Kickstarting Abenomics: A Possible Scenario

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Later - Oh, serendipitous coincidence. (Link - J)

Original photo image courtesy: Sankei Shimbun

Grim Exposition Of Fundamental Flaws in Abe's Abenomics

Loose monetary policy goes a long way toward liberating a country from economic torpor. However, monetary policy alone is insufficient for the whole journey. I have for a long while been railing that the Abe Cabinet has to get down to brass tacks and figure out ways to punish companies for hoarding their profits rather redistributing them to shareholders, converting them into higher pay for employees or deploying them in investments. (Link)

In a video that everyone should watch, Charles Dumas, the chief economist for Lombard Street Research, agrees. (Link - video)

That exports continued to underperform last month despite the effective devaluation of the yen (Link) only makes the Dumas presentation all the more damning.

Given that Abe 2.0: The Return of the Princeling was orchestrated by a select group of (often China hating) empire builders of the zaikai who crowd around Abe on the weekends, not letting others with their pesky opinions near their superannuated golden boy, the chances that the PM will be made aware of the changes necessary to save Abenomics, much less implement those changes, are very, very low.


Image: Council on Economic and Fiscal Policy meeting of 22 July 2014
Image courtesy: The Prime Minister's Residence

Estimated Are The Prophets And The Fruits Of Their Labors

Yesterday NHK reported the results of a pair of surveys it conducted mid-month asking public corporations about their business conditions and personnel plans for the year. The first was of leading corporations (shuyo kigyo -- with no definition as to what that means); the second was of small- and medium-sized enterprises (again no definition but the content of the survey would preclude the inclusion of no single employee proprietorships). The response rate for the leading corporation survey was fantastic: 100 companies of 100 surveyed reporting. The response rate for the SMEs survey mediocre: 201 out of 346 corporations, or 58%.

What made two surveys particularly interesting was the difference in between the content and NHK's framing of it. Last night's 19:00 News 7 (Nyusu seben) broadcast -- the nation’s most-watched news broadcast -- began with a smiling Takeda Shin'ichi assuring the viewers, "We have some very heartening news tonight..." -- which made it sound as though something truly wonderful was about to be unveiled.

What was revealed, however, seems rather less than "wonderful":

- Of the 100 leading corporations surveyed, 10 were confident enough to declare an economic recovery underway. 86 of the companies were less certain, judging that the best that could be said was that a moderate (yurayaka na) recovery was underway.

- Of the SMEs, less than 20% were declaring increased profits for the year. 46% will be reporting flat-lining results. 25% will be reporting decreases in profits and 8.5% will be declaring losses.

- The two surveys found nearly identical levels -- 71% of large corporations, 72% of responding SMEs -- studying ways to raise take home pay. Not intending to increase pay, mind you, studying (kento suru) whether to increase pay and how to do it. These potential pay raise figures would furthermore be limited to remuneration for full-time employees -- no word on the remuneration of the nation's legions of part-time workers.

- 32 of the leading corporations were considering raising pay using automatic wage hike mechanisms (teiki shokyu); 30 were considering raising bonuses and 11 were thinking of "increasing monthly compensation by some way or another." Only 9 of the 100 leading corporations were thinking of revising upward the numbers listed in the basic tables used to calculate remuneration (beesu appu).

Links:

- 100 leading corporations survey report (Link - J + video)

- SME survey report (Link - J + video)

[NB: hurry to copy down contents as link rot sets in soon -- MTC]

Given the lack of the measurement of definitive moves toward higher base pay, which would be indicative of the nation's corporate executives being willing to share an Abenomics-derived economic bounty, Takeda's bubbly intro seemed almost sarcastic -- and NHK generally does not have sarcasm in its tool kit.

What is furthermore interesting in the SME survey are the high levels of performance reported. Only 8.5% of the NHK respondents were preparing to report losses. This would seem to stand in direct contradiction to known percentages of corporations declaring losses on the financial year.

Below is a wonderful graph compiled by the folks at the Tokyo Shimbun of the historical trends of loss accounting as reflected in the percentage nation's corporations exposed to the corporate income tax. The red line is all corporations; the blue line, corporation with at least 100 million yen of base capital.



