The above article is best understood as a political piece, rather than a business story.
Every single sentence in this article can be picked apart, but doing a line-by-line critique would miss the larger problems with the article. The author assumes that more productivity is always good, even though Japan has been suffering a lack of economic demand for most of the last 26 years. Big gains in productivity would only make the lack of demand worse.
If the goal of Japanese policy makers is to boost demand, and that does seem like a wise goal, then keeping 50,000 workers employed at Sharp seems like a smart bet, compared to keeping 100 people employed at some nimble, fast-moving startup.
More so, Japanese electronics firms still hold great global market share, so there is reason to think that their productivity is more than adequate to compete in the global markets.
And this sentence can only be understood if your political beliefs align with the political beliefs of that author:
"If Japan’s bailouts remind you of the U.S.'s rescue of its auto companies, you’re not alone. There is a strong argument that the auto bailouts only delayed the day when General Motors and Chrysler lose out to nimbler competitors like Tesla Motors."
Right, but the USA bailout of the auto companies seems to have been a good bet. Hundreds of thousands of jobs were saved, and the companies bounced back and paid off their debts, and the USA was able to sell its stake in GM at a profit. So it was win-win-win all the way: the taxpayers won, the workers won, and the economy won.
> Right, but the USA bailout of the auto companies seems to have been a good bet. Hundreds of thousands of jobs were saved, and the companies bounced back and paid off their debts, and the USA was able to sell its stake in GM at a profit.
According to a link in the article the government lost over $9 Billion. I live in Metro-Detroit, saw plant closings, saw waves of dealerships close, watched whole car brands die, got my hours cut and watched delayed work hurt a lot of people around here.
Just because GM and Chrysler go into bankruptcy sans the gov doesn't mean all those jobs disappear. Yes, GM and Chrysler would take a cut (which happened anyway) but I think they'd also get reorganized better at the very least.
From what I've heard the reorganization that took place was not nearly enough. Chrysler has a mandate on the minimum number of workers needed for some contracts. This leads to situations where Chrysler is paying for 4 people so 1 person can put in half a day at a 3rd party supplier. I have stories for days.
The real tragedy in all this is a new better company could've started in Detroit. Instead, due to Zombie GM and Chrysler continuing to dominate the market, all the automotive engineering talent is slowly migrating to Silicon Valley.
While we are on the issue of Detroit and automakers here's a topical scene about some collective bargaining of jobs at an auto supplier, from the well-made documentary, Detropia [1]
If the goal of Japanese policy makers is to boost demand, and that does seem like a wise goal, then keeping 50,000 workers employed at Sharp seems like a smart bet, compared to keeping 100 people employed at some nimble, fast-moving startup.
If you want to make sure people have money so that demand is increased then just give them money, don't keep useless jobs around.
the USA was able to sell its stake in GM at a profit
USA didn't sell at a profit. But the loss was $10.5B to save (according to the article) 1.2M jobs, and saved $34.5B in tax losses. Even if you ignore the saved tax income, thats less than $9,000 per job saved.
So the bailout was probably _still_ a net positive for the US.
Well, take a look on how Brazil is doing, since they had this idea in (more or less) 2007 to save the economy from the global crisis, and tell me more about it. give a special attention to the years 2014-2015.
In spite of fifty+ years of MBA thinking, jobs aren't really fungible.
When you fire a lot of people you're not just reducing costs - you're also hoping that you will never again need the skills and the knowledge of your internal processes that those people have.
>...then keeping 50,000 workers employed at Sharp seems like a smart bet, compared to keeping 100 people employed at some nimble, fast-moving startup.
Where does the money to subsidize those jobs come from? Are you seriously suggesting that sucking subsidy money out of the productive economy to pay for those jobs is not depressing demand? All our economies could do with some of this magic money, it sounds like it would solve all our problems.
>...More so, Japanese electronics firms still hold great global market share...
Japan functionally has two economies, an export economy and a domestic economy (of course they're not completely decoupled, as Sharp shows). It's managed to maintain a fairly competitive export economy because those companies have to cope with foreign competition, but the domestic situation has festered for a whole generation. It seems like China is following the same pattern.
Productive companies and organisations generate demand for the things they need in order to be productive. Unproductive ones generate less demand per worker. Yes those workers still need to pay for things, but if they are sitting around at work not doing much their work activity is a waste. Building a bridge to nowhere only creates demand for concrete and steel and goods for the workers. A useful heavily used bridge can generate demand from the economic activity it enables. An efficient factory producing goods generates the same demand as an inefficient one producing the same goods, but the inefficient one consumes money that could otherwise be invested in more demand producing factories, employing workers in demand producing activities.
