The woes of Japanese productivity
The headline reads like this: Japan productivity lowest in G-7. This means it trails behind the United States (highest in productivity of the seven), as well as Britain, Germany, Italy, France and Canada, the other G-7 members.
This is nothing new, but I must admit it was news to me. Actually, it hit me like a ton of bricks. After all, the Japanese work environment is known for the extreme demands it places on its workers, long work hours and short vacations being the norm. Furthermore, the Japanese have gained a reputation for discipline and industriousness, something that does not go unnoticed by most foreign visitors. In short, they seem to be working longer and harder than the statistically more productive citizens of other industrialized nations. What’s going on here?
I investigate further, and find that the BBC has touched on this problem, in an article from October of 2004. But Time Magazine really nailed it in a fascinating article published a couple of years prior, a must-read for anyone even mildly interested in Japanese economic affairs.
I won’t attempt a thorough analysis of the situation as I’d just be recycling the whole Times article, but a few points summarize the situation well:
- Anti-competitive government policies are at the root of the problem:
Shielded from competition by a tangle of government subsidies, tariffs and protectionist policies, the nation’s domestic manufacturers and services have hardly changed—let alone improved—for decades.
- Despite this, export industries are still faring very well:
According to that report by McKinsey, Japanese export industries like automobiles, electronics and computer hardware are, indeed, 20% more productive than the worldwide benchmark. But here’s the problem: these industries, once you stop to count them, are quite few in number. Together, they make up only 10% of Japan’s workforce and 10% of its GDP.
- Retailing, in particular, is in bad shape:
Of the remaining 90%, retailing just might be the sickest of the bunch. Large-scale stores are rare in Japan… mom-and-pops are the rule not the exception, making up 55% of the retail labor force. They are, in other words, still the way the nation sells things. And they are woefully unproductive, generating only 19% of the output of the average U.S. store.
This really puts Koizumi’s push for various structural forms in perspective. I do not know how much they are going to strike at the root of the problem, in the face of status-quo lobbying. But if we start seeing some substantial reforms to do away with the protectionism Japan has relied on so far, the economy might start showing some real signs of vitality.
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