The Japanese Economic System under the Global Crisis: Change and Continuity

September 2009

Vietnam

Satoshi Mizobata

KIER, Kyoto University

Introduction

The Global crisis hit Japan. Economic recession in economy Change and continuity of the economic

system ： LME vs. CME Political change Lessons of the Japanese experiences

Controversy on Japanese Heterogeneous Economy

Traditional controversy (1930s)

Backwardness vs capitalist stage Modern controversy

Japan as NO.1 vs Backwardness

Is your country heterogeneous or the normal European country?

The catch-up (flying geese) model in East Asia

Authoritarian Regime for development

Japan

China

ASEAN

NIEs

Vietnam

Laos, Cambodia Myanmar

Graduation

General Election in August 2009: from the Liberal-democratic party to the Democratic party

General election in August 2009

seats Small electoral district

proportional

Previous election

Democratic party 308 221 87 115

Liberal democratic party 119 64 55 300

Komei (central) 21 0 21 31

Communist party 9 0 9 9

Socio-democratic party 7 3 4 7

others 16 12 4 16

total 480 300 180 478

【 position of party 】

Liberal marketstabilisation liberalisation privatisation

Nationalism

State interventionregulation

GlobalisationWesternisation

Communist partLiberal democratic party

　 Komei (central)

　　 Democratic party of JapanSocio-democratic

The Democratic Party won in August 2009. This is the first time of “transition”.

1. Japanese economy after the ‘Lost 10 years’

Initial conditions (negative inheritance of the bubble economy) of the contemporary

Japanese economy

Changes of the economic policies in the post-war period

Economic growth 40 years in Japan

High economic growth in 1960-1973 (Average Economic Growth: 9.7%) Income doubling policy - An increase of production - an increase of wages

- an increase of consumption ---- virtuous circle 1958-1962 (42 months) boom 1 called "Iwato Keiki"　 1965-1971 (57 months) boom 2 called "Izanagi Keiki"　 1973 Oct.: the first oil shock Stable economic growth in 1973-1985 (Average Economic Growth: 3.3%) 1979 Jan.: the second oil shock Bubble economy in 1985-1991 (Average Economic Growth: 4.9%) the highest stock price in 1999 Dec. Lost ten years in 1991-2001 and now (Average Economic Growth: 1.1%)

GDP in JapanAnnual　GDP　

growth(%)

Annual　growth　of　

total　labour　

hours　(%)

Annual　growth　of　capital　stocks(%

)

Annual　growth　of　

total　factor　

productivity　(%)

Annual　growth　of　labour　forces　(%)

1955-1973

9.08 1.02 11.15 5.02 1.34

1974-1990

3.85 0.65 7.2 1.24 1.07

1991-2003

1.30 -0.8 4.28 0.58 0.33

Bubble economy, what?Bubble economy after 1985G5 Plaza accord (strong Yen and financial relaxation) and a decline of

petroleum price (positive current balance) changed the economic environment and lead Japan Bubble economy.

1) liberalization 2) An increase of assets value 3) Anticipation of high assets prices 4) Financial flows support the assets price increase. Oversupply of domestic money → investment in estate markets

(advantageous tax also stimulated) → increase of land price → increase of stock price → expansion of banks’ financing ability → increase of land buying by the banks’ credit → increase of land price →…

Bubble economy

High land price High stock price High leverage

ratio Economic boom-

bubble economy

stock price

05000

1000015000200002500030000350004000045000

1980.1 1986.1 1989.1 1992.8 2003.4

stock price

Collapse of the bubble economy-lost ten years

Economic policy in the period of the post-bubble economy: 1990s

overkill of restrictive policy 1990s is called "lost ten years" in Japan, because during

this decade the long-term recession has hit Japan. This drop down is a product of the so-called Bubble economy on the one hand. On the other hand, the traditional Japanese economic system is regarded as a negative factor, because it has revealed its inefficiency and opaqueness.

Budget deficitBad loan

Change in bubble economy

Change between 1985 and end of 1989

Change between 1990 and 2004

Market value of stock

Y 657 trill. -Y 485 trill.

Change of Ratio to nominal GDP

+1.6 times -0.97 times

Market value of housing

Y 1198 trill. -Y 976 trill.

