficient and uncluttered. 79 million Japanese, 70 percent of the total population, live in 209 complex urban centers:

Yet, in a mountainous country the approximate size of California but with the arable land area only twice the size of Massachusetts, Japan houses some 127 million people in a condition that is roughly ten times denser than the United States. In this situation, skyscrapers became inevitable given Japan’s prowess in manufacturing, shipping, information technology, financial services and the arts. Beyond economic rationale, however, density is a way of life in Japan. It is commonplace to find a bar on the eighth floor of a sliver building. In farming communities, freed from the moralizing madness of the Jeffersonian grid, housing is clustered together into tight communities with crop fields dispersed on the perimeter. Urbane society is the glue that holds the entire nation together.

This density has had beneficial effects on transportation. Japan has invested heavily in its infrastructure, which is among the world’s finest. Some 250 high-speed Shinkansen trains connect all major cities, and their punctuality is renowned. Dozens of train companies compete in local and regional transportation markets. There are 173 airports and extensive water transpiration. Infrastructure is efficient, modern, well designed and well maintained. Despite the high level of car ownership, the share of utilization of public transportation in Japan (of all transport modes) is 32%, compared with 8% in Germany, 6% in the UK and 1% in the U.S.

5. Government did not slash spending at the first sign of downturn, in fact it increased it. While this increase was done in misguided attempt to restart growth, it at least prevented the massive social fallout seen elsewhere. The Japanese did not spend the downturn reducing taxes on its wealthiest and most affluent citizens. The Japanese are not turning off their streetlights, or turning paved roads back into gravel. Unlike in the United States, the money for Japan’s deficit spending came primarily from the savings of it’s own citizens through the purchases of government bonds.

6. Japan is the second-largest creditor nation in the world (only recently surpassed by China), due to the Japanese attitudes of thrift and frugality. Japan was able to finance its own deficit spending due to its high savings rate. It’s bond ratings are excellent and its currency is strong. Creditor nations are much more stable and less vulnerable to economic shocks. There is also much more confidence in the economy of a creditor nation (since its money is ultimately backed by debt).

7. The Japanese restrict immigration. Japanese do not have to compete with waves of immigrants for jobs. Japan has only 15,000 immigrants a year, a drop in the bucket. The United States, by contrast, allows in millions of legal and illegal immigrants every year, particularly from Latin America. This puts downward pressure on wages. Illegal immigrant workers are easily exploited, while H1-B visas for professional work are used by employers who want to pay lower wages than the American average. The notion of “worker shortages” or “jobs Americans don’t want” are shams promoted by the business community to continue these policies.

8. The Japanese do not spend lavishly on the military, nor do they engage in costly foreign wars. In fact, since the end of World War 2, the Japanese defense force is forbidden by the constitution to engage in operations outside of Japanese territory except for humanitarian missions. Spending on defense (which truly is for defense) as a percentage of the overall economy is quite small, accounting for about 6-7 percent of the budget and around 1 percent of GDP. In the United States, military spending is well over a third of the nation’s budget once costs for wars, veterans care and other expenses are factored in. The United States spending on "defense" nearly equals that of all other nations combined.

9. Japan is an exporting nation. Unlike the United States, Japan maintained its industrial base rather than shipping it to other countries. High-tech manufacturing continues to be a major part of the Japanese economy, including cars, electronics, and heavy equipment:

Factory work in the U.S. is widely viewed as a dead-end job for losers, something you take grudgingly after all other avenues of livelihood have vanished… This is not the case in Germany and Japan. Employment in manufacturing and factories is still respected as a worthy profession.

Japan and Germany actively promote and preserve manufacturing and industry. The U.S. actively drives manufacturing abroad with high taxes and oppressive regulatory bureaucracy. If you doubt this, please accompany company officials as they gather permits to expand a factory in Japan, Germany or China, and then do so in California.

In the United States, by contrast, we prefer to “innovate” in toxic financial products rather than in electronics or industry. Forty percent of the United Sates economy consists of the nontradeable FIRE economy (finance, insurance, real estate), that is, unproductive money shuffling.

So, broadly, what are the keys to success?” 1.) egalitarianism 2.) active, involved government 3.) universal social insurance 4.) worker’s rights 5.) quality education for all 8.) good infrastructure 9.) positive trade balance. 10) High domestic saving. As Paul Krugman has noted:

Well, I’m sure I’m not the only person to notice this: Japan doesn’t look so bad these days.

For one thing, the famed sluggishness of Japanese policy — the refusal to face up to banking system losses and pour in the funds needed to recapitalize the system, the refusal to let zombie banks die, the stop-go nature of fiscal policy, with concerns about rising debt warring with concerns about the economy — all of that seems entirely comprehensible now, doesn’t it? Even with the knowledge of what happened to Japan to motivate us, so far we’re following exactly the same path.

And given what the next couple of years are likely to look like, Japan’s lost decade — yes, growth was slow, but there wasn’t mass unemployment or mass suffering — is actually starting to look pretty good. We may or may not be about to face our own lost decade, but the sheer misery millions of Americans will face in the near future probably exceeds anything that happened in Japan during the 90s.

I still hope we can do better than the Japanese did, but it’s not at all obvious that we will. [emphasis mine]

When we look at what the Japanese have done well, we cannot help but notice that the U.S. is doing the exact opposite in every instance. In fact, the moves Japan has taken are exactly what economic “experts” are saying must be stopped if Japan is to “grow” again. Steps need to be taken to unleash the “creative destruction” of capitalism, they are told by economists, for economic growth to return. In other words, the people must suffer to bring growth back. Yet the United States, embracing this idea, has experienced nothing but decline and dysfunction, with falling living standards for most Americans outside of the very rich for decades. It appears that the “creative destruction” of capitalism is merely finding creative ways to destroy society for the benefit of the elites.

We do not have to turn to collectivism and give up our individualism, which can also have benefits. The Japanese culture is unique – we do not have to transform ourselves into Japan. But the lesson is that we do need to cooperate and work together. Turning on each other is a sure fire way to hasten our downfall. Our politicians are currently playing Americans against each other – black versus white, immigrant versus native, union versus non-union, employed versus unemployed, middle-class versus poor, rural and suburban versus urban. Fundamentally, Japan’s ability to cope with their economic troubles and still maintain a society worth living in is due to the fact that they recognize society is a collective enterprise, and that they are all in it together. Individuals cannot prosper apart from a wider society. In the future of low or no growth, nations that come together and cooperate rather than turn on each other will be successful, ones that do not will falter and quickly turn to dystopias. When I reflect on this fact, I cannot help but tremble at the future of my country.

Please read part 1 of this article

Please read part 2 of this article

Continue to part 4

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