A Deflationary Spiral To Come?

The Lessons of Japan In The 1990s
When the so-called bubble burst in Japan in 1989, it wasn’t predicted that it would bring on a decade of economic malaise. The origins of the bubble itself were deceptively simple. Many corporations with headquarters in Tokyo found themselves sitting on land that was accelerating in worth thanks to real estate speculation and rampant borrowings in order to speculate on property.

Even the mighty manufacturers that had powered the growth for many years found they were worth more as property owners than what they were doing as manufacturers. This led to even more borrowings against the property value which in turn led to the asset grab by Japanese businesses around the globe in the 1980s.

It’s quite like the Storm Financial group strategem where people re-mortgage their houses to take out massive loans and then place heavily leveraged bets on the stock market with cheap credit. And there are a lot of people caught up in the current GFC who are in this situation.

Eventually when the property bubble burst, whole swathes of the Japanese industrial sector was left holding this massive debt. Successive Japanese governments made stimulus plans which went to these corporations but failed to deliver much results. This was because much of the stimulus package money was spent on paying back debt.

The debt kept growing and the economy kept deflating. It took over a decade for Japan to digest its debt and creep back into positive growth. If this is anything to go by, it is conceivable that the countries that went through the recent property bubble are going to be in trouble for a lot longer than one government term.

How Mitsubishi Survived The Lost Decade
A couple of years ago, I went and visited the Mitsubishi rocket factory in Nagoya. The Rocket corporation arm of Mitsubishi Aerospace is built on the exact site where they once manufactured war planes in World War II. They’re even still using the very same wind tunnel they used to test the Zero Fighter back in the 1930s.

When Mitsubishi hit the snag in the early 1990s, they refused to let their workers go. They decided to do it tough by paying the debt and cutting costs, but they refused to let any of their engineers go. This was because if they let them go, there was no way of getting them back again.

Mitsubishi staff told me they hardly knew anybody that was let go in the restructuring craze of the 1990s. They did however say it took the company a long time to work through the debts. Not that what Mitsubishi did is applicable or repeatable by anybody else. They are  a massive company that services so many needs of the Japanese government, from rockets to warships to satellites to pencils.

Can the process be duplicated everywhere? That’s unlikely. What one can learn from their experience is that not every worker in the system is interchangeable with another worker within or without the company. While one wouldn’t the lifetime employment system, it’s worth considering that losing people has more far-reaching  consequences than the mere spreadsheet balance of costs.

During the lost decade, Japan went through round after round of ‘restructuring’, both their debt as well as labor force. By the turn of the millennium, Japan had gone from ‘lifetime employment’ to a swell in the ranks of young casualised labor derisively known as NIETs. NIET allegedly stands for Not In Employment or Training.

Because Japan culturally has a strong work ethic, the general population regarded the generation of NIET workers as somehow deficient in their work ethic or desire to contribute to society. Much social discussion was made in the media that the NIET should somehow be taught a lesson and made to take a real job. Of course, the point of the rise of the NIET was that the large corporations that once took on a work force had ceased to do so in the lost decade.

It doesn’t take much imagination to see just how derogatory and inflexible Japanese society is towards its casualised labor force. The whole first world has been casualising its labor force for along time. With the recent downturn, they have been the first to be shunted out the doors from their Japanese employers.

We are going to see an acceleration towards this hyper-casualised work force in countries where there are big debts to be paid down. The labor force flexibility is going to be fully exploited in order to get maximum efficiency to pay down the debts as fast as possible. Careers and the very word itself might pas into history as a quaint notion as droves of people move interchangeably between industries and sectors.

The post-modern, post-industrialised world’s casualised worker is isolated, and ideologically dumb. They simply make up the numbers and are cast aside as the times grow worse. There won’t be a unionising or collectivising of these people because labor unions see them as scabs rather than their fellow working man.

The world of workers and labor forces in general are going to be very strange in the coming years.

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