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Friday, Nov. 25, 2005

FRENCH JOURNALIST SYMPOSIUM

Economic challenges and opportunities lie ahead for Japan


Staff writer

The rapid aging of the Japanese population is both a challenge and an opportunity as it will force the nation to confront structural problems with its economy and make tough choices, visiting French journalists said at a recent symposium in Tokyo.

News photo
Jean-Marc Vittori (right) of the Les Echos newspaper discusses Japan's economic prospects as copanelists (from left) Jean-Pierre Robin, Romain Gubert and Dominique Nora listen at a Keizai Koho Center symposium on Nov. 11.

The prospect of Japan soon seeing its population decline -- due to the falling birthrate -- will prompt the nation to review long-established government and corporate-management policies as well as individual attitudes, said the veteran journalists from leading French media organizations.

They were speaking at a Nov. 11 symposium organized by the Keizai Koho Center and held at Keidanren Kaikan under the theme "How Will Japan Change? Prospects for the Japanese Economy -- View of French Journalists." The symposium concluded a weeklong program of exchanges with government officials, business people and scholars.

Jean-Marc Vittori, editorial-page writer for the Les Echos business newspaper, said he got the impression that Japan is finally witnessing conditions necessary to bring an end to deflation, with positive trends in consumption, investment and exports.

Japan will, however, continue to face deflationary pressures in coming years for several reasons, including a rapidly aging population, competition with cheap labor in China and elsewhere, and mounting public-sector debts, Vittori added.

Dominique Nora, economic writer for Le Nouvel Observateur weekly, said Japan seems to be viewing the rapid aging of its population -- a phenomenon common in many mature industrialized economies -- not only as a problem, but as a challenge and even as an opportunity.

"The good news is that this problem has been thoroughly identified and the awareness level is high," she said, referring to the government decision to assign senior officials to specifically deal with the issue.

An aging population presents new business opportunities because it creates new markets, including retirement homes, medical care and other "second life" services, Nora said, citing an estimate that these sectors can create 780,000 new jobs in three years.

"But more importantly, I think this issue will push new reforms -- deep reforms that you have not been able to achieve until now" -- on government budget, social security and pension, she told the audience.

Furthermore, the challenges of an aging population and declining birthrate -- including an anticipated shortage of workers -- will force Japan Inc. to tackle the long-overdue task of raising labor productivity, and to choose between business activities that it wants to keep at home and those that can be left to emerging economies with low-cost labor, she said.

Bolstering work force

Anticipated labor shortages have raised the prospect of Japan having to rely on large numbers of immigrant workers in coming decades.

Nora, however, suggested that Japan should consider "targeted immigration" of certain workers such as baby sitters and home helpers -- rather than simply opening the door to cheap labor for its industrial plants -- as a measure to enable more working women to have children while pursuing job careers.

Japan will have to have those immigrant workers supporting women "if you want women to both have full-time careers and have more kids," she said.

Nora said the issue of encouraging more women to work concerns not just government policies but the mind-sets of individual Japanese. How can Japanese men -- as husbands and fathers -- be supportive of women so that they can have more children while working, she asked.

"I think that very deep thinking is required . . . this issue will not be resolved overnight," she said.

Vittori said political choices will dictate how Japan will resolve its anticipated labor shortage. The nation may choose to extend the retirement age for its workers, increase the population's participation in the labor force, raise labor productivity to make up for the shortage, or to open its doors to immigrants, he said.

Regarding women workers, Vittori said two-thirds of Japanese women between the ages of 15 and 60 work -- a situation similar to that of France. But in Japan many of these women have only part-time jobs, he pointed out.

It's fairly easy for French women to go to work while raising children -- but only if they can make a good salary, Nora said. If they earn low wages, the sheer cost of hiring baby sitters and house cleaners could exceed the income they earn, she added.

"Yes, a lot of Japanese women work, but what's their position in society? Do they have good jobs, do they have responsibility, are they at management levels?" she asked.

So the challenge for Japan, she said, may be not just to increase the number of women who work but to give them more promotions and greater responsibility.

This will also benefit employers as studies in the United States show that companies that promote women are more efficient, have higher stock prices and greater productivity, Nora said, adding that women in higher positions also provide different perspectives to management.

