That Real Wages Falling Means Abenomics Is Failing Thing

Two days ago the Financial Times published an exegesis upon the most recent Nihon Keizai Shimbun's public opinion poll -- the one that everyone is talking about (Link). Entitled "Shinzo Abe faces rising disenchantment in Japan" the Jonathan Soble article features the following graph:


Source: Financial Times

Now if I were an Abe government flack, rather than trying to ignore this graph or, when confronted with it, try to explain the fall in real wages away ("There will of course be a period of adjustment...but after a while we will see real wages rise again...") I would put the graph on the first page of every presentation on the future course of Japan's economic reforms. "Look," I would tell everyone, "the currency devaluation of Abenomics and consumption tax increase of Nodanomics, implemented in April --- see where the real wage curve suddenly falls like a stone off a cliff? --are doing exactly what they were expected to do. This is not a picture of Abenomics failing; this is picture of Abenomics and Nodanomics WORKING!"

"Now the executives of Japan's multinationals can bank their currency devaluation boosted profits, leading to consumption to fall off a cliff too -- or they can buckle down and start raising national incomes by either paying more to existing workers, hiring more workers, engage in some capital expenditure or distribute the profits among shareholders. So I say to you top executives of Japan's largest companines, I know that a lot of you top executives are timid, self-pitying and avaricious tyrants -- not all of you, mind you, but a lot of you -- who will do what is right for the company books but is wrong for the nation and its people. Hear me, your country needs you NOW!"

Abe Shinzo has indeed been engaging in this kind of "moral suasion" as the IMF put it in April (Link). He just needs to do it more, twisting the arms of his best corporate buddies until they scream out serious, inflation-indexed or more raises in wages. Would it not be impressive if, let us say, Akimoto Yasushi, one of Abe's closest advisors on "Cool Japan" promotion strategy (Link) were to announce a 3.6% raise in the wages of every member of the AKB48 empire? Because, let us face it, the Akimoto stable's corporate image is in need of a buffing right about now (Link). Or how about a similar increase in the wages of JR Central employees before Abe Best Friend Forever Kasai Yoshiyuki wipes out every bit of corporate wealth those employees have created in a farcical, sure-to-have-to-be-bailed-out bid to build an electricity-snarfling hyperspeed subway (86% below ground) from Tokyo to Nagoya? (Link)

Oh, yes. Prime Minister Abe could also push up the real wages curve by using his big ruling party majorities in both Houses of the Diet to pass legislation further increasing the wages paid to bureaucrats and other government employees, reversing decades of wage and benefit cuts. Poaching a few corporate hotshots and putting them to work on the nation's problems would further foster the impression that in this blessed land there is a competition for talent, one for which Japan corporate heads will have to start loosening the purse strings or face being blindsided by defection.

Damn You Science! - The Response

Whew, that was fast.

But a single day had to pass after the Obokata announcement of a new and better pathway to producing stem cells, one seemingly consigning to the footnotes the government's 110 billion yen investment in Yamanaka Shinya's induced pluripotent stem cell method, for Education Minister Shimomura Hakubun to announce a plan to dramatically raise both the Riken research center's official status and the Riken staff pay (Link). The Yomiuri Shimbun, perhaps getting a little ahead of itself, speculates that under new guidelines research centers of Riken's new elevated status could offer hot researchers pay packages of USD 1 million per year. (Link - J)

Whatever one may want to say about the Abe Administration, one cannot complain about its moving too slowly and meekly to exploit opportunities to get behind a winning team.

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.