Japan s Economic Recovery from the Disaster. Taiji Furusawa (Hitotsubashi University and Harvard University)

Transcription

1 Japan s Economic Recovery from the Disaster Taiji Furusawa (Hitotsubashi University and Harvard University) 1

2 Earthquake, Tsunami, and Nuclear Crisis Damage on infrastructure, houses, factories, and others from the earthquake and tsumani on March 11, 2011 (Cabinet office of Japan, March 23, 2011) 16 trillion yen (200 billion dollars) - 25 trillion yen (300 billion dollars) 3% - 5% of GDP Nuclear crisis is ongoing Difficult to assess the economic impact, but we all know it will be huge 2

3 Problems that Japan confronts Large public debt Exacerbated by the disaster Ageing society Japan s economic competitiveness Exacerbated by the disaster Income gap between skilled and unskilled workers Common to all countries 3

4 Outline Grasp the problems Possible solutions 4

5 Outline Grasp the problems Possible solutions 5

6 Japan s General government revenue and expenditure 250, , , , Revenue Expenditure 50, Source: World Economic Outlook Sep 2011, IMF 6

7 Government debt Source: Regional Economic Outlook: Asia and Pacific Oct 2011, IMF 7

8 Government debt: comparison Japan Greece Italy US Net borrowing/gdp Gross Public debt/gdp Net Public debt/gdp Source: World Economic Outlook Sep 2011, IMF Japanese public debt/gdp is large Yields to Japanese government bonds are low because They are mostly held by Japanese Japan has large foreign reserves 8

9 Outline Grasp the problems Possible solutions 9

10 Ageing society Source: White Paper 2011, Ministry of Health, Labour and Welfare 10

11 Outline Grasp the problems Possible solutions 11

12 Per-capita GDPs 12

13 Labor productivity Source: White Paper on Small and Medium Enterprises in Japan 2008, METI 13

14 Outline Grasp the problems Possible solutions 14

15 Income gap is increasing in the world Source: World Economic Outlook Oct 2007, IMF 15

16 Source: World Economic Outlook Oct 2007, IMF 16

17 Outline Grasp the problems Possible solutions 17

18 Tackle Nuclear Crisis Nuclear crisis is an ongoing problem Stabilizing the Fukushima Daiichi plant as soon as possible Energy shortage problem Maintain nuclear power plants Scrap the ones at a risky location Renew old plants Separate power generation and electric grids Facilitate competition electricity price goes down Induce innovation on power generation Remove regulations that have hindered new forms of power generation Renewable energy sources Fuel cells 18

19 Outline Grasp the problems Possible solutions 19

20 Public debt needs to be reduced At least 95% of government bonds are held by domestic investors This ratio is bound to decline It becomes difficult to sustain stable bond prices If the problem is not solved (Hyper) inflation Good: Problem is solved Bad: Bubbles Bank failure Economic downturn Default Good: Problem is solved Bad: Bank failure Economic downturn 20

21 How can we fix the public debt problem? Raising tax rates Substantial increase in consumption tax Increase in income tax Raise tax rates thoughtfully Eliminate the exemption of dependent spouses from taxation Encourage women s labor participation to tackle the ageing problem Do not raise corporate tax To tackle the competitiveness problem 21

22 Outline Grasp the problems Possible solutions 22

23 Aging problem needs to be soften Pensions system will become difficult to be sustained Public debt problem becomes more serious Smaller fraction of income earners Japan s competitiveness declines Smaller fraction of income earners Less investment ( less savings) 23

24 How can we soften the ageing problem? Encourage women s labor participation Fertility rate would improve Raise the labor participation rate Source: Regional Economic Outlook: Asia and Pacific Oct 2011, IMF 24

25 How can we soften the ageing problem? Raise the mandatory retirement age Raise the labor participation rate Mitigate the pension problem Open the labor market to foreigners Raise the labor participation rate Contribute to Japanese internationalization Raise Japan s competitiveness 25

26 Outline Grasp the problems Possible solutions 26

27 Japan s competitiveness problem Adaptation to the globalization is lagged Inward-looking people Barrier to inward FDI Competition and innovation are hindered Japan Korea Germany US Inward FDI/GDP (%) Outward FDI/GDP (%) WC Emigration rate (%) Source: World Development Indicators 2011, World Bank 27

28 Japan s competitiveness problem Low productivity Low productivity of white collar workers Small firms ill-equipment of IT technology Low quality of skilled labor/specialists (especially in English communication) An obstacle to inward FDI 28

29 Japan s competitiveness problem Relatively heavy reliance on manufacturing Japan Korea US China Aggriculture (% of GDP) Manufacturing (% of GDP) Service (% of GDP) Source: World Development Indicators 2011, World Bank 29

30 How can we fix competitiveness problems? Labor contribution Increase in labor force is limited given the ageing problem Increase human capital to raise the effective labor force Increase labor mobility to increase labor productivity Reduce within-firm unemployment Capital contribution Increase in capital is limited given the ageing problem Technology Increase human capital to facilitate innovation 30

31 Specific policies to fix raise Japan s competitiveness Globalize universities Hire foreign faculties Teach in English Synchronize the academic year to American Encourage inward FDI Stabilize Fukushima Daiichi Nuclear Power Plant Remove some regulations Encourage labor inflow to facilitate innovation Accept more foreign students Pursue freer trade Sign the TPP (Trans Pacific Partnership) 31

32 Outline Grasp the problems Possible solutions 32

33 Missing middle-income class + Machines Machines Globalization of labor market IT - Machines Globalization of labor market IT Income 33

34 Globalization hurts Japanese workers Stolper-Samuelson Theorem International trade will lower real wage and increase real reward to capital in a capital-abundant country like Japan Real reward to capital is suppressed due to financial imperfection Factor Price Equalization Theorem Factor prices (wage rate and reward to capital) are equalized across trading countries if they produce the same set of the goods Globalization facilitates production fragmentation Offshoring (FDI or outsourcing) Specialize more in the tasks that are capital-intensive and human capital-intensive Real income for unskilled workers decreases 34

35 Source: Trade Workshop, World Bank 35

36 What Japan can and should do in the age of globalization Face the reality of this globalization wave If outward FDI (that is considered to cause the hollowing out) is prevented, outsourcing to foreign firms would occur Accumulate capital and human capital to move up the product ladder Avoid factor-price-equalization trap Increase productivity of low-skilled workers through education 36

37 Conclusion To raise Japan s competitiveness is important to solve the public debt problem and to mitigate the negative effect of the ageing society Let s globalize! Let s study! Ready to go through a drastic reform such as Meiji revolution and the one after the World War II 37