Welcome to the Land of the Aging Second-Class Economy: Japan
" ...America's speciality is to take these small risks for the rest of the world, which explains this country's disproportionate share in innovations. Once established, an idea or product is later "perfected" over there."
N.N. Taleb
Author (The Black Swan), academic & money manager
Time and time again politicians, CEOs, hedge fund managers and academics have lamented the "decline" of Japan Inc. In absolute terms it still may boast some of the largest and most successful industrial giants like Toyota, Honda and Nintendo. Per capital GDP still puts it in the upper echeolon of the richest countries of the developed world, but something is amiss.
At a April 17 2008 speech at the Foreign Correspondents Club of Japan, Takatoshi Ito added his name to the list of local critics. The Todai professor went through the now well-trodden list of factors he saw as inhibiting the continued growth of the financial sector of Japan:
too much bureaucracy; too much cost; a prohibitive tax regime; a shortage of skilled talent; and, a restrictive work visa policy (the last two are pretty much linked).
Perhaps he needed to add one aspect that is not easy to change: culture. People are not looked on particularly well if they shun established corporate life and set up their own enterprises. And what if it fails? In many instances, hedge fund managers both domestic and foreign are viewed with suspicion trying to undermine all of the good things of the establishment.
Activists are particularly shunned as persona non grata with The Children's Investment Fund Management Ltd as the current bete noir in the mass media and among corporate boardrooms. "Do not change the status quo" appears to be the debilitating faith that is preached around Japan Inc.
Similarly, Japanese authorities and regulators are not naturally pre-disposed to tax, regulate and control. However, the reality is that this is all they have ever done. Shame. Japan's financial industry is pretty much shrinking, as the local stock markets have underperformed for quite a while now. This is not a cyclical issue but rather a secular one.
The population is aging rapidly and the old are not facing up to the real and pressing issues that impact the budget, tax buirden on the working population and a shortage in skilled workers with new and innovative ideas. Until there is a major consensus that this is a secular problem among the powers that be, the current slide into economic insignicance will continue unabated. Share prices will lag, investors will shun the TSE and industrial companies will continue to hollow-out their activities from the mainland.
As another voice (Hiroko Ota, Minister of Fiscal and Economic Policy) cried out in January 2008: "Japan is no longer in a situation in which the nation is a first-class economy". Clearly this is not a good sign if you are a long-biased fund manager. The irony is that Japan may continue to be the Asian short of choice among global multi-strategy funds for the forseeable future. Although those corporates that do continue to do will will no doubt will have export sales heavily levered to the ongoing growth story enjoyed by the BRIC economies. Mahalo.
" ...America's speciality is to take these small risks for the rest of the world, which explains this country's disproportionate share in innovations. Once established, an idea or product is later "perfected" over there."
N.N. Taleb
Author (The Black Swan), academic & money manager
Time and time again politicians, CEOs, hedge fund managers and academics have lamented the "decline" of Japan Inc. In absolute terms it still may boast some of the largest and most successful industrial giants like Toyota, Honda and Nintendo. Per capital GDP still puts it in the upper echeolon of the richest countries of the developed world, but something is amiss.
At a April 17 2008 speech at the Foreign Correspondents Club of Japan, Takatoshi Ito added his name to the list of local critics. The Todai professor went through the now well-trodden list of factors he saw as inhibiting the continued growth of the financial sector of Japan:
too much bureaucracy; too much cost; a prohibitive tax regime; a shortage of skilled talent; and, a restrictive work visa policy (the last two are pretty much linked).
Perhaps he needed to add one aspect that is not easy to change: culture. People are not looked on particularly well if they shun established corporate life and set up their own enterprises. And what if it fails? In many instances, hedge fund managers both domestic and foreign are viewed with suspicion trying to undermine all of the good things of the establishment.
Activists are particularly shunned as persona non grata with The Children's Investment Fund Management Ltd as the current bete noir in the mass media and among corporate boardrooms. "Do not change the status quo" appears to be the debilitating faith that is preached around Japan Inc.
Similarly, Japanese authorities and regulators are not naturally pre-disposed to tax, regulate and control. However, the reality is that this is all they have ever done. Shame. Japan's financial industry is pretty much shrinking, as the local stock markets have underperformed for quite a while now. This is not a cyclical issue but rather a secular one.
The population is aging rapidly and the old are not facing up to the real and pressing issues that impact the budget, tax buirden on the working population and a shortage in skilled workers with new and innovative ideas. Until there is a major consensus that this is a secular problem among the powers that be, the current slide into economic insignicance will continue unabated. Share prices will lag, investors will shun the TSE and industrial companies will continue to hollow-out their activities from the mainland.
As another voice (Hiroko Ota, Minister of Fiscal and Economic Policy) cried out in January 2008: "Japan is no longer in a situation in which the nation is a first-class economy". Clearly this is not a good sign if you are a long-biased fund manager. The irony is that Japan may continue to be the Asian short of choice among global multi-strategy funds for the forseeable future. Although those corporates that do continue to do will will no doubt will have export sales heavily levered to the ongoing growth story enjoyed by the BRIC economies. Mahalo.
posted by Franklin Scruggins | 5:55 AM
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