For Participants only

[due to incomplete referency]

Post-COVID-19 JAPAN:
Shocks and Therapy
[A multidisciplinary Treatise of an economist-Japanologist]

Abul Barkat, PhD.

Professor and Former Chairman, Department of Economics;
Professor and Foundry Chairman, Department of Japanese Studies,
Dhaka University, &
President, Bangladesh Economic Association

Keynote Speech
E-Studium Generale "JAPANESE STUDIES TOWARDS GLOBAL
PANDEMIC",
Department of Japanese Studies,
School of Strategic and Global Studies Universitas Indonesia
Jakarta: June 23, 2021
Ladies and gentlemen,

Salam to you all,

I am delighted to be with you— virtually.

At the outset, I must express indebtedness to Professor Athor Subroto, the Director of School
of Strategic and Global Studies, Universitas Indonesia (SSGS/UI), to honour me with the
invitation Keynote Speaker. It would be unjust if, at the outset, I do not mention another name,
Dr Shobichatul Aminah, Assistant Professor, SSGS/UI, for her time and efforts devoted to
communicating with me with minute details.

Secondly, permit me to let you know that I have a bad habit of "not speaking in an august
forum without writing". So, everything that I will speak is in written form (and maybe it is
already distributed to you or will be made available soon by the organisers of e-Studium
Generale).

Third, in response to my query about the possible audience, I have learned from Dr Aminah
that participants range between high profession and students. Accordingly, I tried to design
my speech.

Fourth, what am I going to speak about – under my chosen title, "Post-COVID JAPAN-Shocks
and Therapy"? I will follow a logical order: start with a "mental framework" (usually termed
as `methodology' or "philosophical basis" of talks), then to put everything into context-present
a brief about Japanese economy and Society before COPID-19, then try to deal with the shocks
and therapies related to Post-COPID Japan (Here let me make myself clear to I am unclear
about the meaning of Post-COVID or after-COVID because no one knows the endpoint tune
of COVID-19).

1. The mental framework (the Philosophy, methodology: Categories and

Classifications
In my view, most sciences – social, arts and humanities, natural, soft or hard – are prone to
deep-rooted (deeply ingrained) linguistics politics coupled with "convenient definitions"
(convenient definitions of things – categories). According to this philosophical premise, before
I speak specifically on "Post-COVID-19 Japan: a few things – as a matter of methodology- to
set the stage/tone of my subsequent argumentative presentations. A few of them are:

a) There is no "economy" per se – it is always "political economy". There is no

economics without politics and no politics without economy. All economies can be
seen as two economies. First, the official, statistical economy, which serves the
powers' interest. The Official economy based on officially provided statistics
intends to hide reality to a large extent. Institutionally, power implies all three broad
elements— the Legislature, the Executive, and the Judiciary. Second, the real
economy, which reflects the ground reality and does not reflect the official
economy.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 2

b) Irrespective of government, the prime propaganda/things they do worship GDP,
Growth, Per Capita GDP, Per capita income, and technology. They do it
maintaining their intent and convenience.

c) There is no 'Welfare State' except in theory.

d) Power is always illegitimate unless its legitimacy is proven, and the burden of proof
lies with the power holder.

e) 'Democracy' is a highly contentious subject. Once upon a time, it was defined as

"For the People, Of the People, By the People"– it has now turned into "FAR the
people, Off the people, (Good) BYE the people". It is now "For the 1%, Of the 1%,
By the 1%".

f) The discussion of equal rights among unequal people is futile. There can never be
any meaningful outcome of discussing rights between the "powerful" and the
"powerless". They both have rights: the "powerful" has the right to exert power on
the powerless and do-undo anything – anytime, and the "powerless" has the right to
"obey the dictates of the powerful".

g) There is no such thing as pure "capitalism". It is always a "State Capitalism". Here

lies the essence of real capitalism.

h) There is no such they as a "free market economy". A free-market economy

presupposes perfect competition, which exists only in theory, not in real life. In
real life, that exists by the name of 'free market economy is economy run by the
"syndicates – by a few, by corporations, by the rent-seekers- who do not create
wealth but grab wealth created by others. It is precisely the reason as to why every
after 20-30 years government reserves the free market economics spending tax
payer's money.

i) There is no such they as "free market" or "invisible hand of the market" (of Adam
Smith). Had there been any perfect "free market' there would have been no market
distortion or "shocks". So-called `free market' is neither free' "nor poor-friendly".

j) There is no such thing as "homogenous people". People are always (in society based
on the exploitation of man by man) heterogeneous. Heterogeneity is reasoned by
class structures and the associated leader, caste, creed, religion, ethnicity,
occupation, geographic positioning, social standing, cultural entity, positioning in
the leaders of politics, power-government-state. People are divided into the
majority and minority, centre and periphery, dominant and dominated, employers
and employees, exploiters and exploited. This dichotomy is fundamental.

k) The majority of people everywhere, in essence, are "unperson" (a term coined by

George Orwell in 1848) or 'unpeople (used by Noam Chomsky 2003-13). These
are the people who are not counted, who are out of the book, whose voices are mute
and never listened to. They are, in essence, not "citizens" but "subjects".