Citing various child-care support measures adopted in France, the journalists suggested that Japan also consider greater flexibility in working hours at companies, where employees typically arrive early in the morning and stay late at night.

Nora pointed out that productivity at typical Japanese offices -- where substantial amount of time is taken up by meetings -- is not so high.

Efforts should be made -- either in the form of government regulations or company policies -- to reduce working hours by raising productivity, so that Japanese people can dedicate more time to raising children, she added.

Corporate pitfalls

Addressing other aspects of the Japanese economy, Romain Gubert, deputy editor in chief for business and financial news at Le Point weekly, said he was impressed with how major Japanese firms have maintained spending levels on research and development even when faced with financial crises.

But he expressed concern that Japanese firms may face greater pressures to produce quick results -- thereby limiting their resources to make longer-term investments -- as shareholder values receive more emphasis in corporate management in coming years.

Gubert noted that CEOs in many large French corporations -- like their American counterparts -- are increasingly influenced by the Anglo-Saxon model of financial capitalism.

"Today the major concern of the top-earning French companies is to give back some of the profits to shareholders," Gubert told the audience.

While the situation is different in Japan today, CEOs of Japanese firms may start to feel the same kind of pressure from foreign investors who will want quick returns, he said.

"It will completely change the way companies behave. . . . It may be one of the biggest challenges of the Japanese economy," Gubert noted.

For example, long-term R&D projects that could require 15 to 20 years before commercialization may not be possible as shareholders and people in financial markets demand more and more immediate gains on investments, he said.

Nora said one strength of Japanese companies is their "independence from the stock market," which enables them to have more long-term views and commitments.

"It's probably why you took so long" to get out of the economic doldrums of the 1990s, Nora said, noting that because Japanese firms were not ready to lay off workers, like their American competitors, their restructuring efforts took a longer time. On the positive side, corporate employees were able to retain jobs and the broader public benefited, she added.

Overall, Nora said, the financial capitalism of the Anglo-Saxon model "has gone much too far" in Europe, where major companies "now mostly work for the shareholders."

"More and more effort is made in the financial sphere and less and less effort" goes to the production sphere, she noted, adding that Japan is advised to "resist this tendency and not be perverted by 'short-terminism.' "

What Japan should do, Vittori said, is find an equilibrium between those competing values.

If the power of shareholders had been stronger in Japan, Japanese firms might not have been able to continue spending so much on long-term R&D projects; then again, there would never have been the banking sector woes that Japan experienced in the 1990s, he noted.

Japanese banks would have been able to pull out of the nonperforming loan mess much sooner if there had been a stronger shareholder system in Japan, Vittori said.

"So I think it's necessary to find an equilibrium, and it's a difficult equilibrium to find," he told the audience.

Japan-China relations

Jean-Pierre Robin, deputy editor in chief of Le Figaro newspaper, discussed the China factor in Japan's economic prospects and proposed that Japan try to find a new way of communicating with its giant neighbor.

Robin said it is "unrealistic" for Japan to think that it can continue to enjoy "business-as-usual" economic relations with China despite their strained political ties.

It is clear that Japan has benefited heavily from the rapid growth of the Chinese economy since the late 1990s, he said, citing China as a major factor in the Japanese economy's emergence from recession and its ongoing recovery.

Japanese investments in China were originally aimed at taking advantage of the country's cheap labor for low-cost production in a typical "vertical" division of labor. Now, China is increasingly viewed as a market, and a competitor, he said.

According to Robin, several Japanese business executives he met during the trip expressed hope for a "segregation of economic and political ties" that would allow economic relations to prosper even if political ties remain strained over wartime history.

"I can understand this attitude, but I think it's not realistic. . . . Japan and China will have to consider bilateral ties in both economic and political levels," he said.

As Japan and other countries in East Asia grope at closer regional economic integration, such initiatives are often compared with what Europe has achieved in the postwar period.

But Robin said any comparison with the European Union would be misleading in discussing Japan's relations with its Asian neighbors.

When several European nations first launched an effort toward integration in the late 1940s, their economic situations were roughly the same because they all were recovering from the devastation of World War II, he said. They were also driven by the political will to pursue stronger ties after fighting each other in the war, he added.

Even today, levels of economic development vary widely among Asian countries, Robin said, noting that a lingering gap in development levels remains a source of strain even among EU members.



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