Change of Ratio to nominal GDP

+2.8 times -2.0 times

Negative legacy in lost ten years 1) Public finance: deficits

A decrease of tax revenue An increase of expenditure Accumulated deficits worst No1 in G7

Negative legacy in lost ten years 2) Bad loans

Opposite phenomenon of the bubble economy

Bankruptcy of banks and nationalisation The long way of settlement of bad loans

year 1991-1997

1998 1999 2000 2001 2002-2005

Number of bankrupt banks

36 30 44 14 56 1

Bad loans debate: 1) Disposal of bad loans brings about the new bad loans. 2) Without disposal of bad loan, the economy cannot grow.

New bad loans after 1997/98

Additional bad loans

Bad loans under bubble economy

Liabilities of Non-financial company in Japan (stocks, 2000, Y trillion,%)

Total liabilities 1403 (100)Loans from banking sector 544 (38.7)

Stocks 445 (31.7)

Transaction credits 195 (13.9)

Loan bonds 66 (4.7)

Government bonds 44 (3.1)

Loans from private banks 361 (25.7, 6.4%)

loans from public banks 123 (8.8, 22.6%)

Economic indicators

2000 2001 2002 2003

GDP, nominal 1.1% -2.5% -0.7% 0.8%

GDP, real 3.2% -1.2% 1.6% 2.3%

Fixed capital investment

8.6% -6.2% -18.5% 6.3%

Unemployment rate

4.7% 5.2% 5.4% 5.1%

Wholesale price

-0.6% -2.4% -1.6% -0.4%

Consumer price

-0.4% -0.8% -0.8% -0.1%

Economic indicators2005 2006 2007 2008estimate

GDP growth nominal

0.9% 1.5% 1.0% -2.7%

GDP, real 2.3% 2.3% 1.9% -1.8%

Fixed capital investment

2.5% 1.8% -1.5% -0.8%

Unemployment rate

4.3% 4.1% 3.8% 4.0%

Wholesale price 1.7% 2.0% 2.3% 6.8%

Consumer price 0.1% 0.1% 0.3% 2.3%

Compensation of employees

2.2% 1.9% 0.5% -0.2%

Anti-deflation economic policy

Public investment (Y. 27.4 trill. during 1992-1994, Y. 22.6 trill. during 1998-1999): The real expenditure was less than its plan, and the contribution to the economic growth is small or negative (1999).A multiplier effect of public investment was decreasing.

The Japan bank changed its financial policy form tight to relaxation in 1991. However, the bank could not stop deflation. In 1999 February, the bank adopted zero-interest rate policy. Moreover, the bank adopted quantitative relaxation policy and increased current account for interbank transaction. However, the practical money supply was restricted, the government failed to go out deflation spiral. In addition, the stop-and –go policy of the central bank weakened the effectiveness of zero-interest rate policy.

Nominal short-term interest rate

Consumer price change (annually)

Real short-term interest rate

2000 0.11 -0.7 0.81

2001 0.06 -1.2 1.30

2002 0.002 -0.89 0.89

2003 0.001 -0.30 0.30

2004 0.001 -0.10 0.10

2005 0.001 -0.10 0.10

2006 0.125 0.01 0.03

2007 0.47 0 0.47

Economic recovery:2002-2006

The longest and weak growth The corporate profits lead the growth. Japanese economy changed its structure:

heavy export-oriented economy Growth concentration in 5 main branches:

automobile, electric machine and others Sensitivity to the global economy

Izanagi boom Bubble boom Largest boom Nov.65-July 70 Dec. 86-Feb. 91 Feb. 2002-Oct. 07Length of boom 57months 51months 69monthsReal economic annual growth 11.5% 5.4% 2.1%Nominal annual rate 18.4% 7.3% 0.8%Growth rate in the growing period 122.8% 34.7% 4.2%An increase of wage 114.8% 31.8% -1.6%An increase of consumer price 27.4%(5.1) 8.5%(2.0) 0.7%(0.1)An increase of Nikkei stock price 71.7% 44.1% 67.9%Change of working population +3510 thousand +4130 thousand -650 thousand

Comparison of booms in Japan

Export dependence of Japan (%) Export/nominal GDP

0

5

10

15

20

1955 1960 1970 1980 1990 2000 2005 2008

export dependence

Main export goods (\ trillion)

0

5

10

15

20

1995 2000 2005 2007 2008

automobile

auto parts

semiconductor

Main export direction (\ trillion)

0

5

10

15

20

25

30

35

40

1995 2000 2005 2007 2008

Asia

USA

China

2. The global crisis in Japan

The cheap money caused the serious crisis in the world. The global crisis hit Japan. It

is difficult for Japan to escape from the vicious circle (deflation).