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 3

 l) We know both 'risks' and 'uncertainty' exist in life. However, 'risks' can be
predicted, but 'uncertainty' can never be predicted. This trait of uncertainty is fully
applicable to our future associated with COVID-19.

Therefore, in social and economic life – what we see opening our eyes is just the "surface of
things" of the "appearance of things" – and not the "essence of things. It means what we see
on the surface is just the distortion of the truth. Therefore, to understand the real essence of
things, we must go beyond the external forms and search for the internal trails of things.

2. Japan's Economy and Society: Before COVID-191

2.1 Rise of a developmental miracle

Japan is one of the largest, most highly developed countries in the world. It is home to some of
the largest companies in the world, such as Sony and Toyota, its infrastructure and technology
are unparalleled. Japan is truly a great country and has an excellent economy with a high
standard of living for its people.

In 1945, Japan had just surrendered from the Second World War. Upon surrendering, the
United States and hundreds of 1000s of military personnel were engaged to occupy Japan. The
goal was to oversee the demilitarisation of Japan and transition into a kind of democracy.
President Harry Truman appointed General Douglas MacArthur in charge of this operation.

Japan was in a state of turmoil after Hiroshima and Nagasaki had been bombed into shreds.
Many people were homeless, and there were mass food shortages.

MacArthur's first objective was to establish a reliable Food Network. He achieved this through
receiving donations from various charities as well as US government loans. The next phase
was to win over support from the Japanese Emperor, Emperor Hirohito. MacArthur won the
support of the Emperor, and Japan transitioned relatively smoothly into a democracy. A new
constitution of Japan was created in 1946. Many industries were privatised and still tightly
regulated by the government. On April 10 1946, the Japanese people elected their first prime
minister under the new constitution and leadership. The culture of Japan liberalised, and aspects
of society like women's rights soared in the early 1950s.

The 1950s marked a turn for the Japanese economy. It began to industrialise, and new
technologies were introduced into society, which helped all industries, including farming, in
the 1960s. Japan transformed into a consumer economy. The Japanese government invested
heavily in education and social welfare, turning the country into a highly educated and
productive workforce. It became a hub for the development of electronics, automobiles, steel
and other high tech devices. In this process, Japan became a highly successful international
trader and achieved a trade surplus, meaning exporting more products than importing. The
demand for Japanese products soared, and the economy skyrocketed. In the 1960s, Japan
attained an economic miracle in just 20 years. Japan went from a poverty-stricken, war-torn
country under the United States military occupation to one of the most highly developed and
prosperous countries the world had ever seen. Japanese economic growth rate caused fears

1
A large part of this section is drawn from many relevant sources, which are not mentioned here.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 4

among Western leaders that Japan would soon overtake the United States as the largest
economy in the world. However, this did not happen as Japan's economy in the 1970's slowed
significantly. Starting in the 1970s, Japan's economy faced many challenges —many of the
once-dominant Japanese industries, especially in manufacturing, began to decline.

The international trading scene began to shift, and the OPEC oil embargo hit the Japanese
economy hard as they were highly dependent on foreign oil. All of these factors contributed to
the stunting of the Japanese economy. Despite these setbacks, Japan's economy remained
strong, though it did not see its growth in the 1950s or 1960s. The economy of Japan still grew
throughout the 1970s. By the 1980s, the GDP per capita became higher than that of the United
States. Japan also became the world's largest creditor nation. However, by the 1990s, Japan's
housing bubble burst and ultimately led to a recession which caused a great stagnation in its
economy. People started purchasing less, which increased the price of goods. Deflation kicked
in, which further cause people to cut back spending. This vicious cycle of deflation has been
one of the leading causes of concern among Japan's policymakers.

Japan is home to one of the oldest populations. Japan's population is now 126 million people
(as of 6:52 PM, June 21 2021), but it is forecasted to fall below 106 million people by 2050.
The population in the age group 65 and over constituted about 30% of the total population and
projected to increase until 2040. It only worsens the economic situation.

2.2 Fall of the miracle

So, how did the economy of the Asian archipelago – Japan – which came so close to overtaking
America, as the number one economic superpower, turned so bad that the Bank of Japan bought
up to 70% of government debt, and has even become the biggest shareholder of corporate
Japan.

The story of the Japanese miracle started in the 1980s when Japan was still a growing economic
superpower. In my view, the story started in 1979— the year of the second oil crisis, which
was caused by the Iranian Revolution and the subsequent war between Iraq and Iran. To save
their economies from fallout, all major industrialised nations, including Japan, responded by
lowering their interest rates. It marked the start of easy monetary policy in Japan and set the
scene for one of the biggest asset bubbles of all time, but this was not immediately obvious.
After all, nationwide, bubbles take a long time to develop, and they might start in the form of
a healthy, productive economic boom.

