Thursday, January 12, 2012

Fingleton responds

My recent post on Japan has elicited a response from the target of my criticism, Eamonn Fingleton. Interestingly, while Fingleton says that his New York Times piece has prompted a "flood of email" and has been "extensively noted in the blogosphere," my post is thus far the only one he has deigned to respond to (although he promises that more, including one for Paul Krugman, are forthcoming). The fact that he feels the need to respond to both this blog and Paul Krugman is taken as a compliment.

He begins:
An article I have written on Japan for the January 8 New York Times Sunday Review went live at the website yesterday and already the reaction has been the greatest I have ever known. Virtually all of it has been good but some bloggers have greatly confused the issue. 
In particular I am surprised by one Washington-based trade lobbyist for a Japanese corporation who in a 2,000-word commentary has ostensibly rebutted several of my points. On closer analysis his take is just standard-issue ignorance of Japan, plus an evident desire to perpetuate the usual spin.
First, note that while Fingleton links to his own piece, he does not link to my criticism so that readers can draw their own conclusions. Second, he mischaracterizes my profession. I am not a trade lobbyist, or a lobbyist of any kind. I have never engaged in the act of lobbying nor have ever met with any active member of Congress or their staff in a professional capacity.

Not only am I not a lobbyist, nobody in my office is a lobbyist either, nor does my company employ outside lobbyists. Lobbying has absolutely nothing to do with my employment. His description of me is, quite simply, the product of his own imagination. My guess is that, given the negative connotation associated with lobbyists, he chose this description in order to help discredit me, but that's pure speculation.
I have a busy today ahead of me so I will confine myself here to a representative sample of his argument — his first and closing points, which I take it he considers to be particularly persuasive.
It is not apparent why he would think this, as my post responds to the points he raised in his column largely in the same order he presented them. As the author of the piece I am surprised he did not immediately recognize this.
His first point concerns life expectancy. As I mentioned, Japan’s life expectancy at birth increased by 4.2 years between 1989 and 2009. He thinks this does not count because Japanese-Americans are also extremely long lived. Well, yes, Japanese-Americans enjoy exceptional good life expectancy but that surely reflects in large measure the fact that they have long ranked among the wealthiest of ethnic groups in the world’s until-recently wealthiest nation (nearly 30 percent of Japanese Americans have college degrees). They also benefit of course from a good diet.
My point in presenting the data was that Fingleton should compare Japanese to Japanese-Americans in order to present more of an apples-to-apples comparison given the impact of ethnicity on life expectancy. Also, his point about 30 percent of Japanese-Americans having college degrees is irrelevant -- 29.93 percent of *all* Americans have college degrees [EDIT: that figure refers to Americans ages 25 and over, while the figure for all Americans is 22 percent]. 
But all this is beside the point. I repeat: the 4.2 year increase reflects mainly a major improvement in the Japanese healthcare system and is a powerful indicator of superior economic growth. There is no other explanation and my interlocutor provides none. 
None was provided because I didn't see it as incumbent upon me to provide an explanation for the growth in Japanese life expectancy. But since he asked, I think the explanation is rather simple: improved medical technology and health care advances which people around the world have benefitted from.

Life expectancy as a proxy for economic strength, meanwhile, is problematic. Note that Italy from 1990-2000 had essentially zero economic growth (GDP in 1990: $1.13 trillion. In 2000: $1.10 trillion) but the country's life expectancy rose over the same period from 76.86 years to 79.43 years. Russia, meanwhile, saw life expectancy stagnate from 1990 to 2000 even while its GDP roughly tripled.
Now for his parting shot. He shows pictures of Japanese consumers lining up to buy the new Apple iPhone. This supposedly is evidence that the United States, not Japan, leads in cellphone technology. He omits to mention — something well known to anyone who follows global competition in that industry — that Apple is an outsourcer. Its manufacturing is done in East Asia, particularly in Japan and to a lesser extent Korea and Taiwan, with final assembly in China. Essentially most of the jobs are East Asian. 
More generally Japan is by far the largest manufacturer of the key components in all cellphones. And the real technological magic is in these highly miniaturized components (they are why your cellphone doesn’t look like a walkie-talkie). A survey by Deutsche Bank some years ago identified nine key components in cellphones. Of the 36 manufacturers worldwide of these, 29 were Japanese — and just one was American. Japan indeed monopolizes the world supply of many such components and without them Apple, Motorola, Nokia, and so on would not have a business. An example is capacitors, formerly the size of light-bulbs but now, using tantalum technology, reduced to the size of a grain of salt.  
They are essential in virtually all electronic devices and a typical cellphone requires half a dozen of them — all made in Japan, mainly by Kyoto-based Murata. According to the Asian Development Bank Institute, Tokyo-based Toshiba Corporation alone contributes 33 percent of the manufacturing content in the iPhone (in particular its superb touch-sensitive screen). Such manufacturing not only requires far greater per-capita capital investment than U.S. corporations can afford these days but vast amounts of secret manufacturing knowhow, typically built up over decades.
None of this refutes what I said. Apple, an American company, designs the cellphones while the parts -- a lower value-add part of the production process -- are produced and assembled in East Asia (which I have previously noted). Based on Fingleton's comments, however, one might think that Japan and these other East Asian economies have the choicest, most financially rewarding parts of the iPhone production process and deserve the lion's share of the credit for it.