As the graph shows, since the bursting of the bubble a steadily increasing fraction of the nation's corporations are fiddling with accounts so as to declare themselves unprofitable in the current fiscal year. In Fiscal Year 2011-12, the most recent year available, only 28% of all Japanese companies paid corporate income tax, with only about half of larger capitalized firms (53%) paying the tax.

Self-selection of a particularly active kind is therefore taking place in the NHK survey. We can guess that a goodly number of the 42% of SMEs who failed to return the completed survey are companies with horrible books. We must also assume that the 46% of SMES reporting unchanged results have clever accountants who take potentially reportable profits and bury them in the bad ideas and dumb decisions of previous years.

On a somewhat ancillary note, the Tokyo Shimbun graph should drive a stake through the heart of a particularly egregious misperception of Japan: the purportedly minor size of Japanese non-profit sector. The clichéd complaint is that the lack of a large formal non-profits as they are known in the Anglo-American world -- the research centers, the foundations, the think tanks --represents a glaring weak point for Japanese society and Japanese capitalism.

As the above graph illustrates, Japan's non-profit sector is not small. It is in fact HUGE -- with the majority of the country's non-government workers employed in enterprises that should be classified as non- or even anti-profits.

More Than Carelessness In Hokkaido

Something for the "you have got to be kidding me" file.

On the morning of 12 September 2011 Nakajima Naotoshi, the president of JR Hokkaido, went missing. He had been under a great deal of stress and media pressure as a result of the May 2011 Sekisho Line accident where an express train derailed and caught fire, part of a spate of accidents and incidents involving JR Hokkaido railway trains. Later investigations of the company found systemic delays and cancellations of basic line maintenance and poor labor management -- inconceivable breaches of the public trust and a violation of the cultivated image of Japan's railways as avatars of a national obsession with high quality service.

Nakajima left behind a pile of letters of apologies and final farewells, leading police and family members to fear he would be trying to take his own life. His private automobile was found that afternoon, parked, empty, in the port area of Ishikari City.

On 18 September, a fisherman in a boat of Otaru, across the bay, found the corpse of a man floating in the water. It was Nakajima. Officers examining the body ruled the death a suicide. (Link -J)

On 15 January 2014, early in the morning, Sakamoto Shin'ichi, the former president (1996-03) and chairman (2003-07) of JR Hokkaido, went missing. His private automobile was found at the seawall of Yoichi Township, just to the west of Otaru City.

At around 08:20, Maritime Self Defense Forces personnel found a corpse of a man floating in the waters of Yoichi's harbor. The Japan Coast Guard retrieved the body. It was Sakamoto. Finding no signs of struggle upon the body, the police are classifying Sakamoto's death a suicide. (Link - J)

When the second and fourth presidents of one of Japan's emblematic but admittedly struggling companies are both found, as the Sicilians, "sleeping with the fishes," within three years of one another, disappearing under nearly identical circumstances (Sakamoto left behind no notes, as far as anyone can tell) with the bodies being found basically the same condition in largely the same area, one should not feel ashamed if Oscar Wilde's admonition on losing one's parents (Link - J) bubbles up.

Comments on these deaths, Dr. Duignan or Mr. Adelstein?

Politics and Poetry: Senryu For The Week Of March 23, 2013 - The Shrieking Begins

It is hard not to applaud, if only while shaking one's head, at the performance of the Abe Administration and the Liberal Democratic Party. Against all odds and all expectations they have steamrollered all opposition to their policy program. The equities, bond and currency markets have sung a tune that the an informed but uncritical lay person can hum, with the unsurprising result of public support for the Cabinet and the party rising ever higher in public opinion polls. (Link - J)

Every single thing Abe and his party have sought to make happen has happened. Unless there is some extraordinary reversal of fortune between now and election day, Abe's LDP will sweep the district and the proportional races, leaving out of courtesy – not necessity—a smattering of seats to their electoral allies, the New Komeito.

With the seeming inevitability of a landslide and the prospects of an Abe administration unleashed following a massive victory in the July elections, the tone of the comic verse published in my Saturday newspaper have taken a decidedly uncomic turn.