21st century crisis

failure of market and failure of government 21st century financial crisis: 1) private short term

fund (Hedge Fund), 2) a decrease of IMF function, 3) fragile financial system and drastic de-regulation, 4) firm’s dependence on indirect financing and foreign capital

traditional cyclical crisis

The spread path of the crisis

Credit　expansion　type

Export　lead　type Emerging　market　type

US, UK, Spain Ireland Japan, Germany, Korea, Singapore

Central Eastern Europe (Latvia, Estonia, Hungary…)

An increase of housing price: 12.6% in US and Spain, 11.6% in UK and 11.8% in Ireland

Heavy export dependence: 230.9% in Singapore, 46.7% in Germany, 46.4% in Korea, 17.6% in Japan

Debts to external banks/GDP: 68.8% in Estonia, 57.6% in Latvia, Hungary in 50.2% , 32.5% in Romania

A collapse of housing bubble and disturbance of financial system-A decline of domestic consumption

A decline of demand in developed countries (US and others)-A decline of export

Heavy recession in West European financing countries-A decline of foreign money inflow

Crisis hit Japan

A decline of stock price Economic panic: decline of GDP and

export, decline of balance (Heavy dependence of export)

Decline of employment and income -decline of consumption (demand) and export -decline of production : vicious circle and deflation spiral

GDP (growth rate, annually : %)

-4

-2

0

2

4

6

8

%

-20

-15

-10

-5

0

5

10

15

20

25Japan, Total

Japan, Big Enterprises

Japan, SMEs

%

Investment (growth rate, annually : %)

Indexes of Business Conditions

Consumer price index

Trade balance of Japan (\ billion)

-3000-2000-1000

0100020003000400050006000700080009000100001100012000

1955 1960 1970 1980 1990 2000 2004 2007 2008

trade balance

Foreign trade shock of crisis (balance: \ billion)

-1200-1000-800-600-400-200

02004006008001000120014001600

Sep.2008 Dec. Mar. J un.

current balance

trade/service balance

Decline in employment

Cut of irregular employees: 216 thousand laid off

A decline of regular employees Increase of unemployment rate Instable safety-nets

→political complain and transition (DPJ won in the general election of 2009 August)

Total employment index

Unemployment rate

0

1

2

3

4

5

6

%

Unemployment (%)

3. Is the recent recovery real?

The recent economic recovery showed a recovery of export industry. However, the

perspective of the recovery is opaque.

Recovery of developed economy, Japan

An increase of stock price An increase of automobile sales Export increases Improved consumer confidence

Economy recovered?January-March 2009 April-June 2009

Real GDP growth -3.8 0.8Annual rate -14.2 3.4Compared with previous

period-8.8 -7.0

Personal consumption -1.1 0.8Housing investment -5.5 -9.2Equipment investment -8.9 -5.8Public investment 0.1 9.8export -26 9.1import -15 -2.6Domestic demand contribution rate

-2.3 -0.5

External demand contribution rate

-1.4 1.3

Nominal GDP growth -2.7 0.0

Perception of business conditions (big enterprises, good-bad %)

-60

-50

-40

-30

-20

-10

0

10

20

30

2007Q3 2008Q1 Q3 2009Q1 Q3manufacturing

nonmanufacturing

Recovery is not real.

Severe labour market Economic gaps in recovery Survival of vicious circle: cost cut-income

and investment decline-demand decreases-production decreases-employment decreases…..