Indeed, the Japanese economy of the early 1980s was characterised by massive investments in
research and innovation partially made possible by these low-interest rates and by a little-
known secret monetary technique known as window guidance. Unlike the Western central
banks, the Bank of Japan had an innovative way of creating credit in the right strategic
industrial sectors. How it worked was quite simple. The Bank of Japan would simply go to
Japan's biggest banks and give them a quota. It implied that he told them he created this much
grant for the steel industry, created this much for the automobile industry, and this much for
the shipbuilding industry. It was secret but straightforward because the technique of window
guidance was never really picked up by mainstream Western economists.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 5

The United States started fearing that Japan would overtake them to become the number one
global economic power, especially fearful of the destruction of the American car manufacturing
industry. American workers flocked in droves to Republican President Ronald Reagan, who
pledged to do something about the trade deficit with Japan, and that he did or at least attempted
to do first in 1981. He limited the number of cars that could be imported from Japan every year.
And then, in 1983, he slept a whopping 45% tariff on Japanese motorcycles, reportedly to save
American motorcycle icon Harley Davidson. However, in stark contrast to the current trade
war between the US and China, something remarkable happened in 1985. It is the year of the
so-called Plaza accords. European American and Japanese politicians agreed that global trade
was imbalanced. The dollar was too expensive compared to the British Pound, French Franc,
Deutsche Mark, and most Japanese yen. Thus, in these accords, the Bank of Japan promised to
sell massive amounts of its dollar reserves to make the yen appreciate and to depreciate the
dollar in the process. And it worked.

After the plaza accords, the rising yen against the US dollar and while this proved troublesome
for Japanese exporters, Japanese consumers saw their relative wealth skyrocket thanks to
cheaper imports. However, to counter some of that upward pressure on the yen, the Bank of
Japan lowered interest rates even further. The side effect was that the scene was set for one of
the craziest nationwide bubbles of all time with boring even cheaper. Now there is a popular
argument that it was through these Plaza accords that the United States was ultimately
responsible for the Japanese bubble and subsequent destruction of its economy. I find this
argument rather unconvincing because the Bank of Japan could easily have cooled down that
bubble with stricter rules on lending or through window guidance. Still, low-interest rates
definitely contributed to the late 1980s bubble period in which both property and stock prices
went through the roof. So much so that it was estimated that at the height of the bubble, the
small plot of land that the Kyoto Imperial Palace sites on had a higher valuation than all of
California's real estate combined. Furthermore, since all Japanese citizens appeared to become
rich simultaneously during the bubble, Tokyo became the Party City of the world where
business people would spend cash freely on champagne and exotic dancers. Furthermore, with
a yen riding high Japanese investors flooded the world, buying up famous New York landmarks
such as the Rockefeller Center and US companies.

However, the Bank of Japan was not blind to the possibility of a bubble. The relevant records
mention bubble risks during that period. The response was late. In 1989, the Bank of Japan
started to raise interest rates. Moreover, that is what finally popped the bubble marking the
peak of the Japanese stock market, property market, and the solid Japanese economy itself.

Furthermore, while the Bank of Japan did not realise it, in hindsight, this was when the Japanese
economy turned from a miracle economy and fell into the arms of stagnation and deflation.
However, as it turns out, what drove deflation in the next three decades was the interaction of
multiple economic mechanisms. Conveniently, the three most important mechanisms can be
divided into three periods that largely overlap with the three following decades that deflation
in the 1990s, the inflation expectation traps in the 2000s and population decline in 2000-10s.

The first decade of Japanese deflation-the 1990s was also at most dangerous because it was
characterised by a volatile combination of debt deflation and a banking system on the verge of
collapse. The primary mechanism of debt deflation is as follows: a debt-fueled housing bubble
that has just worked; with house prices falling, most people are now left with both a massive
mortgage and a massively devalued house; this house can no longer be sold to repay it entirely.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 6

Therefore, if people want to move, they will be forced to repay their debts by tightening that
belt buckle and buying less stuff. It means the decline in the overall demand for stuff will
decline. However, the supply of stuff is still the same. After all, all the factories are still there,
and plenty of workers are looking for a job. Thus, since the overall supply of stuff is more
significant than the overall demand for it, on average, the price of stuff will drop. This is
deflation. It is a situation when people are highly indebted; deflation will make it even more
difficult for them to repay their debt. While the value of their debts will remain constant, the
way people might earn an income will spiral downwards. It, of course, means that struggling
borrowers will spend even less, meaning that incomes decline even further, which has become
even more challenging to repay, and hence more inflation follows. To break this vicious cycle,
central bankers need to forcefully decrease interest rates to help struggling borrowers out of
the deflationary spiral. Moreover, it was with this in mind that the Bank of Japan cut interest
rates in 1991. However, only by a little in hindsight they did not realise how big the bubble had
been, and therefore it was too little and too late.