国あげて
あとはしらぬと
花見酒

Kuni agete
Ato wa shiranu to
Hanamizake

All over the country
No knowledge of that which is to come
The sake of cherry blossom viewing

It is cherry blossom viewing season (at an unseasonably early time, yet another brick in the wall of worry for those of us wishing a livable planet for our children) and indulging to excess on alcohol is a part of the festivities. However, the oblivion described is far from blissful. The lack of knowledge of the future refers not just to loss of fear of the future from drunkenness but also to the quick scattering of the cherry blossoms, who know no future because they have none. The "All over the country" furthermore does not refer just the geographical space but the people of Japan, who are drinking themselves into a stupor because they do not want to know the future.

労組より
鶴一声で
勝ち取れる

Roso yori
Tsuru hitokoe de
Kachitoreru

Rather than the labor unions
From the voice of ultimate power (one call of the crane)
Comes conquest

It has been the time of the ritualized spring struggle (shunto) in between the labor unions and the managements of the major corporations. The remuneration rate rises won by the major unions become the standard for remuneration in all businesses.

As has been the case for longer than anyone wishes to contemplate, labor union requests for dramatically higher wages – i.e., a sharing of the profits the corporations have made through long term cost-cutting and the recent fall of the yen – have been turned down by corporate executives, even with the Abe government encouraging corporations to be more generous. (Link)

The crane voice of Tsusu hitokoe de is not the crane’s cry of classical poetry, which is associated with a love of one’s children and one’s homeland. Instead it is the voice of ultimate, unquestionable authority (in this cases, the CEOs of the corporations). With a single utterance, it ends all conversation.

オスプレイ
頭上に祝う
主権の日

Osupurei
zujo ni iwau
shuken no hi

Ospreys
overhead celebrate
the day of return of our sovereignty

The LDP in its December 2012 election manifesto promised to establish a national day of remembrance of Japan’s Occupation. On March 12, the Cabinet ratified the establishment of a public commoration, choosing April 28, the anniversary of the entry into effect of the San Francisco peace treaty, as the day. While shuken no hi will not be a national holiday, there will be a formal government ceremony with the emperor in attendance
.
The establishment of this day of national liberation has understandably infuriated Okinawans, for whom April 28 is a day of shame. (Link)

The author of the senryu mocks the pretentions of the Abe administration, pointing out that the same week the Cabinet established a day celebrating the end of the Occupation, U.S. Forces Japan began conducting training flights of the highly controversial V22A Osprey tilt-rotor aircraft over Japan’s main islands.

公約と
詐欺と分かるも
時遅し

Koyaku to
sagi to wakaru mo
toki ososhi

Even if you can differentiate
campaign promises from fraud
it's too late

One cannot get more negative than insinuating the campaign promises of the ruling party are fraud (sagi).

The negative view of the author is nevertheless one very much of the minority. Cabinet approval is riding high at over 70%. When voters who support the Cabinet are asked why they are doing so, an overwhelming (possibly historic) majority say, "faith in the Cabinet's policies."

The popularity of the government's programs and the reality that the election has already happened prompt the bitter final line of toki ososhi -- translatable as "It's too late for that now" or "That ship has sailed."

The sense of hopelessness reached its apogee this week in the poem that the editors of my local paper published at the top of their weekly feature of poems sent in by readers.

あんなにも
反対したのに
もう賛成

Anna ni mo
hantai shita no ni
mo sansei

After opposing it
So much
You are now agreeing to it

In contrast to the topicality of most senryu, the lead poem is transcendent, without a clear link to a specific incident or government act. It might be a reference to the Democratic Party of Japan's voting in favor of the appointment of former Finance Ministry bureaucrat Kuroda Katsuhiko as Governor of the Bank of Japan five years after the DPJ provoked a major crisis in rejecting two Finance Ministry old boys for the post. Then again, the author may be referring to another betrayal of conscience.

Very possibly the author is making a sweeping accusation of all, cursing all for surrendering to the new regime, abandoning principles and beliefs without a fight.

That Unanswered TEPCO Question

Now that the government of this blessed land has taken a majority stake in the technically bankrupt Tokyo Electric Power Company (TEPCO), phased in the replacement of the chairman and the president (E) and seen to a housecleaning of the board of directors. (E)

Many questions arise from the government's takeover as the main shareholder and appointer of executives and board members. What intrigues me is what will happen when the government and the new board members, particularly the outside board members, go through the books at TEPCO? Specifically, what are they going to find -- and once they find what they find, what are they going to do about what they find -- when they go through the accounts on how electricity costs are compiled?