Unclear global recovery and protectionist measures

A Job offers-to-seekers ratio (January of each year)

0

1

2

1991 1994 1999 2002 2007 2008 2009 7.201ratio

ratio

A Job offers-to-seekers ratio by prefecture (ratio, difference)

prefecture September 2008 July 2009 difference

Aomori 0.40 0.27 -0.13

Okinawa 0.34 0.27 -0.07

Tokyo 1.14 0.58 -0.56

Kagawa 1.12 0.64 -0.48

Aichi 1.50 0.46 -1.04

Gunma 1.52 0.45 -1.07

Unemployment rate by age (%)

0123456789101112

maletotal35-44

15-24

25-34

4. Dramatic changes in the Japanese economic system

The Japanese economic system also changed after the bubble economy and lost

ten years. Can the Japanese economic system survive in the global crisis?

What is the Japanese economic system?

Corporate system: industrial relations, vocational training system and education, corporate governance, inter-firm relations, coordination with employees

Corporate governance, labour systems, managerial turnover

Coordinated market economy

Production architecture

region Organizational function Advantageous and compatible architecture

Japan Integral power in production spot

Integral with operation

Europe Expression to customers Integral with designs and brand

USA Design of system Knowledge intensive open modular

Korea Concentration of finance and decision making

Capital intensive open modular

China Mobilization of domestic migrant workers

Labour intensive open modular

ASEAN ? Labour intensive integral

Why cross-shareholding? From stock democratization to mutual

shareholding 1949 individuals owned 69.1%. 1947 Anti-monopoly law 1949 permission of corporation’s shareholding Change in 1990s collapse of the bubble economy criticism to Japanese management system globalization and legal relaxation

Change of ownership

Introduction of US model: revision of corporate laws after 1997

A decline of financial institutions: a decline of main bank system

An increase of institutional shareholders An increase of foreigners, foreign owned

enterprises

Shareholders'

General MeetingBoard of Directors

Executive Committee( Johmu-kai )

President(Representative

officer)Internal Auditors

appointment

Main Administrative Organizationsof Company in Japan

audit & control

appointmentappointment & control audit &

control

Type of Shareholder

0

10

20

30

40

50

60

70

1949 1956 1963 1973 1981 1989 1998 2008

%FinancialInstitutions

SecuritiesCompanies

BusinessCorporations

Foreigners

Individuals

Shareholders Composition

0

5

10

15

20

25

1987 1991 1995 1999 2003 2006

%

Cross-shareholding

Insiders

InstitutionalShareholders

Stable Shareholding in Japan (%, in value)

0

10

20

30

40

50

1987 1991 1995 1999 2003

%

Stableshareholding

Cross-shareholding

Financing in JapanOwn fund External

fundShort term loan

Long term loan

Corporate bond

1965-69 30.6 66.1 15.7 15.1 4.3

1970-74 29.2 68.5 18.3 16.0 4.2

1975-79 38.8 54.4 14.4 8.2 9.0

1980-84 50.5 40.0 9.0 5.9 7.8

1985-89 45.9 38.0 5.3 1.2 17.7

1990-94 87.6 7.8 -2.8 7.7 11.2

1995 84.0 14.8 -10.1 -3.4 3.6

Impact of the recovery and crisis

An increase of cross-shareholding with criticism to it

An decrease of foreign owners An increase of long-term borrowing

5. Fluctuations in the labour system

The Japanese management has specificities. At the same time, the labour system drastically changed in lost ten years and after. Can the

corporation keep life time employment?

Lifetime employment and skill formation

Lifetime employment Seniority system Company unions Institutional complementarities

France Germany Netherlands UK USA Japan

Inconvenience of layoff procedure

2.8 3.5 5.0 1.0 0.0 2.0

Advance announcement term and allowance of layoff

1.5 1.3 1.0 1.1 0.0 1.8

Difficulty of layoff 2.8 3.5 3.3 0.3 0.5 4.3

Total strength of job-guarantee

2.3 2.8 3.1 0.8 0.2 2.7

Strength of job-guarantee, A comparison of OECD countries: liberal vs coordinated

Employment Level by Age in Japan

0

25

50

75

100

125

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-

%

199019972006Male

Employment Level by Age in Japan

0

25

50

75

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-

%

199019972006Female

Employment Level by Age in Russia

0

25

50

75

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-

%

199219982006Male

Employment Level by Age in Russia

0

25

50

75

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-

%

199219982006Female

Figure 3 Labour share

50

55

60

65

70

75

80

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007

％

Change of Labour Market: diversity of employment

An increase of irregular workers: one third Reasons of changes: competitiveness (Japan

is a member of ILO, but it is different form ILO standard), change of labour values, revision of labour law

