Australia’s Asian Neighbours

To keep the economic crisis in perspective, we need to look beyond the stereotypes in getting to know our neighbours.

In recent years, Australians have been dazzled by China’s high economic growth rate and the riches it has bestowed upon us. Many hoped, even assumed, that the good times would keep rolling on. Chinese industry would continue to consume huge quantities of our resources and in return send back two things: loads of cash and an ever-expanding range of reasonably priced goods, from electronics to clothing. Most Australians give little thought to what was happening inside Chinese society, behind the economic façade. The Beijing Olympics provided a respite of sorts, but it was as brief as it was spectacular and was then quickly overshadowed by the global financial crisis.

That took us back to the economy, with reports of Chinese manufacturing plants closing down, millions of unemployed migrant workers leaving coastal cities for the countryside, and massive drops in iron ore and coal imports. Then the Rio Tinto-Chinalco deal took centre stage, highlighting the broader issue of Chinese ownership of Australian resources.

That’s where we are now, praying that China’s massive stimulus package works and that an economic resurgence will pull the rest of us out of this mess. Few Australians are aware that whatever happens globally or within China, that country has other huge issues to grapple with. One of them was couched in these terms by an international commentator: China has to deal with the prospect of growing old before it grows rich.

Yes, it is a rapidly ageing society, as is Australia. And we’ve another Asian neighbour ageing even faster, and that’s Japan, which demographers generally agree is the world’s most serious case. Australians commonly know nothing about the realities of Japanese society beyond stereotyped images of geisha, Mt. Fuji and bullet trains.

Odd, isn’t it? Especially when you consider that Japan is – and has long been – one of Australia’s key trading partners. China’s economic miracle is comparatively new, but not Japan’s. Presumably then, our economic relationship there is securely nailed down. With a post-World War II Trade Agreement signed between the two countries in 1957, you’d assume there wouldn’t be much that moves inside the Japanese economy that we wouldn’t know about. Regrettably, that’s not the case.

Here’s a realistic perspective from Professor Jenny Corbett, executive director of the Australia-Japan Research Centre at the Australian National University in Canberra. She’s one of a handful of Australian students who were studying in Japan in the 1970s. She is fluent in written and spoken Japanese and has followed the relationship closely ever since. This is what she wrote in The Australian Financial Review on March 2:

"The world has looked to Japan’s experience in the 1990s for pointers on how to respond to the global financial crisis, but there is still a lot of misunderstanding of what Japan actually did. The urgent question is what it should do now that it has swallowed its bitter medicine (wiping huge amounts off inflated asset values over the 1990s, writing off trillions in non-performing loans and living with unemployment levels twice their historic rates for 10 years) and still faces more pain.

"If Japan is unable to manage the task, it matters to the region and to Australia. Japan is still our largest export market and is at the hub of production networks in the Asian region. Japan’s growth not only depends on the region but has an impact on it, and we must all hope that it is able to recover sooner rather than later. Thankfully Japan is not at the moment withdrawing from the region. Indeed it has recently contributed in significant ways to global and regional efforts to respond to the crisis.

"But what the shock over the data shows is that we understand Japan’s economy no better, or even less well, now than we did in the roaring 1980s. In Australia there are no regular macro-economic analyses of Japan and few, if any, macro-economic models in use that say anything about the impact of Japan on Australia. So, when asked how big the effect of Japan’s collapse on Australia might be, well-informed observers can do little better than ‘wait and see’.

"Is this really good enough or is it time we began to pay more attention to the health and functioning of the economy of our largest export partner and most significant regional ally?"

This is appalling.

What else is going on in Japan that we mightn’t know about? Well, check the foreign press. That’s where you’re most likely to read about it.

Here are the views of David Pilling, a regular commentator for the Financial Times, writing on March 5. He had just been on a visit to Tokyo.

"On more than one occasion when I asked how Japan should tackle the economic crisis, my interlocutor turned with ninja-like alacrity to the topic of pre-Meiji Japan … Eisuke Sakakibara, the former vice-finance minister indelibly branded Mr Yen, describes a country that was peaceful, orderly, unspoilt and friendly.

"His invocation of a more innocent, pre-industrial age could easily be dismissed as idle chatter were it not for the fact that it keeps coming up. Asked about economic policy, one shadow cabinet minister finds himself pondering Edo Japan’s almost non-existent imports. Japan started exporting, the politician says, only because it needed to build a military to defend itself. That decision has led inexorably to today’s over-dependence on supplying manufactured products to customers overseas."

Pilling quotes a seasoned foreign observer of Japan who confirms that Tokyo is laden with the heavy scent of nostalgia:

"A lot of intellectuals are rejecting the US altogether, including ones who previously swallowed neo-liberal free-market capitalism hook, line and sinker."

Pilling explains how this trend has led to a re-evaluation of politics, especially of the performance of the long-dominant Liberal Democratic Party. And there’s more.

"The second great pillar of postwar Japan to face intellectual assault is the bureaucracy. Once the selfless and brilliant mandarins who engineered the country’s economic miracle, the bureaucrats’ image has undergone a transformation in the public eye. Now they have become the greedy, self-serving elite who specialise in policy blunders and award themselves cushy post-retirement jobs."

The third crumbling pillar is the post-war economic model itself. Pilling says there is now much talk in Japan of putting more emphasis on agriculture and de-emphasising the manufacturing industries on which post-war wealth was built. Sakakibara supports the Opposition’s proposals to massively increase subsidies to agriculture and to industrialise the family-run farming industry. Behind this, is the concern of the Japanese that they produce only 40 per cent of their calorific requirements. He has even been trying to persuade Toyota that cars are a dying industry and that it should turn its engineers on to farming efficiency instead.

"The era of just-in-time carrots," Pilling warns, "could soon be upon us."

Laugh if you will, but if that is what’s coming in Japan – our largest export market – then it’s the sort of change that gives change a bad name. And we need to know more about it.

The question for Australia is, will we wake up in time?

Warren Reed was an Australia-Japan Business Cooperation Committee scholar in the Law Faculty of Tokyo University in the 1970s while Jenny Corbett was researching at Hitotsubashi University in Tokyo, the country’s leading economics university. Reed was later the chief operating officer of CEDA, the Committee for Economic Development of Australia.