Japan being overtaken by China not all bad

Bill Emmett writes an interesting article where he describes China's economy overtaking Japan's as a matter of course; and he sees this as a positive development for Japan as Japan runs a balance of trade surplus with China.

However, Emmett is quick to point out that it is not the manufacturing strength of Japan which will provide the positive; noting that -

... manufacturing strength has done nothing to save Japan from nearly two decades of stagnation. If anything, Japan’s own manufacturing obsession has made things worse: to help to reduce labour costs and stay competitive, Japanese governments in 1997-2005 made repeated reforms to create a two-tier labour market. The second tier, of part-time and non-contract workers, get much lower wages, less employment protection and no benefits.

That group now makes up one third of the labour force. It is Japan’s “working poor”, and is the reason why the once famously egalitarian country now matches British levels of income inequality. Japan is the only OECD country to have seen its level of absolute poverty rise in the past two decades. Meanwhile, wages are declining, and not just those of the working poor: last Friday the Japanese Government forecast that nominal wages will decline in 2010 for the fourth consecutive year.

Emmett sees the opportunity for Japan to reform the services sector of its economy and seems to believe that the new Japanese Government will have the political will to introduce reforms into this sector.

It is less clear that Japan's Government will do much at all in this sector and if Emmett is correct; it is more likely that the Japanese private sector will be the driver of the positives from China's expansion.

http://www.timesonline.co.uk/tol/comment/columnists/bill_emmott/article7000839.ece