The news that Japan’s real GDP dropped sharply in the last quarter of 2019 and the economy appears to be entering a new ‘technical’ recession (two consecutive quarterly contractions) in 2020 has produced a reaction from mainstream economics.

In essence, Abe was encouraged to adopt the two policy proposals of mainstream/Keynesian economics (monetary and fiscal) to get a capitalist economy out of stagnation and the recurrence of a slump.  Indeed, these policies are exactly what is proposed now to get the world capitalist economy out of its low growth in GDP, investment and productivity in 2019.

Abe adopted these policies as two of the three ‘arrows’ of Abenomics.  The other arrow was ‘structural reform’, a nice name for ‘neoliberal’ policies of reducing labour rights, privatisations, pensions and holding down wages so that costs of production are reduced and profitability of capital is raised.

Well, after watching, we find that Abenomics has not worked and Japan is heading back into another slump after a yet another lost decade of stagnation.

Despite nearly three decades of government budget deficits, Japan has stagnated with an average real GDP growth rate of 1%, interspersed with recurring ‘technical’ recessions.  Indeed, Japan’s fastest growth period was from 2002-2007, when austerity was imposed by Koizumi!

So history does not support the Keynesian policy solution.Moreover, it does not augur well for the policy conclusions of Modern Monetary Theory (MMT).

The MMT retort could be to say that the positive result of these deficits is that there is full employment in Japan.  The official unemployment rate is at a record low of 2.2%.

But this is a phenomenon that has been repeated in other G7 economies.  Both the UK and the US also have record low official unemployment rates and the rate in the Eurozone has also dropped sharply in the last ten years.  But in all these countries, this employment is not in well-paid, secure jobs, with training and career prospects.  Most are in ‘precarious’, low paid, low skill work.

These workers are having to do two or more jobs to make ends meet.  Some people are working 70-hour weeks out of multiple jobs. According to Lancers research, some 4.5 million full-time workers in Japan have second jobs, where they work, on average, between six and 14 additional hours each week, on top of any overtime hours they clock at their primary job; a small number of them work up to 30 or 40 hours per week at their second jobs.

(...) the one recruitment strategy that hasn’t really taken hold is increasing wages! Instead, Japan’s corporations have chosen to sit on the piles of cash they’ve earned from Abe’s fiscal policy. Each spring, over the past six years of Abenomics, the leaders of Japan’s major industries have ceded remarkably little ground to unions during the annual wage negotiations known as shuntō. Overall, workers are spending an average of 11 percent more time to earn the same salary they were bringing home about 20 years ago, and some are working unpaid overtime on top of that.

Employ, pay them little and don’t invest.  That has been the policy of the capitalist sector in most of the major economies since the Great Recession and the result is that the productivity of labour has hardly risen.

Abe applied some more. He cut corporate profit taxes sharply – Trump-style, while he hiked employee social security contributions to reduce the burden for employers.

The outcome was a shift in the share of labour in national income towards profit share. Real wages per employee fell and, with it, household spending.

But this has not been sufficient to restore profitability to even pre-GR levels.

Vía:

Japan: Abenomics revisited
https://thenextrecession.wordpress.com/2020/02/19/japan-abenomics-revisited/

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