Actually, "efficient" factories that don't face competitive pressures (i.e. that don't drop their prices) will have a lower multiplier.
Money spent on wages gets spent and circulated within the economy at a higher rate than money that is diverted towards profits (which tends to bid up the value of fixed assets in a demand constrained environment).
>the inefficient one consumes money that could otherwise be invested in more demand producing factories, employing workers in demand producing activities.
Well, if you assume that opportunities for "demand producing activities" (i.e. products which will convince the Japanese to stop saving at such a high rate) are plentiful then yes. In the 80s perhaps.
But they're not. The Japanese really can't be convinced to spend.
There's no particular reason to assume that a more productive business will be more profitable than a subsidised one. That's a completely separate question.
If industry is more efficient, the Japanese people don't need to spend more. The same rate of spending will buy more goods and services, supporting more production by more businesses, generating more demand.
You can't get away from the fact that the same amount of money spent on production by a more efficient company generates more demand for the things that company needs in order to produce. Production by capital-consuming activities by its nature generates demand.
>There's no particular reason to assume that a more productive business will be more profitable than a subsidised one.
A business that fires half of its workers is likely be more profitable than one that doesn't, assuming it can get by without them.
>The same rate of spending will buy more goods and services
Wages will typically be spent on goods and services. Profits usually bid up the price of fixed assets (e.g. housing in San Francisco & New York, NASDAQ, bonds).
>You can't get away from the fact that the same amount of money spent on production by a more efficient company generates more demand for the things
Presumably, the implication is that the government must first excise taxes from the public, thereby depressing demand.
The alternative is to borrow money by issuing bonds, but that's just a way of postponing the problem, eventually the government has to excise more taxes to pay the debt.
>The author assumes that more productivity is always good, even though Japan has been suffering a lack of economic demand for most of the last 26 years. Big gains in productivity would only make the lack of demand worse.
The Japanese unemployment rate is now at 3.1%, which is very low, even for Japan. In that kind of job market you need big gains in productivity because employers will have trouble filling job openings. There's no reason for the government to artificially stimulate job creation.
According to the Austrian school, market interventions like those in Japan are bad _regardless_ of the effect on productivity, because they represent malinvestment.
So the issue is - is it possible to produce a valid measurement? In scientific method, part of an experiment involves a control. There's no way to produce one in economics - the systems are too complicated. You can't know whether measurements you take are the result of your change directly, or caused by network effects of the change as part of other things going on, or just weather from unrelated things happening in the economic system.
Austrian instincts are partly about building a defense against corruption and tyranny. If you let politicians spend money or introduce mechanisms that are difficult to measure, or which can be easily hand-waved away ("we did what we thought was right based on the information at the time"), then they are incentivised to spend. Instead, they form a line in the sand and say that you're not allowed to do anything which can't be clearly justified from a set of first principles. The back-story is not so much a faith in the inherent goodness of markets as in the inherent evilness of governments.
Am I the only one who finds the word "instincts" used in this context deeply disturbing? We've got many well-intentioned people in history who acted according to their instincts and beliefs. Some of these invented and practiced eugenics, others tried to create an "agrarian communist society" while killing off some 2 million people in 4 years (I read about Khmer Rouge regime recently) and there are many, many more examples.
My question is: what is the difference between modern economics and, for example, eugenics? What protective mechanism have we created to make sure no economist attempts to make as all into farmers, killing off all the people who can read and write? Isn't "democracy" alone a bit weak as a guarantee here?
Modern economics isn't Austrian. The Austrian School are heterodox, and have largely only become popular among laypeople thanks to political lobbying by, for instance, the Koch Brothers.
What makes you think that "modern economists" are more likely than the average person to (i) want to make us all into farmers and kill off intellectuals and (ii) have any chance of succeeding? All the available evidence would suggest that economists are disproportionately unlikely to favour agrarian dictatorship and no better placed than the average person to succeed.
In fact "unlikely to favour large scale social engineering backed by force" is about the only thing Austrian economics has in common with mainstream modern economics...
In fact "unlikely to favour large scale social engineering backed by force" is about the only thing Austrian economics has in common with mainstream modern economics...
That's flat out wrong, I'm afraid. Proponents of modern economics are very, very willing to perform social engineering backed by force.
