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No. 1 — January 8, 1999

 

Feature Article

IS JAPAN REALLY AN OUTLIER? AN EXAMINATION OF ECONOMIC AND GOVERNMENT VARIABLES by Arthur J. Alexander

Summary

Perhaps surprisingly, the divergence presumed in the media and even in some academic circles between Japan's capitalist system and that of other advanced countries is not supported by a review of several studies and an analysis of more than 40 variables that assess economic and government behavior for as many as 150 countries. In fact, Japan's "distance" from the United States, as measured by the differences in these variables, places it right after the United Kingdom, Canada and Australia.

Japan's similarities to these countries may be due to the fact that the variables do not capture the type of microlevel behavior that makes each country distinctive. In addition, Japan does diverge in some selected variables, and additional data might support popular notions of that country's outlier status. However, when compared against a broad range of countries at various stages of economic and institutional development, Japan does not seem to be all that different from the United States.

One conclusion that can be drawn from this review is that affluent countries tend to have similar approaches to economic life. That, in fact, may be a key reason why they are rich. This kind of convergence has been attributed to such forces as competition, imitation, diffusion of best practice, trade, capital mobility and evolution. However, scholars studying convergence note that such a process is not automatic. As surely as countries converge, they also can diverge — with a consequent loss of relative affluence.

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Weekly Review

TOKYO SEES END TO ECONOMIC SLIDE; PRIVATE FORECASTERS DISAGREE by Douglas Ostrom

In Tokyo these days, an optimist is anyone who can see the faintest glimmer of economic recovery over the next 15 months. Despite that broad definition, the ranks of the hopeful seem remarkably small, judging from the reactions of most economic forecasters to the government's December 20 announcement that it expects the economy to eke out a 0.5 percent price-adjusted gain in the fiscal year that begins April 1, 1999. The consensus projection of 23 research organizations surveyed December 16 by Nihon Keizai Shimbun, Japan's leading economic daily, is that the economy will do a full percentage point worse. No one in the group interviewed by Nikkei was as optimistic as the government. Given the decline in real gross domestic product in FY 1997 and the now universal expectation that aggregate output will shrink again in the current fiscal year, the views of these respected, mainstream forecasters imply that the economy will contract for an unprecedented three years running.

 

GOVERNMENT HOPES TAX BREAK WILL BOOST ECONOMY by Jon Choy

Tackling budget matters for the coming fiscal year in reverse of the usual order, the ruling Liberal Democratic Party and its would-be Liberal Party legislative ally hammered out a tax package before finalizing spending plans. The mandate for the LDP's Tax System Research Council was to translate into hard numbers Prime Minister Keizo Obuchi's earlier pledges to make permanent temporary cuts in personal income taxes, lower the effective corporate income tax rate to the international average and implement other tax changes to revitalize the reeling economy. After tough internal and external bargaining, the LDP released December 16 a final proposal for tax changes in calendar and fiscal 1999 that promises to lower taxes by a total of ¥9.3 trillion ($77.5 billion at ¥120=$1.00). Despite the huge pending reduction (see Table 1), the plan remains controversial because of its negative impact on taxpayers in lower income brackets and its silence on reforming the consumption tax.

 

CABINET PLANS SPENDING SPREE IN FY 1999 THAT WILL BOOST NATIONAL DEBT by Jon Choy

Backing up a pledge of quick action to get the economy growing again, Prime Minister Keizo Obuchi and his cabinet ministers approved December 25 the largest-ever initial general account budget, including sharp increases in public works outlays and other stimulative measures, for the coming fiscal year. Headlined by a 5.4 percent increase in total outlays and a 5.3 percent hike in discretionary expenditures, the initial FY 1999 spending plan loudly proclaims that the government has shifted fiscal course from the austerity evident in the initial FY 1998 budget. Many analysts worry, however, that this turnabout will carry a heavy price tag in the longer term because the bigger spending will be funded mainly by borrowing.

 

POLICY DIFFERENCES THREATEN LDP-LIBERAL PARTY UNION by Barbara Wanner

Seeming to prove skeptics right, the would-be union of the ruling Liberal Democratic Party and the opposition Liberal Party has followed an on-again, off-again course since mid-December due to still-unresolved differences over key policy issues and disagreements over cabinet appointments. Some observers now question whether the two right-wing parties will join forces before the January 19 start of the regular Diet session as planned or ever form a governing coalition despite the political benefits each would gain from such an arrangement. Prime Minister Keizo Obuchi and Liberal Party chief Ichiro Ozawa agreed December 19 to reduce the number of cabinet ministers to 18 from the current 20, an important compromise that insiders believed would all but ensure a cabinet reshuffle by the end of 1998. However, implementation talks hit a major snag over the December 25-27 holiday period due to the inability of party leaders to find common ground on national security-related matters.

 

JAPAN'S PROMISE OF MORE AID STEALS SHOW AT ASEAN SUMMIT by Marc Castellano

Strengthening unity and collaborating on fighting the economic crisis engulfing East Asia were to have been the primary thrusts of the December 14-16 summit in Hanoi of members of the Association of Southeast Asian Nations. However, Japanese generosity stole the show. Although Japan is not part of Asean — Brunei, Indonesia, Laos, Malaysia, Myanmar (formerly Burma), the Philippines, Singapore, Thailand and Vietnam make up the cooperative grouping — Japanese prime ministers have attended three Asean summits since 1977. This time, Prime Minister Keizo Obuchi, there with leaders from South Korea and the People's Republic of China, delivered a most welcome message to the assembly. To the tune of some $35 billion, he outlined his vision of peace and prosperity for Asia. The pledge of financial support and new proposals for increased cooperation, dubbed the Obuchi Doctrine, will form the backbone of future Japan-East Asia policy.

 

JEI PERSONNEL CHANGES

The Japan Economic Institute is pleased to announce the appointment of Marc Castellano as the organization's government relations analyst. A political economist by training, he brings to this position a strong academic background in East Asian affairs. Mr. Castellano holds a master's degree in international affairs from Columbia University's School of International and Public Affairs where he specialized in East Asia. His bachelor's degree in economics was awarded by the University of California at Santa Barbara. He spent one undergraduate year at Osaka University in the College of Economics as well as two summers working in Japan.

Mr. Castellano replaces Eric Altbach, who has accepted a position as a regional economic analyst in the Department of State's Bureau of Intelligence and Research. In that capacity, he is providing economic policy analysis on Japan and South Korea.

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