Debt deflation has taken hold, and prices kept dropping throughout the 1990s, while the Bank
of Japan kept cutting rates slowly, vainly trying to break this vicious cycle. However, that was
just the start of Japan's problems, because not only had its borrowers gotten into trouble, but
also when Japan ran into a second feedback problem, which is the one between banks and the
economy. So we see, a faltering economy makes it less safe for banks to lend to the companies
that are in it. Furthermore, less credit for companies means less investment and hence a
faltering economy. At this point, it became increasingly clear that the Bank of Japan needed to
take swift action to recapitalise the banks to start lending again and again. That is, if you
consider injecting billions of yen into faltering financial firms being careful, the public certainly
did not consider it carefully, even that this created quite a bit of backlash. Morally speaking,
why should governments rescue banks?

The problem for central bankers is that banks provide an essential economic service, Money
Creation. So even though banks should be held responsible for their role in blowing the bubble,
if you let them fail, you might have the moral high ground. However, you also have an economy
that is destroyed. With that being said, there was an intense public backlash against bank
recapitalisation, which made other rescues feasible. Consequently, the banking sector remained
in a slow downward spiral, a spiral that came to a spectacular conclusion during the dark days
of November 1997, which marked the start of Japan's banking crisis. It came as a shock since
while most of Asia had been in the grips of the massive Asian financial crisis that started in
July of 1997, Japan and the yen seemed to have weathered the storm relatively well, thanks to
the bank of Japan's massive war chest of foreign reserves that had been built up using the
proceeds of Japan's consistent trade surpluses. Nevertheless, then on November 26 1997, the
phone rang at the Ministry of Finance.

It was the Bank of Japan, and the message was simple: lines are forming in front of the banks.
It is when it indeed sunk in seven years after the acid bubble had popped. Japan had its second
moment of reckoning, a real blown banking crisis. It was especially problematic since the Bank
of Japan could not cut interest rates further since they were already at 0%. So in a desperate
move to stop the panic, Japanese officials instructed the banks to let in as many customers as
possible after all lines industry would attract unwanted attention that might spill over into a
nationwide panic and after run on all banks. However, the move was in vain, the media was
already aware of the lines, but then something happened that I think could only happen in
Japan. The news media refrained from publishing this report. Thus, in the afternoon were to

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 7

reach the offices of the Bank of Japan that the lines in front of the banks had all but disappeared,
and a true panic averted. That does not mean that a financial crisis was averted.

In 1998, seven major financial institutions failed, and the banking crisis only came to a halt.
Despite public pressure, several financial institutions had been saved with taxpayer money.
However, one silver lining was that this painful banking crisis finally got rid of the debt legacy
of the asset bubble, that deflation was finally over, and the Japanese banking sector was ready
to support a resurgent Japan as it enters the 21st century. However, as we all know, now that
this did not happen, instead, demand found itself once again in a deflationary spiral, but with
excessive debts in the private sector gone. Why did the Bank of Japan even care? There might
be two reasons. First is that while the excessive debt problem in the private sector had finally
been solved, the way it had been solved by bailing out the banks meant that now a lot of that
leftover debt found itself on the government balance sheet. Moreover, while that turned out to
be less of a problem than economist initially expected, deflation is still not exactly great for a
highly indebted government since that debt does become harder to pay off as prices, and
therefore taxes fall.

However, there is another crucial problem with deflation — it rewards saving and not spending.
After all, if you can buy more stuff with your money by refraining from spending it now, then
you are inclined to spend less money. Moreover, that is highly problematic since an economy
can only work if people actually spend their money. This is why most central banks aim for
consistent mild inflation rather than complete price stability. Mild inflation helps both the
private sector and government pay off their debts, while it simultaneously motivates people to
spend their money rather than hold on to it. So, the Bank of Japan wanted inflation to encourage
spending.

Nevertheless, why there was still deflation, after all, this debt-deflation mechanism had all but
disappeared. The standard theory of inflation that the central bank turns to first is the Phillips
curve, which implies a relationship between inflation and unemployment. The primary idea of
the Phillips curve is that low unemployment simultaneously means much demand in the
economy and that production cannot employ enough people to meet that demand. Thus, both
wages and the costs of all goods rise versus, of course, inflation. According to this theory, even
that supply cannot expand quickly enough, and inflation mainly occurs in fast-growing
economies. Therefore, the natural variable to look at next is unemployment during the early
2000s.

During the same time, unemployment rose to roughly 5%, which was relatively low compared
to other countries quite high for Japan, with interest rates stuck at 0%. What was the Bank of
Japan to do about that? The answer is monetary experimentation. Long after having abandoned
window guidance, the Bank of Japan once again showed itself to be an innovator when it started
a programme that later became known as quantitative easing. The main idea here was that while
short term interest rates could not be much lower than zero, long term rates, which are typically
higher to compensate lenders for the increased risk of default, could be driven down further by
using newly created reserves to buy bonds. So we need to keep in mind that while we now
consider quantitative easing to be quite normal, at the time, it was very radical. However,
considering the massive quantitative easing programmes of today, there was nothing radical
about the scale of these early programmes.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 8

Furthermore, the Bank of Japan stressed that they would stop the programme immediately once
deflation would turn into inflation. Nevertheless, while unemployment dropped, inflation did
not come. But why not?

