Episode 312: Productivity Will Determine Japan's Future

During the “bubble years” of surging economic growth, Japan could not keep up with the supply of workers for the 3K jobs – kitsui, kitanai, kiken or difficult, dirty, dangerous undertakings. The 1985 Plaza Accord released a genie out of the bottle in the form of a very strong yen, which made everything, everywhere seems dirt cheap. Japanese people traveled abroad as tourists in mass numbers for the first time. They often created havoc in international destinations, because they were so gauche – a bit like we have been experiencing with mass Chinese tourism. Companies bought up foreign companies and real estate at a rapid clip. French champagne and beluga caviar was being downed at an alarming pace.

Finding Japanese workers became difficult, so the Japanese government turned to immigration. We had a very special immigration however. Countries with oil like Iran were allowed to send their citizens to Japan without requiring visas and suddenly we had an influx of Iranians, a bit like we have had with Nigerians. Brazilians of Japanese decent were encouraged to come and work in Japan. They rarely spoke Japanese being third and fourth generation, but they did have Japanese blood coursing through their veins. Somehow Japanese bureaucrats decided that would compensate for the fact that culturally they were 100% South Americans.

With the collapse of the bubble economy many of these Brazilians went home as their jobs here in Japan dried up. We are again facing a shortage of workers in the 3K industries because of the declining population. We are scheduled to lose around 800,000 people every year. This has an impact on consumer spending because we have less people around to buy goods and services. Uncertainty over the future has played to Japanese risk aversion and native conservatism. People are not spending, preferring to leave their money in the bank at microscopic interest rates. In a deflationary economy at least you were not losing money, but that has changed now we have inflation. We are seeing Chinese and other foreigners working at convenience stores. Students can work up to 38 hours a week, which surpasses the work week in France.

The Japanese government is adding immigrant workers without openly calling it immigration. Is immigration really needed when we have such low white collar productivity and low wages? Do we need to bring in mass immigration to maintain or expand the population levels? Wage growth has not occurred yet, despite companies hoarding massive cash surpluses under their corporate futons. Also, somehow the laws of supply and demand have not kicked in yet. There is a shortage of staff for child care facilities, but wages are not attractive enough to staff them. Nurses are in short demand, but salaries are not moving up much yet. Delivery workers are in short supply and there needs to be a substantial wage increase to fill the vacancies more easily.

Japan is looking to robots to help cover the staff shortages. This plays to Japan’s love of robots and their technological might. What would be more impactful would be to free up the latent capacity of white collar workers. They have very low productivity because of the culture of work here. Spending long hours as a tatemae or superficial show of devotion and loyalty is not helping. The amount and quality of work being produced is more important.

There is a slow rhythm of work in Japan. In the big cities like Tokyo, people are tired in the morning because of the late nights and long commutes. Working long hours is tiring and as Parkinson noted “work expands to fit the time”. Just hanging around the office to show your devotion is nice, but not all that helpful. This is the exact opposite of a productive work culture focused on outcomes. Work from home has freed up people from commute torture, but from what I can see, there doesn’t seem to be any increase in productivity as yet. Staff lifestyles are better, but company results are not being positively impacted.

The other issue is very low engagement numbers. Every engagement survey seems to show Japan as the global outlier in terms of engagement. Yes there are cultural reasons around Japanese conservatism when it comes to answering these survey questions. However nobody seems to think that directionally, the low scores are wrong.

Low engagement affects work pace and also creativity. Tired people are rarely innovative. Finding better ways of working has a lot of potential but it needs desire. Doing new things isn’t rewarded in Japan because in the new there is risk. Failure isn’t tolerated and there are no second careers here for failures. You have to slink off into the sunset and disappear. Middle managers are experts at not rocking the boat and they don’t see any gain from being innovative and rallying their troops around that banner. Better to get ahead by doing the same old, same old.

Better leadership, delegation, time management, engagement, outcome orientation and more tolerance for failure in pursuit of innovation would go a long way to lifting Japan’s productivity. This would easily compensate for the declining supply of workers due to the demographic reality Japan is facing. Immigration is not necessary to be the first response when there is so much excess latent capacity not being maximised here.