Japan’s main centre-right pro-capitalist party, the Liberal Democrats (LDP), under Shinzo Abe has won a landslide victory in Sunday’s general election for the lower House of Representatives. So the party that was invented by the Americans after the second world war to consolidate capitalist democracy in Japan and has held power for most of the succeeding 65 years, has been returned again after four years of being in the wilderness.
What excites the media is that the LDP and its junior coalition partner, the Komeito, have probably enough seats to obtain a two-thirds majority in the lower house. That means the government can ensure that its policies cannot be blocked by the upper house Senate, where the Democratic Party (DP), the defeated government party, holds a majority. The DP has been resoundingly defeated as the electorate have been hugely disappointed by the failure of the DP to carry out its promises of cleaner, less bureaucratic government and an end to the stagnation of the economy (called the ‘lost decades’) that Japanese capitalism has experienced since the end of the 1980s.
For the electorate, the DP turned out to be even worse than the LDP, as the economy juddered under the shock of the global economic slump, the tsunami and the risk of nuclear calamity. The DP just proposed more taxes and government spending cuts and its leaders bickered, leading to three prime ministers in four years.
But the media’s focus on the LDP’s likely huge majority means that it has missed a much more significant fact from the election. The estimated turnout is an all-time low since figures were kept in 1890! The voter turnout is estimated at 59.52%, below the previous record low of 59.65% in the 1996 election and the post-war record high in the 2009 election of 69.3%. I dug up the figures from the Japanese government and the decline in voter support in this election has been particularly awful this time especially if you consider that elections before 1945 were dubious, to say the least.
There is no space or time now for me to consider why Japanese capitalism has been such a miserable failure over the last 30 years. But let’s look at the key Marxist indicators for now. The great rise of Japanese manufacturing after the second world war was driven by a very high rate of profit. That rate fell fast during the 1960s and the Japanese ‘miracle’ came to an end in the mid-1970s. After the first worldwide post-war economic crisis of 1974-5, Japan began to struggle. Japan’s annual economic growth was 3.8% from 1974 to 1990, compared with 9.2% from 1956 to 1973. Japanese capitalism had exhausted its reserve army of cheap labour and a rising organic composition of capital kept profitability low.
Japanese capitalism now tried to boost that profitability by looking for higher profits in unproductive sectors like real estate and finance in a forerunner of the great credit boom that the US and Europe entered after 2002. Japan’s credit bubble burst in 1989 in a similarly disastrous way as in the global financial crash of 2007-8. Japan entered a recession that also coincided with a worldwide slump in 1990-1. But while the other major capitalist economies made a relative recovery after that slump, Japanese profitability declined further during the 1990s.
The main reason seemed to be an unwillingness on the part of the ruling elite in the banks, big corporations and government to entertain a deleveraging of the over extended financial sector. Just as the US and European governments did in 2009, they got the taxpayers and the state to bail out the banks and the big institutions. As a result, Japan was left with a huge public sector debt that weighs down on the productive sectors of the economy, sucking up new value and savings (as a proportion of national output, public debt is more than double that of the Europe and the US). Japanese capitalism became zombie capitalism.
In 1998, Japan’s political elite tried to ‘reform’ under a neo-liberal prime minister Koizumi who opted for the restructuring of the banks, privatisation of state agencies and higher taxes. This produced a short revival in profitability, at the expense of average living standards, reduced pensions and worse work benefits. The electorate then hoped that the new Democratic Party, an amalgam of former socialists, social democrats and liberals would be a new beacon to clean up Japanese politics, end corruption and restore growth. But the triple whammy of earthquake/tsunami, nuclear and global economic crisis knocked Japanese capitalism over again. By 2010, Japan’s nominal GDP was lower than that of 1994.
Now huge numbers of voters have become disillusioned with all parties and we have this all-time low turnout. The LDP is back in the saddle, pledged to spend more on government projects, not to raise taxes, boost exports by devaluing the yen, to restore the nuclear facilities, raise military spending and act ‘tougher’ with China. Indeed, the same old tired policies of the last 30 years.
Michael Roberts Blog 
Reblogged this on gfmurphy101.