From my understanding of the research done by Dr. Paul Scalise (and if Dr. Daniel Aldrich, if your research has identical findings, I apologize in advance for the sin of omission), a stunningly large fraction of the cost of TEPCO electricity cannot be explained by labor, capital or fuel costs. Indeed, if memory serves, the largest fraction of the costs of electricity is listed as simply "Other" -- and the amount listed in this category has remained unchanged, even as the costs of the various other inputs has either declined over time or has fluctuated in line with world energy prices.

What is this "Other"? To this point none of the electric power companies has been very upfront about the contents of this grab bag accounting entity. A certain fraction of this amount has always been assumed to have been payoffs to local communities, farming and fishing cooperatives and other business organizations with their facilities in the vicinity of power plants. Just how much of this other can be accounted for in this way is something the government can now, in theory find out, along with the rest of what has been lumped in to the category of "Other."

Of course, does the government want to know? Does it cut the subsidies to the local parasitic claimants, many of whom no longer can live and work in the vicinity of Fukushima Dai'ichi anyway, in order to lessen or forestall the rate hikes TEPCO has announced (E)? Do they keep them in place, as a sort of disaster recovery fund-by-default? Do they open up the accounts for public debate, or try to bury the truth in order to hide the complicity of regulators and politicians in the payouts? Or what if the government and the new board members find even more damaging reasons for the classing of certain costs as "Other"?

If the government owns TEPCO it not only owns company's problems but its secrets too.

What lies in between the covers of its account books?

Japan As A Normal Nation - Bic and Kojima

A profitable competitor in an overcrowded market swallows up an unprofitable rival. The merged company will become #2 in the market, even after closing 40 to 50 underperforming units of the merger target. The founding family of the merger target is told to go stuff it. (E and J)

Which country is this happening in?

The Latest On Olympus In The Japanese Media

For those who follow these kind of things, Peter Cave (whom I assume is the Dr. Peter Cave of the University of Manchester) and I have been going back and forth on NHK's treatment of the Olympus scandal.

Well, NHK recut its report of last night (ja - warning: time sensitive) for rebroadcast as a part of this morning's telecast, coming this time as close as it has to calling out Olympus for having engaged in multiple instances of questionable M&A practices and covering the matter up with cursory reports on the company's actions.

This is a huge improvement over the silence that has reigned on what looks more and more like a criminal enterprise masquerading as an internationally recognized camera and endoscope brand.

Still, the mainline non-economic Japanese news media should be ashamed that it is wading into this mud puddle a week and a half after non-Japan media blew the story wide open, complete with the names of the likely perpetrators.

The Shukan Daiyamondo's online version agrees (ja) with my initial assessment on the Japanese news media's coverage of the Olympus scandal, asking whether or not the domestic news media can be accused of just staring up at the sky.

What's The Reason For The Difference in Coverage?

I am trying to get a handle on why the non-economic news media complex is fascinated with the Daio Paper scandal while remaining virtually silent on the much, much larger Olympus scandal. Every night we are treated to breathless updates featuring snippets of the handsome, young former chairman of Daio, mostly walking down the steps of his home. Not that there is much to the story: little rich boy takes over Daddy's company, uses its cash reserves as his own personal piggy bank, blows the money in Las Vegas and other venues, finds that his own personal fortune cannot pay back even half the loan from the company's kitty. Even the Japanese press does not make any bones about this being a story of a company where the founding family treated the company as its own private possession, with their underlings obliging them (en).

By contrast, the Olympus story is rife with "you cannot make this stuff up" international skullduggery: a foreign president brought in to clean up the company uncovers a mega-sized scandal and is summarily sacked for doing his job properly; record advisory fees paid to a Cayman islands company that has since evaporated, acquisitions whose value Olympus had to write off in a year; a pair of mysterious banker brothers -- it is all just incredible (en - with a special double hurrah for Hiroko Tabuchi).

Yet in the mainline press and on television, nada. Just a rote announcement that the chairman who sacked the foreign CEO himself resigned on Wednesday due to "confusion over acquisitions" made by Olympus.

The scale of the robbery of Olympus is 50 times 5 times the size of the Daio Paper scandal.

What gives?