Japan tries to balance between job stability and growth

Every day, the impeccably dressed ‘elevator girls’ of Tokyo’s Odakyu department store greet customers, ushering them in and out of the cars. During breaks, they practice their greetings and meticulously reapply their makeup.

Critics see the women as the embodiment of this country’s productivity problem — squandering of one of the world’s best educated labour forces on banal jobs that do little to make the economy grow.

But others, including the Democrats, Japan’s new ruling party, see them as beneficiaries of a more humane capitalism, a capitalism that values employment and stability over growth.

Japanese manufacturers taught the world to be competitive — reshaping the landscape in industries like cars and electronics, and introducing a vocabulary of quality and efficiency that became a mantra on business school campuses and shop floors.

But productivity growth in Japan’s service sector has slowed in recent years, weighing on the labour productivity of the entire economy, which ranks only 18th among the 30 countries in the Organisation for Economic Co-operation and Development and just 70 per cent of levels in the US.

With the service industry making up 70 per cent of Japan’s economy, and manufacturers battered by the global slowdown, economists say Japan’s ability to emerge from the worst recession since World War II will depend partly on its ability to make its service sector more productive.

“Structural reforms have absolutely no popularity in the current climate,” Yorio Ota, a strategist at the Mitsubishi UFJ Trust and Banking Corporation. “But what is needed for a true recovery are reforms of the Japanese economy.”

But Yukio Hatoyama, the leader of the ruling Democratic Party, bases his political philosophy on what he calls ‘fraternity’, meaning empathy with workers, rather than concern for corporate profits.

Hirohisa Fujii, a leading contender for finance minister when Hatoyama announces his cabinet this week, has criticised even some of the moderate changes made by the departing Liberal Democratic Party.

“Market economics is supposed to make a lot of people happy by letting skilled people fully utilise their skills,” Fujii, an elder statesman and former finance minister, wrote in a newspaper column last year. But recent pro-market changes in Japan “did not make everybody happy,” he said. “That must be corrected, and we must build a politics led by the people.”

Evidence of low productivity in the service sector is everywhere: office workers still pour over paper files; a veritable receiving line of security guards and receptionists greets visitors at building entrances; and Japanese retailers employ twice the average number of workers per outlet as their peers in other Organisation for Economic Cooperation and Development countries. Odakyu does not consider its “elevator girls” a wasteful extravagance.

The store says the 14 full-time workers it employs to operate fully automated elevators provide a benefit.

Labour & social norms

Hatoyama is especially critical of changes championed by the former prime minister, the pro-American, free-market Junichiro Koizumi. Among other things, Koizumi took aim at Japan’s stagnant labour market, lifting a ban on the use of temporary labourers at factories.

He hoped to increase flexibility in hiring at Japanese companies, many of which are saddled with more employees-for-life than they need, protected by labour laws and social norms.

The inability to fire these redundant workers even in lean times keeps productivity at ailing companies low, while hurting upstarts that could use experienced workers. But critics blamed those changes for a widening income gap between lifetime workers and their poorer ‘temp’ colleagues. The number of temporary workers, with low pay, few benefits and little job security, has surged in the last decade, reaching a third of the work force of 67 million. The plight of temporary workers let go en masse in the fallout from the global financial crisis has prompted a public outcry.

The Democrats’ economic platform centres on consumer relief, including cash allowances for families rearing children and lower gasoline taxes. Economists say such policies could stimulate Japan’s flagging consumer spending and help spur a modest recovery. But with wages in decline, it is unclear how much consumers can be expected to increase spending in the long term.

To generate lasting growth, Japan needs to change old rules and dictates that have guarded a sclerotic establishment with heavy-handed government protection and squashed entrepreneurship with cumbersome barriers, some economists say.

A cautionary tale, repeated by market proponents and opponents, is about QB Net, a start-up that took on Japan’s highly regulated barber market 10 years ago. QB Net’s string of super-efficient shops took the market by storm by offering quick haircuts for 1,000 yen, or about $10. Last fiscal year, the company logged sales of 6.73 billion yen, while the rest of the industry slumped.

Threatened, a nationwide association for barbershops called for more regulation. Among other things, the association argued that it was unclean for QB Net to offer haircuts to clients without first washing their hair; soon, ordinances were passed across the country requiring all barbershops to install shampooing facilities, an expensive investment that slowed QB’s growth.

“It’s not right to be penalised for being successful,” said  QB Net Chief Executive Kazutaka Iwai . “We simply came up with a way to be more productive.” Others, however, argue that Japan’s traditional barbershops, though outdated, are worth saving.

These tiny salons have consistently employed about 250,000 barbers for three decades, and the shopkeepers are often central figures in a kind of community life that many Japanese fear is being lost.

“There are many structural factors that may influence the relationship between productivity and social welfare,” said David J Brunner, a Japan specialist and research associate .  
“So firms should fire their excess employees and leave them feeling betrayed and worthless, and without income?That certainly would not contribute to economic growth or the general welfare.”

Even the Liberal Democrats have spoken out in recent years against the pro-market changes introduced by Koizumi, one of their own. The most fervently antichange Liberal Democrats will join in a coalition government with the new prime minister-elect, Hatoyama. The Democrats’ other coalition partners are the Social Democrats. “We will fight with all our might to rebuild the livelihoods the public so sorely misses,” the Social Democratic leader, Mizuho Fukushima, said this week. “We will build a politics that values life, and corrects widening inequalities.”