Michael:
I’m not so sure about your explanation for the drop in the rate of profit in Japan: “Japanese capitalism had exhausted its reserve army of cheap labour and a rising organic composition of capital kept profitability low.”
The extremely high profit rates in the US and Europe during the Bretton Woods era show that profit rates can remain high in a labor scarce economy. More importantly, in the case of Japan, its rapid growth and high profit rates came from exports, helped by a weak yen and American consumption. Thus, any examination of the decline in the rate of profit should begin with the performance of Japan’s exports compared to its competitors.
What is clear is that manufacturing profit rates declined around the globe in the 1970’s and not just in Japan. By this point, the US’ share of global economic output had declined since Europe and Japan rebuilt themselves from the devastation of World War II. But their industrialization meant that the world entered a crisis of overproduction and under-utilization of capacity in manufacturing. Industrial firms in the US, Japan, and Germany found themselves competing for larger slices of a pie that was no longer growing, with profits going to the firms of the country with the weakest currency. To undercut their competitors, firms invested in productive capacity to increase efficiency (and cut costs). This only exacerbated the problem of overproduction/under-utilization capacity and capacity utilization for industrial firms has steadily fallen since the 1970’s. And all the while, profit rates in manufacturing have been in steady decline since. Agriculture had long been a small part of the economy and now with manufacturing no longer able to push growth the way it used to, the 1970’s and 80’s were a period of stagnation. Governments imposed neoliberal measures in the 1980’s to crush organized labor and increase competitiveness to bring profits home. But another method of restoring growth rates (albeit not to their previous levels) was available: blowing asset bubbles. Japan did this in real estate in the 1980’s and the US did it in stocks in the 90’s and real estate in he 00’s. Europe blew several bubbles, which gave Germany markets for its exports. (The best account of the falling rate of profit I have come across was in Robert Brenner’s The Boom and the Bubble, which I’m sure you’ve read.)
Perhaps I am simply quibbling here and Japan’s ‘reserve army of cheap labor’ was necessary for its high profit rates because of foreign competition. I simply want to make the point that high profit rates can be possible without cheap labor, especially if there is a lack of foreign competition, something the US enjoyed after World War II (accumulation by dispossession is another way). And more importantly, I think a discussion of the global crisis of industrial overproduction/under-utilization of capacity is necessary in any discussion of Japanese profit rates, especially considering the fact that manufacturing profit rates have declined all over the globe since the 1970’s.
Perhaps a cheap reserve army of labor is necessary for high profit rates, which of course disappears in the long run with economic growth. Or perhaps this has only become a condition for high profit rates since the 1970’s and the global crisis of industrial overproduction. But aside from the discussion of the profit rate, it seems that economic growth inevitably stagnates after the traditional outlets for investment of surplus capital, industrialization and urbanization, have been exhausted. Once an economy has reached the post-industrial stage, aside from accumulation by dispossession or another source of foreign demand (perhaps enjoying economic supremacy with few competitors, as the US did in the first two decades after the second world war) there is little room for growth. The only option left is financialization and the blowing of asset bubbles, which only boost growth, investment, and/or consumption in the short-term and inevitably lead to financial crises.
I am still new to your work but would love to hear more of your thoughts on whether or not the current economic difficulties simply reflect the end of the growth and profitability of the current politico-economic regime (which inevitably happens to every politico-economic order when its inherent contradictions are exposed, at which point the institutions and paradigms must change and capitalism reconfigure itself to overcome the barriers to capital accumulation and restore growth to its previous levels) or if they are the result of systemic problems of capitalism that will result in its demise.
With regard to a situation where “the traditional outlets for investment of surplus capital, industrialization and urbanization, have been exhausted”, I think we should try and replace the fake-neutral term “urbanization”, which is superficial in the extreme, with the real process, which is proletarianization. Dispossession of small farmers, poor peasants. With no property they can’t continue their traditional subsistence farming, so they move to the cities or starve (or rather, they move to the cities, and starve there instead of in the countryside). With nothing to sell but their labour-power, they constitute a new source of surplus value, and if the state hosting them (India, Brazil, and mutatis mutandis China) is able to keep foreign capital from sinking its fangs into the fresh meat, then accumulation and profits grow and create anomalous centres of capital to rival the established imperialist states.