To illustrate how absurd this is, consider cars. If Japan designed cars (hard to imagine, I know) but relied on the US for the production of auto parts and Mexico for assembly, would anyone in their right mind credit North America with the product edge in cars?

In any case, note that Fingleton is shifting his argument away from cell *phones* (original quote: "In cellphones, for instance, Japan leapfrogged the United States in the space of a few years in the late 1990s and it has stayed ahead ever since, with consumers moving exceptionally rapidly to ever more advanced devices.") towards cell phone *parts* and the manufacturing process.
Update: I have now had time for a few further rejoinders. 
My interlocutor says that Japan’s astounding trade surpluses do not matter, nor do America’s vast trade deficits. We have come a long way since John F Kennedy said the two things he feared most were nuclear war and trade deficits. The idea that these deficits do not matter comes from broadly the same school of economics that told Americans they could borrow ad infinitum against the value of their homes without negative consequences.
This is perhaps the biggest low-light of his response in which he simply attempts to poison the well rather than actually engage with my argument. Further, the notion that people who attach little importance to trade deficits also favor taking out unlimited lines of credit based on home equity lacks any evidence to support it, and is something that I personally have never said or advocated. Very disappointing here.
My interlocutor tries to gainsay the scale of the remarkable building bom during Japan’s supposed “lost decades.” He cites misleadingly low population figures for U.S. cities to suggest that Tokyo’s skyscraper ratio is not very impressive on a per-capita basis. The key fact — one that he has no answer for — is that 81 skyscrapers taller than 500 feet have been built in Tokyo proper since 1990, versus a total of only 12 such buildings up to that date.  
And this in a country that suffered one of the biggest real estate busts on record true), an aging population (also true), supposedly idiotically out of control government finances (not true but widely believed in the West), and huge hidden unemployment (obviously untrue but also widely believed in the West). The issue here again is economic growth: how can such a historically extraordinary pace of building be reconciled with the story of an economy that is supposed to be flat on its back? And why don’t the analysts who have sold us the “basket case Japan” story never mentioned such interesting contrary data?
Fingleton accuses my figures of being misleading, but provides no evidence for how they are misleading or what the true figures might be. In fact, my numbers were taken straight from wikipedia (here are the entries for Tokyo, New York City, Los Angeles and Chicago). 

As for why Tokyo has built tall buildings since 1990, the answer is simple: Tokyo's population has actually grown, with this site claiming growth of 1.3 million since 1996. Secondly, in a densely-populated area such as Tokyo, building upwards becomes far more attractive. Indeed, while Fingleton highlights Tokyo's construction of many tall buildings while pointing out that Los Angeles only built seven, note that Tokyo has a population density roughly twice that of LA (15,610.4/sq mi vs. 8,092.30/sq mi). 

Furthermore, the construction of tall buildings is not a traditional metric of economic growth and -- more importantly -- Tokyo is not Japan writ large. This is the equivalent of arguing that if Manhattan is booming then so is the rest of the US. Also note that Tokyo's population growth of 11 percent since 1996 is in stark contrast with the country as a whole, which grew only 1.6 percent over the same time frame.
He suggests that Japanese unemployment figures are understated. Wrong. The figures I used have been adjusted by the U.S. Bureau of Labor Statistics to be fully comparable with U.S. statistics. He points out that the labor participation rate is lower than in the United States. This is true but it does not cast doubt on the low unemployment rate. 
The lower labor participation rate – 59 percent versus 64 percent – reflects (1) a high proportion of retirees; (2) a high proportion of young people at college; and (3) a strong cultural tendency for women to give up work once they have a child. Those of us who read Japanese know that small businesses are constantly advertising for staff. There is no shortage of jobs in Japan, either for women or men. As countless foreign employers in Japan can testify, the problem rather is a shortage of young workers.
My problem with his citing of the unemployment rate was not that it was wrong or understated, but that it was presented with zero context (his remarks on unemployment in their entirety: "The unemployment rate is 4.2 percent, about half of that in the United States."). If, as in Japan, more women and discouraged workers chose to withdraw from the labor force the US unemployment rate would decline (indeed, we have already seen this dynamic at work), but this would hardly be indicative of economic vitality (which is what Fingleton is trying to prove by wielding Japan's unemployment stat). In fact, it would be the opposite. 

His remarks regarding the labor participation rate aren't terribly useful either. As the labor participation rate tends to only count those up to age 65, a high proportion of retirees in Japan isn't terribly relevant (although it should be noted that social security payments in Japan begin at age 60). A high proportion of young people attending college, meanwhile, is little different than the US where 56 percent of Americans have at least some college education (can't find an authoritative source for Japan but this site claims 47 percent). Given Japan's declining marriage and birthrates, meanwhile, one must wonder how significant is the last factor he cites.


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