One popular explanation is that by now, inflation had become a self-fulfilling prophecy. In
explaining this, an example in the 1960s would be worth mentioning. Japanese inflation
hovered around the 5% mark every year. So in those years, Japanese labour unions typically
demanded at least a 5% wage increase to keep up with inflation. It, in turn, led to increased
costs for businesses who would to remain profitable increased their prices by 5%, meaning that
the following year's inflation was also 5%.

Moreover, workers again demanded that same 5% wage increase. As anyone can see, this type
of inflation is a self-fulfilling prophecy. Actual inflation at the end of the year depends on
inflation expectations today. This is why if you go through as many central bank speeches, you
will strikingly often come across managing inflation expectations rather than inflation itself.
However, the problem for Japan was that during the 2000s, thanks to the debt deflation in the
1990s, Japanese workers were now used to mild deflation. Naturally, they expected this to
continue, and by the magic of self-fulfilling expectations, it did. It is less surprising that the
Bank of Japan was willing to experiment with something as radical as quantitative easing
during this period. It was so desperate to break through that self-fulfilling deflation cycle where
it was willing to innovate once more, and what happened is: around 2006, it finally seemed to
work as mild inflation

The outcome was ― Japan got rid of the quantitative easing experiment and assigned it to the
dustbin of history. And then, the global financial crisis hit and Japan was hit hard. Even though
the financial crisis itself originated in the United States, Japan's economy contracted by more
than that of the United States itself. It was unexpected since Japanese banks, still scarred from
their experience of the 1997 banking crisis, had not participated in the global financial boom.
Therefore, unlike their European counterparts, they escaped relatively unscathed. However, the
problem was that Japan was relying heavily on exports, particularly cars.

Furthermore, when demand plunged in Europe and the US, the sectors, in particular, took a
massive beating. It is quite a common problem for countries that rely heavily on exports. While
it seems super safe to run consistent, massive trade surpluses, it does make you very dependent
on the state of the rest of the world. However, as we can imagine, this was not a remarkable
turn of events for the Bank of Japan, which was still desperately trying to increase inflation
expectations. Thus, Japan ended yet another decade with a recession and dipped back into
deflation. Sure, this time, the recession was brought on by foreign problems, but that did not
make it less of a problem for the Bank of Japan. It also made clear to the Japanese electorate
that radical change was needed.

Japan economy is just about to break free from chronic deflation. In 2012, Prime Minister
Shinzo Abe came to power on the promise of radical economic change‒ Abenomics.
Abenomics consisted of the so-called three arrows. The first arrow was monetary policy,
meaning basically a continuation of the past, but amplified to the extreme. To give an idea of
how extreme‒ Consider the following propositions‒ are your interest rates stuck at zero, no
problem, just make them negative; for the Bank of Japan start buying more short term
government debt, long term government debt, corporate debt; enter the stock market. In

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 9

Abenomics, the quantitative easing in Japan has been so extreme that now the Bank of Japan
owns roughly 70% of all government debt.

In comparison, the Bank of England is projected to own roughly 30% of government debt after
the corona crisis. Also, the Bank of Japan recently announced that it is willing to buy up to
15% of long term corporate bonds. Furthermore, as a consequence of even more radical stock
buying programmes, they are now the single biggest shareholder of Japan. Some estimate that
they own roughly 7% of the Japanese stock market. Given that at the start of the 21st century,
the Bank of Japan was really on the fence about getting into this whole quantitative easing
business. Now the second arrow of Abenomics was to increase government spending through
lots of spending packages. Japanese government debt approached a shocking 240% of GDP,
making the Japanese government the most indebted in the world. This might be less dangerous
than one might think since most of that debt is owned by the Bank of Japan and the people of
Japan. It sounds like Abby was a big spender. He also increased taxes on consumption goods
in 2014. And again in 2019. These consumption tax increases are particularly infamous because
after each time they were implemented, the economy found itself back in recession.

Now let me move on to the third arrow of Abenomics, which was structural reforms. I do not
really like this term of structural reforms because it can mean almost anything. However, in
this case, it meant allowing more shareholder activism to increase competition among
corporations, tax cuts for corporations, and deregulation for corporations. Moreover, finally,
lots of trade deals for the corporations, which is nothing but giving undue gifts such as tax cuts,
tend not to invest that money would rather hoard it or directly turn it over to their shareholders
who then hoard it since 2015. It has gotten so bad that corporations have saved up to 5% of
what they earned each year.

Similarly, since then, households have increased their savings by up to 4% every year. Now,
anyone can imagine that the economy to reactivate the household and corporate sector needs
to spend that stimulus rather than save it. Thus, not surprisingly― inflation was definitely
higher under Shinzo Abe than in the previous decades. It never hit the desired 2%. Also,
consumption was barely any higher at the start of 2020 than it was in 2012. So what went wrong
with Abenomics? While increasing interest rates can be highly effective at cooling down the
economy, lowering rates to stimulate productive growth is much harder for the first arrow
monetary policy. If there is no demand among firms to invest more, you can lower interest
rates, but they will likely use this opportunity to fund higher dividend payouts to wealthy
investors with cheap debt. You can also lower the taxes, but how can you be sure that they
won't just pay these out in dividends to shareholders. Moreover, if you combine increased
government spending with increased consumption taxes, it is pretty hard to expect shocking
results.