Imperialism as a socio-economic mode of production isn’t developing, it’s sclerotic, as you write. But within the world system of individual imperialist states, the relations of strength are constantly shifting. Old powers grow weak – Britain and France are excellent examples of this – and new powers aspire to elbow their way on to the stage and take their place.
Choppa:
Agreed. Urbanization/industrialization usually occur exactly how you describe it. As I sort of mentioned in my post, the graduation of certain periphery countries to the core (China in particular) has also contributed to the economic malaise of the developed countries. These countries (the West, basically) used to gain vast sums from accumulation by dispossession and the external demand that comes from the underdeveloped countries who depend on the core for the production of more advanced (and hence more profitable) products. But the rise of competitors to American industry (especially Germany and Japan, and later China) brought the globe to a global crisis of industrial overproduction, leading to declining profit rates in manufacturing in the core nations (with the profits going to the country with the weakest currency).
Japan is kind of an interesting case from monetary and fiscal perspective. Allow me to think out loud please. The central bank’s rate has been zero forever it seems. Its public debt is twice its GDP and ever expanding money supplies. Yet a relatively strong currency and deflationary. For me strong currency indicates strong productivity. In your previous post you had a chart of robot sales which shows relatively high volume robot sales in Japan which tells me that Japan should have one of the highest productivities in the world. Yet it seems to be suffering from deflation despite the zero rates and money printing and the huge public and private debt (apparently total public and private debt to GDP is almost 5). Stunning claims on the future surplus. Is there a tipping point? There ought to be but I’m baffled.
What makes its currency relatively strong despite money printing and elevated debt levels? Is it the productivity, deflation, as well as it being a favored commodity in this depression due to its perceived safety?
I don’t think that a weak currency results in stronger exports in the long run. Higher exports strengthen currencies. I can think of many very weak currencies that have not resulted in increasing exports. A strong SNLT (high productivity) leads to increased exports over extended periods of time.
The depressing thing about Japan’s situation is that almost no one (Except perhaps the Communists, and even their support is dwindling) seems to be drawing the conclusion that socialism is the solution to its long decline. Everyone here seems to just be trying their best not to think about the actual state of affairs, and when they do think about it the only result is cynical resignation to the country’s eventual collapse. Yes the voter turnout was astonishingly low, but I sense very little revolutionary spirit in the air.
When I tell people that the crisis cannot be resolved on capitalist terms without immense suffering and that avoiding this suffering could be accomplished through socialism, they simply respond “How can you be so sure that would work?” or “It’s impossible to change anything anyhow so what’s the use?” or “People are inherently unequal so socialism is impossible.” Some people actually become quite angry when I bring up the topic, perhaps because its easier to live in complete despair than to believe that things could be different.
@Cameron:
Artificially maintaining a cheap currency does help out your exports. This is what all of the Asian tigers have done and it explains their ability to maintain such large trade surpluses year after year. In the case of Japan, traditionally the relationships between banks and firms tend to be very tight (bank executives would sit on the boards of industrial firms) and profits went to banks, which, encouraged by Ministry of Finance policies that wielded a great deal of influence, in turn converted the yen into dollar-denominated assets (such as treasury bonds). This kept the value of the yen very low even after it went off the undervalued peg with the dollar. China has done something similar and the Korean government and central bank is sure to encourage the devaluation of the won in any way possible when troubles arise. The exports of both countries are performing excellently, as did Japan’s for decades.
