Unsinkable Japan takes on water like Titanic
February 15, 2009
 By William Pesek
NEC Corporation has started a trend that will forever change Japan. The nation's largest personal computer maker said at the end of last month it would fire more than 20 000 employees.
That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic has said it would cut 15 000 jobs, while Nissan Motor is slashing 20 000.
Even during the darkest days of the 1990s - deflation, bank failures, public bailouts - firms avoided mass lay-offs.
NEC's precedent seems to have made it fashionable to do just that.
What's next? Sony firing 50 000 people in Tokyo? The psychological blow to already sceptical Japanese consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.
"Japan's recent economic decline is faster than that of the US, which has been experiencing its worst financial crisis in a century," Kazuo Momma, the head of research and statistics at the Bank of Japan, said on Monday.
Momma said the world's second-largest economy might have shrunk at an "unimaginable" speed last quarter.
Gross domestic product plunged at an annual 11.7 percent pace in the fourth quarter of last year. That would be the steepest decline since 1974.
There would be only one way to describe such a figure: Wow!
Remember Japan was supposed to avoid the worst of the global credit crisis. Its cash-rich banks were expected to help recapitalise Wall Street. Its firms were set to go on a merger-and-acquisitions tear.
Now, prospects for Japan are sinking like, well, the Titanic.
That's Yoshimi Watanabe's word, not mine, but in some ways it's an apt description of where Japan finds itself.
The former financial services minister was referring to the ruling Liberal Democratic Party (LDP), and to Prime Minister Taro Aso's stubborn refusal to resign or call an election. Aso's approval ratings are below 20 percent, and sinking.
"The LDP is like the Titanic heading into a huge iceberg that is the general election," Watanabe said on Monday.
It's the latest Titanic analogy to be applied to the world's second-biggest economy. Many articulated the futility of Japan's efforts to boost growth over the past 10 years as being akin to rearranging the deck chairs on an ill-fated ocean liner.
Massive public works spending and zero interest rates did not revitalise growth. It took an export boom to do it.
As Japan enters its worst slump, it does so with a dearth of leadership or fresh ideas. Yet opposition leaders are not offering new policy direction for a nation in complete political drift.
The recovery that began in 2002 convinced politicians their job was done. Efforts to trim the biggest public debt in the industrial world - reliable estimates put it at more than 170 percent of gross domestic product - never took off.
Neither did plans to enhance national competitiveness, raise productivity, increase entrepreneurship or grapple with the mismatch of a rapidly aging population and a declining birth rate.
As a result, Japan's growth in the 2000s did not fatten paychecks. As exports sputtered, the $4.4 trillion (about R44 trillion) economy ground to a halt. Japan is left with dying trade prospects, sliding household spending and banks weighed down by the weak stock market. On top of that, the yen's surge of nearly 20 percent against the dollar and euro in the fourth quarter of last year is hammering corporate Japan.
How bad things could get in Japan always requires perspective. About $15 trillion of household savings may be a cushion that economies as diverse as the US and Indonesia do not have. Japan's government also has shown an aptitude for getting its 127 million people through slumps.
Like the RMS Titanic in 1912, many see Japan as unsinkable.
Recent lay-offs are sure to be followed by other huge job cuts. The country's lifetime employment system is being replaced by flexible work contracts. This recession will be unprecedented in terms of how quickly workers find themselves jobless.
It's not clear the government understands how bad things could get.
Take economic and fiscal policy minister Kaoru Yosano, who last weekend said the economy was probably "pretty bad" last quarter. Pretty bad? Yosano may want to check with unions, which expect a spike in homelessness and suicides as companies shed tens of thousands of workers.
Japan's economy is taking on more water by the day. This is no time to rearrange deck chairs.
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