Having said all the above, there is one major theory about Japanese deflation that we have not
talked about yet. Moreover, that is Japan's demography. Because Japan's population is
shrinking fast. In fact, Japan's population growth reversed right around when Abenomics
started. It had a massive impact on the economy of Japan. After all, fewer people working
means less awaiting income and less demand for products and increased automation to replace
the workers who now enjoy their pensions. No wonder deflation has been so hard to get rid of.
So this raises the issue of what happens if we look at how the Japanese economy did under Mr
Abe. If we correct for the shrinking population, the DDP per Japanese citizen, the economic
performance of Japan has not been that bad, as long as you correct for a trained and skilled

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 10

population. Suppose you do that it has been quite similar to that of other industrialised nations.
So it makes sense that to defeat deflation, repopulation policies are needed truly. In other words,
the central bank is just out of its league here.

Moreover, to fight a decreasing workforce, Prime Minister Abe tried to increase women's
participation in the labour force and fertility by building many new daycare centres and
expanding parental leave. He also tried to get more immigrants to work in Japan, for example,
by making a fast track to residency for skilled workers and a guest working program for
unskilled labour. However, as leaders from Hungary to Russia to China, he found out that
reversing a robust demographic trend is almost impossible.

Shinzo Abe left Japanese politics for health reasons in 2020; his party is still in power. So it
seems likely that most of his policies will continue. However, will they bring back inflation, a
stronger yen, and heavens forbid repopulate the islands? Difficult to answer!

However, let me try. If you do not couple quantitative easing (QE) with increased government
spending, all you are doing is taking one asset out of the economy and replacing it with another.
This will lower interest rates on the bonds that you are taking out, of course, but it will not give
people much spending power that will generate inflation; it is more likely to lead to higher asset
prices, something that will help further inflate the massive savings of Japan's corporations and
households but will not get them to spend and generate inflation. So if the Japanese government
truly wants to generate inflation through monetary policy, it could consider either quantitative
easing for the people, also known as helicopter money, which means that the central bank is
creating money and giving it to people or coupling massive QE with massive fiscal spending.
Furthermore, since we find ourselves talking about the second arrow already fiscal policy, the
other point I want to make about that is if you want your fiscal policy to be inflationary, then
you better make sure that that money ends up in the hands of those who actually spend
it, which are typically those at the bottom of society. Basically, what Japan has found out
the hard way is that if you are appropriations and households are already saving whatever they
can, you can give them more money. However, all it does is make them save more.

Finally- the structural reforms. There again, it is surprising that some of the measures
implemented tax cuts for the corporations, those that are already hoarding all the wealth and
tax hikes for consumers who need to spend more. Why not try to do that the other way around,
at least if you want to generate some inflation, and another potentially more productive way to
bring about inflation through increased wages is to improve the bargaining power of the
Japanese worker. Structural reforms like that could even be combined with a central bank-
funded basic income. After all, if people do not have to work to survive, then that might bring
about some real power to ask for increased wages to do crappy work.

Furthermore, when it comes to repopulation? It is most likely that the most convincing
explanations pointed to an insecure work environment for men and too few opportunities for
women to have both a career and have babies but are on this front. Finally, while increasing
immigration might help us know from other economies, you cannot do this too rapidly without
risking great social tension.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 11

I think the economy is not doing as badly as one might think. On the other hand, there is a
good reason people fret about low to no growth, and that is that being young in a low to no
growth economy can be pretty strenuous and insecure. Also, a greying population will mean
that the young will have to support more and more elderly Japanese economically.

2.3 Rising poverty in a faded economy

Even before COVID-19, the Japanese economy started fading, coupled with rising poverty. As
we mentioned in Section 2.2, after about two decades of economic stagnation and recession,
Japans economy started fading with poverty on the rise.

Even in 1987, Japan's economy was the envy of other nations, rising from the ruins of world
war two to become the world's second-largest economy. Japanese seem to be so busy from
Monday to Saturday making electronic goods, and there is only one day left on which they can
actually go out and buy them all that came to a halt in the 1990s when it started experiencing a
prolonged recession, which economists have dubbed the lost decade in the year since Japan has
experienced sluggish growth under a revolving door of prime ministers.

By the mid-1980s, China had overtaken Japan to become the world's second-largest economy.