Depends on what you consider "social engineering" really. Even Hayek didn't think that a developed market economy providing a social safety net (and levying taxes to pay for it) counted.
Khmer-Rouge style social engineering involved concluding the problem with modern economies is that people are choosing to work in industries not in the national interest, and a practical solution is to abolish all markets and use the military to relocate people and assign them new roles. Name one modern economist who has reached remotely similar conclusions.
Are you saying that I'm wrong because no modern economists have advocated policies similar to the Khmer Rouge? We're talking about a spectrum of evil here, with Pot and his cronies a way down one end.
I'm not sure if the response to difficulties in measurement is to build a system out of faith and assumptions.
We can analyze different policy decisions, either by modeling human behavior (based on experiments which can be controlled and analyzed), or through natural experiments (e.g., What happens when a bunch of states and municipalities alter their minimum wage policies?)
> What happens when a bunch of states and
> municipalities alter their minimum wage policies
What kind of sizes to you need to be statistically significant?
How can you be confident that there are not network effects in play that you don't know about. Immigration patterns, organised crime networks, political corruption, the subtleties of quality in supply chain companies, measurement variation, the culture of particular trade unions. What if someone else is running other economic experiments in parallel to you?
What if there's network effects created by the contrast between the areas you're changing? In municipality A you raise wages and not in muni B. Labour will feel pull to flow from one to the other while you're running the experiment.
You'll never come close to modeling all this.
Worse yet - these are fundamentally political issues that relate to practice of power and allocation of resources. Everyone has an agenda in how they play out, and this further muddies the water of the experiment and the analysis.
> I'm not sure if the response to difficulties in
> measurement is to build a system out of faith and
> assumptions.
I have these concern also. As I look at it - everyone is operating on faith and assumptions. The Austrian position is strange in that it's honest about it.
I disagree with this argument. You are posing two extremes: One where everything can be known with certainty, and one where everything is purely based on faith, and dismissing the potential of there being something in the middle.
You are right, economics can't model every potential variable that influences outcomes. Large scale studies of minimum wage admit that policy and economic differences between local municipalities can cause the effect of a minimum wage change to vary. But you can model for most major differences, such as "Did adjacent municipalities adjust their wages at the same time? Did this have an impact on employment".
Ultimately you can get much closer to an understanding of how minimum wage impacts an economy than you would from a purely faith based approach, and you can land at a recommendation like "In general small increases in the minimum wage do not raise prices or hurt employment, given the following conditions".
That's much more valuable than the Austrian position that purely bases itself on faith.
"You are posing two extremes: One where everything can be known with certainty, and one where everything is purely based on faith, and dismissing the potential of there being something in the middle."
That's not what I'm posing. My claim is that both positions involve faith, but the Austrians are conservative in their assumptions and systematic in how they build from it. To me that is more trustworthy than non-systematic and statistically insignificant approaches.
Your minimum wage paragraph doesn't bring me closer. I think we've reached agree-to-disagree. Fortunately, this is only the internet. What we say doesn't matter, my opinions are of no consequence.
If you bail out a company that generates only losses for years it is pretty safe to assume that this is a bad investment. (Edit: would you invest in these companies? I doubt it)
I'm not saying that turnarounds are impossible (Apple) but what the government is in effect doing is to take resources (taxes) from viable entities and giving it to those that are simply not viable. (at least at the moment)
Or the government itself takes more debt to pay for it. Japans debt to GDP ratio is currently it 175% which is insanely high, this can't go on forever.
In my view the better solution would be to let these companies go bankrupt. The investors lose money, employees are let go but the resources will not vanish into thin air.
Someone else will buy it and hopefully build something more viable. Government can then reduce its expenditure and maybe even reduce taxes, which would also help in the long run.
You measure the market demand for investment capital. If there is none, but there is sufficient liquidity elsewhere, then smart money is avoiding that enterprise as a profit making venture.
I believe you are largely correct as to the aims. It is not so much a corporate welfare program as a social welfare program, with the money sluicing though corporate coffers rather than an extensive bureaucracy, with the added benefit of supporting the illusion that all is as it has ever been in Japan Inc.
But there are issues I think you would be foolish to ignore. First, the government largesse has to come from somewhere, taxing or borrowing. Taxing in the long term will become difficult, as the misallocation of capital contributes to shrinking that sector of the economy that can pay taxes. Borrowing kicks the can down the road, but with Japan's demographics a smaller less productive workforce will be saddled with that debt.
