IMF to Japan: “Introduce wage plan.” Seriously?

By Raz Koroh

Luc Everaert, the IMF mission chief for Japan, after the agency’s annual consultation with Japanese officials on August 2, declared that Japan needs to introduce policies to support wage increases.  This knowing how difficult a policy it would be to force Japanese corporations into raising salaries, as under normal circumstances salaries would rise as the job market tightens.  If it is not done, the alternative is the so-called helicopter money that involves central bank financing of the government’s budget deficit – an approach the IMF clearly is against in view of the potential risk that a loan default and financial melt-down in Japan might spread globally.  The question here is, at which point does the IMF begin to tell Japan then, that the real problem with Japanese consumers not supporting Prime Minister Abe’s bid to reverse the country’s deflationary, stagnant economy, lies not in a oversupply of lower paid part-time workforce, but more in the lack of demand for the better paid full-time workforce.

Here are several factors to consider.

Lack of innovation.  Japan as it is right now simply does not provide the right kind of environment for ordinary Japanese to excel.  Business as usual is the operative word as far as corporate Japan is content with.  Furthermore, the financial world that is the Tokyo stock market is more interested in keeping the decades old status quo, irrespective of the irreparable damage this has done to Japan’s economic stature in the world for almost three decades now.  The Japanese governments changed in those times, but with none of the serious structural policies perhaps one Junichiro Koizumi had once wished for when he was Japan’s prime minister.  It is quite simple.  Without policy incentives for innovation, there is no demand for highly skilled tech workers, and without the demand for tech workers, there is no need for Japanese youngsters to aspire to become the next Steve Jobs or Bill Gates, so there is no need for corporate Japan to pay the high wages that such workers would have attracted in the United States.

Minimum wage fallacy.  If there such a thing as a living socialist idea, then this certainly qualifies to be it.  It is also interesting to note the illogical ‘logic’ attached to minimum wage.  Allowing wages to be determined by the economic laws of supply and demand is one thing, but placing a floor level below which it is considered inhuman for workers to be treated with defies reason.  For such a policy that forces the corporate world to adhere to would simply prevent the greater majority of corporations from hiring as doing so without the ability to enjoy the economies of scale of the minority of corporations, would simply put them out of business!  Sure, there is a boost in demand from happy workers for employment, that is if only they can find enough employers to give them jobs, but alas most of the latter would either have gone out of business or opted to do their business somewhere else in the world.  Then it is back to increased unemployment rate and more headaches to cope with for the government.

Comments welcomed.