Results of change: economic gaps, technology transfer

Nikkeiren lobbying in 1995 “Japanese Management in a New Epoch” as a turning point

Long-term ability accumulation type (lifetime employment type)

High-degree specialisation type

Flexible employment type

Regular employees Irregular and terminable

Irregular: Part-time and free, flexi bile, and temporary

Seniority system, monthly wage, retirement allowance

Annual salary and performance-based, no retirement allowance

Payment by the hour and no retirement allowance

Revision of labour laws

Relaxation of irregular employment: revision of “The Worker Dispatching Law” (1985)

1996: enlargement of sphere

1999: from positive list to negative list

2003: permission in production spots An increase of irregular employees: 33% of

employment

1982 1987 1992 1997 2002

male 8.3 9.1 9.9 11.2 16.5

female 31.8 37.1 39.1 44.0 53.0

Table　8　Irregular　workers　in　Japan (%)

Table　9　Changes　in　employment (thousand, %)

1985 1995 2005

Employment, total 39990 47800 49230

Regular employment 33430 (83.6)

37790 (79.1)

33330 (67.1)

Irregular employment 6550 (16.4)

10010 (20.9)

15910 (32.3)

Total employees Regular employees Irregular employees

1985 39990 (100) 34430 (83.6) 6550 (16.4)

1995 47800 (100) 37790 (79.1) 10010 (20.9)

2005 49230 (100) 33330 (67.7) 15910 (32.3)

2006 50880 (100) 34110 (67.0) 16770 (33.0)

2002 2003 2004 2005 2006

total 1451 1504 1564 1633 1677

Part-time 1053 1089 1096 1120 1125

Dispatching workers

43 50 85 106 128

Contract workers 230 236 255 278 283

others 125 129 128 129 141

Irregular employment in Japan

Rrate of non-regular staff

10.0

12.0

14.0

16.0

18.0

20.0

2003 2004 2005 2006

%

Male

Rates of non-regular staff

44.0

46.0

48.0

50.0

52.0

54.0

2003 2004 2005 2006

%

Female

Rates of non-regular staff to "Employee, excludingexecutive of company or corporation"

0

10

20

30

40

50

60

70

80

15 to 24years old

25 to 34years old

35 to 44years old

45 to 54years old

55 to 64years old

65 yearsold ormore

%

Male

Rates of non-regular staff to "Employee, excludingexecutive of company or corporation"

0

10

20

30

40

50

60

70

80

15 to 24years old

25 to 34years old

35 to 44years old

45 to 54years old

55 to 64years old

65 yearsold ormore

%

Female

Difference between Toyota and Nissan in irregular employment

Temporary employees in Toyota

Dispatching employees in Nissan

The length of service Japan Germany France UK USA

Less than one year 9.8 12.8 15.7 18.6 28.8

1-5 years 27.6 28.2 26.3 36.3 32.9

5-10 years 19.7 17.8 16.2 16.1 11.7

10-20 years 23.6 24.5 25.6 19.3 17.8

More than 20 years 19.3 16.7 15.8 9.6 8.8

Average length 12.5 12.1 10.6 9.2 7.5

Median of length 10.1 9.5 7.9 5.3 3.5

Length of Service (1993)

Less than one year

1-5 years 5-10 years 10 -20 years

More than 20 years

male 7.5 22.6 17.5 25.9 26.5

female 12.1 33.0 21.3 22.2 11.4

total 8.9 25.8 18.7 24.8 21.8

Length of Service in Japan (2006, %)

1997 June 2003 June 2006 June

Industries total 11.8 12.2 12.0

male 13.3 13.5 13.5

female 8.4 9.0 8.8

Manufacturing total 13.6 14.6 14.5

male 15.0 15.6 15.5

female 9.8 11.3 11.2

1000 employees total 17.0 18.4 17.5

and over male 18.2 19.2 18.2

female 11.2 13.7 13.2

Average length of service

Wage decreaseProfit of company

Overwork time

wage

Full time workers are not advantageous.