To tackle the stubborn economic stagnation and low inflation. Ave introduced his signature
economic policies known as Abenomics. As mentioned earlier, these came in monetary easing,
fiscal spending and structural reforms of Japan's labour force, shrinking and ageing. Japan has
been facing a population decline since 2011. Because of a low birth rate in 2019, around
500,000 more deaths than births, as the number of babies born fell by 5.9%. With an ageing
population and a shrinking workforce, unemployment levels have low. Despite a tight labour
market, the earning power of Japanese workers has remained stagnant. In fact, the average
wages in Japan has remained below $40,000 since 1991. Unlike other developed countries,
such as the United States and South Korea, this has its roots in Japan's peculiar employment
system, which is built on a set of principles to promote loyalty between employers and
employees. Employees sign life-long contracts with companies and are motivated to remain
because of a wage structure prioritising seniority of merit. This practice dates back to World
War Two and has become ingrained in the Japanese culture, especially in larger companies.

While this game made sense in the post-war period when there was a shortage of skilled labour,
this relatively stable but rigid employment system emphasises job security rather than
productivity and performance.

As a result, Japanese firms were reluctant to increase employee salaries, especially during
economic downturns because they were expected to retain the employees for an extended
period depends ageing population also meant that senior executives were unlikely to move
anytime soon, providing little to no career progression and wage increases for younger
employees. To address these labour woes, Ave tried to reform the country's labour systems,
such as relaxing immigration laws, easing Japan's brutal work culture and encouraging
more women to join the workforce. While Abby managed to increase female participation in
the workforce to an all-time high, many were on low paying odd jobs. Among senior and
leadership positions, only 15% were held by women. The lifetime employment scheme also
discouraged firms from hiring women full-time to avoid commitment costs such as pension
funds. To maintain their competitive edge, some Japanese companies started converting their

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 12

full-time employees into part-time workers. In 2019, the number of non-regular workers rose
by 2.1%, outpacing the 0.5% growth among regular employees, despite record employment
under Abenomics. Japan's poverty rate is the second-highest among seven nations at 15.7%
and above the OECD average. At the same time, large Japanese firms have benefited under
Abenomics due to the weak yen and a booming stock market. These corporate profits did not
trickle down to households.

The country's next Prime Minister, Yoshihide Suga, is likely to carry on where Abby left off.
Abby may be gone, but Abenomics appears here to stay. Whether it will lift Japan out of its
decade's long doldrums and reverse the poverty trap remains to be seen.

So, before I step to the next section, permit me to mention the following nine things you need
to know about Japan's Political Economy:

1. The key to generating this growth is more robust domestic demand consumption
and investment. Moreover, on both grounds with there are reasons to be guardedly
optimistic. Consumption demand is predicated on higher wage growth. Japan's labour
market is very tight, and corporate profitability is at a record high. Moreover, these are
conditions for higher wage growth, leading to higher consumption on investment, cash-
rich corporates, easy financing conditions, and ongoing corporate governance reforms.

2. Japan is a patriarchal society. Women in the workforce are low paid odd job's (as
compared to men counterpart). For any senior and leadership position, only 15% are
with women/are held by women.

3. Japan faces a formidable challenge of a declining population and labour force. The
solutions to this challenge are faster productivity growth and higher labour force
participation rates. Japan needs to make greater use of foreign labour, especially in areas
where there are major shortages and deregulate its agricultural and services sector.

4. Japan's public debt stands at an unprecedented 245% of GDP, low and stable
interest rates. Moreover, the well-known homebuyers of Japanese investors have kept
the situation under control. However, there is no guarantee that low-interest rates will
remain forever. There will be high pressures from population ageing on spending, and
investor sentiment can shift abruptly.

5. Japan needs to break out of a profoundly ingrained deflationary mindset.

6. Japan's system of "life-long employment contract with the large corporation"

emphasises job security rather than productivity and performance.

7. Japan's work culture is brutal.

8. Japan's poverty rate is rising.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 13

3. Post-COVID-19 Japan: Shocks and Therapy
(View of an argumentative economist-Japanologist)

It is the most vital part of my speech in line with the `theme'. I want to start by saying that
Japan has followed an arrowed pathway in its recent economic development: Government
→corporation→ people. This section will concentrate on the following broad issues related to
the shocks and therapy about the Post-COVIT Japan. Multidimensional impacts of COVID-19
pandemic on Japan, COVID-19 shock is a real location shock. Japan's past failure to adjust to
large reallocation shocks: Japan primarily relied on corporations to help their workers cope
with economic shocks. When a significant economic shock hits corporations, the government
helps them so that they can stay alive and protect empowerment. This approach is problematic:
it prescribes concentration of the cost of adjustment to disadvantaged groups and creates
zombie firms. What might be the therapy to address the shocks, and what could be shocking
in therapy.

First, regarding my title "Post-COVID-19 Japan",. I am not sure if we are in the post-COVID-
19 period or after COVID-19. So what I will be talking about is not so much what is going on
today. However, after we go through this pandemic, what will be going on after we go through
this pandemic so that we will be talking about the likely future of the Japanese economy and
society. I will be talking with you about the current situation in the Japanese economy and
society under COVID-19. The pandemic affected all the countries in the world, including
Japan. So I will start by discussing the impacts of the COVID-19 pandemic on Japan. COVID-
19 in Japan is a reallocation shock. So COVID-19 is a big macro-economic shock. It is both a
supply shock and the demand shock. However, at the same time, I will argue, like some other
economists, that COVID-19 as a reallocation shock has profound implications.