Even more scary for Detroit, once the American public figures out Tesla is actually more American made than the big 3 they will feel no guilt in buying Teslas instead. This is especially the case if we start losing a bunch of coastal areas and the big 3 look apathetic about their role in global climate change.
The infrastructure/economies of scale to make that profitable don't exist yet, but Tesla is working at setting them up. Elon Musk: "Model 3, our smaller and lower cost sedan will start production in about 2 years. Fully operational Gigafactory needed."
1. Tesla doesn't really give a crap about owning the entire market. If their competition causes the big 3 to build low cost zero-emissions vehicles, then Tesla has fulfilled their part of Elon's goals towards saving the world. Basically, putting a stake in the heart of the internal combustion engine and putting automotive economies of scale behind battery and energy storage development.
2. Cheap cars have awful margins, only worth playing in at scale. SUVs on the other hand are hideously profitable. The sport SUV has been the savior of BMW and Mercedes over the past decade, with high margins versus their cars. Porsche got in on this and built an SUV, now Lamborghini is too, margins are just too good to ignore.
Tesla's pursued an Intel-like tick-tock strategy, where they shoot at the high end to make money and get performance knowledge (Roadster, Model X) and with the cash reserves take their next model downmarket (Model S, Model 3).
>Tesla doesn't really give a crap about owning the entire market. If their competition causes the big 3 to build low cost zero-emissions vehicles, then Tesla has fulfilled their part of Elon's goals towards saving the world.
Elon might not care, but as a publicly traded company Tesla is not going to say 'Mission Accomplished' and close up shop.
Lower cost is still not interesting to Detroit unless it's well south of $50k. About the only thing they have in that price range is the Corvette, and I don't see Corvette buyers jumping to an alternative.
It is not 50,000 versus 100 but 50,000 versus 500,000 or even 5,000,000. Most people (in advanced economies) work for family businesses. The government would never bail them out. It only bails out large interests.
That is unfair, because the government also collects the same taxes -- if not more -- from these small and medium sized companies and their employees, but it will only bail out large companies with that very tax money.
At least ownership of larger corporations is typically more spread out. Bailing out family businesses, who typically offer no ownership to their employees, only really serves to enrich a particular family and maybe helps them afford to use others for labor a bit longer.
>>"If Japan’s bailouts remind you of the U.S.'s rescue of its auto companies, you’re not alone. There is a strong argument that the auto bailouts only delayed the day when General Motors and Chrysler lose out to nimbler competitors like Tesla Motors."
>
>Right, but the USA bailout of the auto companies seems to have been a good bet.
There's also the fact that Toyota was initially perpetually bailed out by the Japanese and had their exports subsidized by suppressing the value of their currency. The Asian tigers and their auto companies didn't just appear out of nowhere.
In a way, the auto bailouts can be seen as just levelling the playing field somewhat.
Free market religion never did build a wealthy industrial economy. Judicious application of subsidies did though.
I once asked why the Japanese govt didn't do more to help the auto industry, compared to say Germany (this was 2010 when I worked in the Toyota group in Aichi). What I didn't know was what parent refers to -- that the Japanese govt went way too far in supporting its industries back in the day, and getting backlash for it politically.
Every single sentence in this article can be picked apart, but doing a line-by-line critique would miss the larger problems with the article. The author assumes that more productivity is always good, even though Japan has been suffering a lack of economic demand for most of the last 26 years. Big gains in productivity would only make the lack of demand worse.
If the goal of Japanese policy makers is to boost demand, and that does seem like a wise goal, then keeping 50,000 workers employed at Sharp seems like a smart bet, compared to keeping 100 people employed at some nimble, fast-moving startup.
More so, Japanese electronics firms still hold great global market share, so there is reason to think that their productivity is more than adequate to compete in the global markets.
And this sentence can only be understood if your political beliefs align with the political beliefs of that author:
"If Japan’s bailouts remind you of the U.S.'s rescue of its auto companies, you’re not alone. There is a strong argument that the auto bailouts only delayed the day when General Motors and Chrysler lose out to nimbler competitors like Tesla Motors."
Right, but the USA bailout of the auto companies seems to have been a good bet. Hundreds of thousands of jobs were saved, and the companies bounced back and paid off their debts, and the USA was able to sell its stake in GM at a profit. So it was win-win-win all the way: the taxpayers won, the workers won, and the economy won.