Burden is heavier. Mental disease Monthly labour

hours by

generation.

1995 2000 change

20s 185 187 +2

30s 183 186 +3

40s 182 182 0

50s 184 180 -4

60s 181 175 -6

Gini coefficient in Japan

Initial income Redistributed income

1979 0.35 0.305

1990 0.44 0.35

1998 0.4723

2002 0.4983 0.3812

2005 0.5263 0.3873

total 1000 employees and over

Housing allowance 48.4 66.0

Company housing 35.0 82.0

House ownership support 8.9 32.1

Physical examination 71.8 80.7

Childcare leave 40.5 56.7

Celebratory/condolence payment 94.5 99.2

Leisure facilities 28.6 70.9

Support for cultural and athletic 34.6 63.2

Support for acquirement of official qualifications 47.3 77.6

Employees’ savings 57.3 88.5

Company savings or stock holder’s association 25.5 76.7

Employees’ cafeteria or meal allowance 38.0 60.0

Corporate welfare in Japan

Share of Japanese management companies The most fundamental element of a J firm, “quasi-

community firm” has been consciously kept by welfare provisions. In 2000, 46.2% of the firms had education and training programs for all regular white-collar workers, and 80.8% of the firms trained workers primarily through on-the-job training (OJT). The proportion of firms that plan to provide training primarily through OJT in the future drops to 72.3%, and the proportion of the firms that plan to primarily use off-the-job training (OffJT) is expected to increase to 22.5%. Japanese firms may be regarded as a hybrid or segmented.

Managers’ turnover in Japan Turnover by insiders is a

typical case. Insiders promote not only specialized managers but also core managers like CEO. In short, internal managers market has effectively functioned in J firms.

Decrease of service length of managers: from 8 years to 5 years by hypertrophied management organizations

1954 29.4

1974 60.8

1991 61.4

Change in management

Specialized committees and stock options for managers: 11.8% stock options, 10.2% outsider managers in 2000.

The dual cases have coexisted since the collapse of the bubble economy: firms with effective governance under the competitive environment, and firms with seniority system.

Employment structureTotal employment

Regular employment

Irregular employment

Of which: part-time job

Of which: dispatched employees

Of which: contract employment

2003 49.48 34.44(-1.0) 15.04(1.0) 10.89(0.7) 0.5(0.1) 2.36(0.1)

2004 49.75 34.10(-1.0) 15.64(1.0) 10.96(0.0) 0.85(0.7) 2.55(0.3)

2005 50.07 33.74(-1.2) 16.33(1.2) 11.20(0.4) 1.06(0.4) 2.78(0.5)

2006 50.88 34.11(0.4) 16.77(0.4) 11.25(0.3) 1.28(0.4) 2.83(0.0)

2007 51.74 34.41(0.5) 17.32(0.5) 11.64(0.4) 1.33(0.1) 2.98(0.2)

2008 51.59 33.99(-0.6) 17.60(0.6) 11.52(-0.2) 1.40(0.1) 3.20(0.4)

2009 Q1 50.86 33.86(0.6) 16.99(-0.6) 11.32(-0.1) 1.16(-0.5) 3.18(-0.1)

2009 Q2 51.05 34.20(0.4) 16.85(-0.4) 11.28(-0.2) 1.05(-0.4) 3.18(0.0)

6. Between change and continuity

Perspective of hybridisation

A comparison of J-US model (1)

Outsider board

Insider board

Related finance

Inverse hybrid

J model

Market finance

US model Hybrid

A comparison of J-US model (2)

Market employment

Relational employment (long-term)

Related finance

Inverse hybrid

J model

Market finance

US model Hybrid

A comparison of R-US model (1)

Outsider board, market employment

Insider board, lifetime employment

Related finance

Inverse hybrid(34)

J model(42)

Market finance

US model Hybrid(24)

A comparison of R-US model (1)

Outsider board, market employment

Insider board, lifetime employment

Related finance

Inverse hybrid(34)

J model(42)

Market finance

US model Hybrid(24)

Contemporary J model

58%: quasi-US model 2/3 have kept J employment and

management. JapAnglo-Saxon capitalism

The trend in the crisis (1)