As for how the Yen behaves, I don’t really understand it either, and would love to hear Michael’s thoughts, Since the last time it weakened significantly (around the year 2000) it appreciated steadily at a high rate, only to lose value again after the financial crisis (this is a common misconception, although since 2008 it strengthened considerably vis-a-vis the dollar, the real effective exchange rate data shows that it has weakened since then and hasn’t recovered). Whatever the case, its gain in value relative to the dollar coincides with the erasure of Japan’s massive trade surplus (Japan’s source of growth historically), the cause of Japan’s economic woes. But I’m not sure if a lack of global demand or the strengthening of the Yen vis-a-vis the dollar wiped out Japan’s large trade surplus. Either way it gets back to what I wrote about in my first post: without a significant source of external demand (in Japan’s case, consumers abroad, especially Americans), economic growth in a post-industrial society seems hard to come by. Blowing asset bubbles is a temporary solution but when the Japanese real estate bubble popped, Japan got no growth for two decades, and when the external demand disappeared it entered a more serious crisis.
A national currency like the yen is determined relative to other currencies by the size of trade surplus, the size of capital outflows, and by the relative interest differential between japan and the us and europe
When the trade surplus is large and capital flows are inward then the yen gets strong especially is us rates are low. In the recent period the latter have applied as japanese citizens and institutions keep their savings at home. The trade surplus has narrowed. The yen is forecast to weaken from its strong position against the dollar but that may not happen if the fed applies more qe. As you say in real terms after taking into account inflation elsewhere and deflation in japan the yen is already low and so japanese firms can stay competitive. But like elsewhere they are building up cash and not investing
The yen has been crucified by the US – hung up high – to make the Japanese pay for US export advantage. This is the price Japan pays for its strategic subordination to the goals of US imperialism after ww2 – it was allowed to develop its own industry and capital in order to keep China surrounded, as were South Korea and Taiwan, but on US terms and subject to US military overlordship. The US slit the throat of Japanese exports by forcing Japan to finance the US debt at uncompetitive exchange rates. (Something similar goes for Germany in Europe, only the rival being contained was the USSR/Russia, not China.)
This is something the US has been unable to achieve in relation to China, hence all the whining and snarling about China’s “unfair” currency management policies. Unfortunately China is too tied to US viability for now to just pull the currency rug from under it, as I’m sure it could (that would be the mother of all economic implosions!).
Japan is probably in the process of changing horses from the US to China, but our period is too turbulent for there to be much long-term chance of this working itself through smoothly. But the more yuan for non-dollar trade deals we see materializing, the more implosion looms.
I’m currently reading through Andrew Kliman’s “The Failure of Capitalist Production” (2012), for which failure Japan should certainly be the poster child.
I’m curious about the measure of the ROP for Japan in the chart. What method is use to determine this? I’d be particularly interested in terms of what looks like a partial recovery of the ROP since 1998. What is its source.
Note that Kliman generally disdains measurements that require massaging the raw data, and for this reason doesn’t actually deploy the “Marxian ROP”, but approximates this via a “Property ROP”.
As for capitalist Japan, this country is historically finished. Its confrontational attitude towards China (actually, Japan has difficulties with all of its neighbors, South Korea and Russia, the latter of whom Japan is still technically in a state of war!) is a recipe for national suicide. The fundamental problem is that the Japanese bourgeoisie still comport themselves in relation to their neighbors with the old pre-WW2 imperialist arrogance that proved so suicidal in the first place. Rather than learn anything, this bourgeoisie has hid beneath the US “security skirt” as a way to avoid coming to terms with their own neighborhood.
With the historic ebbing of US imperialism, the Japanese bourgeoisie’s underlying bad attitude is now coming out into the open. They richly deserve every brickbat China and others throw at them. I frankly hope they are cut down to size and put in their place. The Diaoyu’s were seized in the 1895 aggression of Imperial Japan against China. Those days are over.
Every rate of profit measure is going to be an approximation to Marx’s value rate of profit and there are various ways of measuring the rate that I have discussed in this blog and in papers. Andrew K has one and discusses others for the US. For Japan I have used data from the extended Penn world tables which I think also provide a good approximation. I’ll post more detail when back from hols
Hi, Michael. How, by what method did you calculate the rate of profit and the organic composition of capital for Japan? The same as in the case of the United States? (https://thenextrecession.wordpress.com/2020/09/13/the-us-rate-of-profit-before-the-covid).
Unfortunately no, although Professor Sako does in a chapter in our book, World in Crisis. Instead I use the short hand Penn World tables series (IRR) suitably adjusted.