Criticism to US type by the president of the DPJ, Yukuio Hatoyama in the New York Times

Japan Management Association in July 2009

the interest employees

long-term gains

support of lifetime employment

From shareholders to employees

0

10

20

30

40

50

2005 2006 2007 2008 2009

Shareholders

Employees

Customers

%

The trend in the crisis (2)

Japan Productivity Centre in July 2009: Managers highly value customers and employees (stakeholder capitalism), from shareholders to employees

Tokyo Shoko Research in 2009: highly value on the Japanese traditional management and enterprises

The trend in the crisis (3)

Japan’s Ministry of Health, Labour and Welfare (questionnaire research)

criticism of the contemporary adjustment of the companies

positive attitude from irregular employment to regular employment

skill formation on condition of long-term employment

Adjustment of employment in Japan

Conclusions

Perspective of the Japanese economy and the Japanese economic system,

lessons for the Vietnamese economy

Perspective of the Japanese economy (1)

Difficult way for the growth from the global crisis

high dependence on the global markets (US and China, East Asia)

weak domestic demand

fragile labour market

fragile harmonisation and hybridisation

Perspective of the Japanese economy (2)

Transformation is not over.

How to build the advantageous architecture of the economic system, and how to keep the traditional advantages (organizational integral power) are not clear and the reform is under the way.

Changes and Continuity of Corporate Model

Firm-Specific Skill

Labor Systems

US model

Modified J

J model

General Skill

Inflexible Flexible

Shareholder-Oriented

ExternalGovernance

InternalGovernance

Stakeholder-Oriented

R model

Modified R

C G Reform

Constraints of the long-term growth

Labour force and aging society: high costs and low competitiveness

Skill formation

firm-specific

general

Population in Japan (million)

1940 71.9 1975 111.9

1945 72.2 1980 117.1

1950 83.2 1985 121.1

1955 89.3 1990 123.6

1960 93.4 1995 122.6

1965 98.3 2000 126.9

1970 103.7 2006 127.6

Population Growth in Japan

population(1,000) Dependency ratio Aging index Labour Force unemployment of aged population (1,000, % of population) rate(%) 1985 121049 15.1 47.9 59630 (49.3) 2.6 1990 123611 17.3 66.2 63840 (51.6) 2.1 1999 126686 24.4 113.0 67790 (53.3) 4.7 2000 126926 25.5 119.1 67660 (53.3) 4.7 2001 127291 26.5 125.1 67520 (53.0) 5.2 2005 127760 30.3 140.3 66500 (52.1) 4.4 Note: Dependency ratio of aged population = 65 and more years population/ 15-64 aged population x 100

Aging index = 65 and more years population/ 0-14 aged population x 100

Source: Statistics Bureau, Management and Coordination Agency, Government of Japan, Japan Statistical Yearbook 2001, Chapter 2.

2007 problem in Japan: employment by age (%, 2002)

20-24 25-29 30-34

35-39 40-44 50-54

55-59 60-64

65-69

total 8.1 11.5 10.9 9.9 9.8 13.0 9.8 6.5 4.2

Textile 3.8 5.1 7.2 8.5 8.5 17.3 14.2 10.5 5.9

metallurgy

6.7 11.9 11.8 8.1 8.6 19.2 12.6 4.5 1.6

machine 6.6 12.3 12.8 10.6 9.0 15.4 11.6 5.9 2.6

Transformation in Vietnam

0

-

+

lo w

S ta te ro le

h ig h

Globalization

Domestic factors

Integration, Asian model

Vietnam

G lo b al e con o m ic ru le s

Perspective of JBIC research in 2008: Promising market

　rank　country

Tasks　for　each　country

1. China An increase of labour costs (64), Unclear law enforcement (58), Insufficient intellectual property right (50)

2. India Insufficient infrastructure (52), Unclear law enforcement (27), Severe competition (25)

3. Vietnam Insufficient infrastructure (43), Lack of managers (32), An increase of labour costs (24)

4. Russia Unclear law enforcement (40), Lack of information (33), Instable safety and social condition (27)

5. Thailand An increase of labour costs (37), Severe competition (34), Insufficient technical staffs (27)

Fin.