It is not the first time for the Japanese economy or any other economies to face massive shock,
which requires reallocation or restructuring. Japan's record to adjust to large reallocation shocks
in the past is not great. So Japan faced similar shocks and did not do quite well. What do I mean
by why Japan failed? The main problem is that - Japan mostly relied on corporations to help
their workers affected by the economic shocks instead of helping the workers directly at the
individual levels. Thus, when the corporations are hit by a significant economic shock, in order
for the corporations to continue to help their workers, the government helps the corporation is
so that they can stay in business and protect the employee employment. Protecting employment
is a good thing. There is nothing wrong with the government tried to do that. However, the
problem is that the Japanese government decided what usually protects the corporations first
to protect the workers they hire. First, this approach has serious problems. Let me point out
two of those problems. First, given the labour market practices or labour market
characterisation in the Japanese characteristics in the Japanese economy, this approach to
protect the corporations to protect employment concentrate is a cost of adjustment to some
limited number of groups. My second point is that this approach created something called
zombie fraud, which affected the Japanese economy or the economy's performance.

Moreover, I will elaborate on this point. And after going through those points, I will end by
talking about how Japan or Japan should try to avoid these problems? Let me move ahead. So
the first one is the impacts of the COVID-19 on Japan. Furthermore, I think they are two things.
One is on health outcome.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 14

Table 1: Cumulative numbers per million population as of June 22, 2021
Countries Cases Deaths Tests
Japan 6,227 114 125,689
USA 103,398 1855 1,502,457
Spain 80,489 1,725 1,095,533
UK 68,011 1,876 2,931,531
Italy 70.450 2,108 1,159,379
France 88,021 1,693 1.393,725
Germany 44,389 977 750,091
Source:https://www.worldometers.info/coronavirus/#countries

So if we compare the number of cases of COVID-19, or the number of deaths in Japan, to other
major advanced countries, Japan looks quite good (Table 1). You know, it is all relative. So
these numbers are taken from the website listed here. On so as of (yesterday) June 22, 2021,
these are many cases; there is also several tests per million population for each country,
including Japan, and France here, as well. Furthermore, we know, the situation in the US has
been terrible.

Moreover, the situation in many European countries has been severe as well. However,
compared with those countries, the healthcare impact on Japan was minor. Even though Japan
has its share of cases, Japan escaped the dire health outcome compared with other countries.

However, in terms of the economy― the economy got hurt. The real GDP growth rate has
dropped by 30%. It might drop further if the new wave prolongs. The magnitude of the
recession for Japan is a little bit smaller compared with the US and European countries.
However still, this is an unprecedented recession in the post-war period.

Moreover, as many of you know, that Japan is under a new emergency situation, so it will
restrict many economic activities. So the Japanese economy is shrunk by 30%, with
possibilities of further drop. This is known as uncertainty, which is not amenable to any best
guess projection/prediction.

So, even though the healthcare outcome of COVID-19 was relatively small compared with
other countries economy got hurt. Business Condition Watch or survey (BCWS) done by the
Japanese government (EPA now the Cabinet Office) asks ordinary people everywhere in Japan,
all over Japan to judge where the economy is going, where the business is going if it is
improving or business condition is deteriorating, and then and they combine all those answers
and create a diffusion index (DI), which shows how is the economy if the economy is
improving or deteriorating. The BCWS shows a sharp decline in DI, implying economic
condition deteriorating. The diffusion index value is consistently below 50 means 50% of all
people believe the business condition is not improving. So, when the diffusion index is above
50, more people view the economy as improving. Furthermore, if that diffusion index is below
50%, more people view a declining economic situation. Okay. So what it means for the
Japanese economy ― people view that the business condition in Japan is still deteriorating. So
the Japanese economy has been hit very hard by COVID-19.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 15

There has been a considerable decline in that level of output after the COVID-19, which is
pretty much comparable to what happened right after the global financial crisis in 2008. So, the
Japanese economic situation has been quite seriously damaged. So looking at the
macroeconomic indicators, we see the severe impact of the COVID-19 on the Japanese
economy.

However, let me stress that the COVID-19 is a macro economic shock and relocation shock.
So the impact of the macroeconomic impacts of the COVID-19 has been different, depending
on which industry you look at and what kind of business we look at. So it hits some industries
or businesses with some harder than the other industries. However, at the other extreme,
COVID-19 has created some new opportunities for new businesses. We all can understand this
from our daily life; many things have changed after the COVID-19. Each of us has a favourite
example, what changed, but what we are doing now is a critical change after the COVID-19
we do Conference online.

But on the other hand, we do not have to move, and we do not have to travel to the location of
the talk – the e-Studium Generale Venue, Indonesia. So that may be an advantage. Moreover,
in general, in remote walking, I think there is, at least a vocational remote working, probably a
positive for productivity. So it may be a good thing, but we have been experiencing many
changes after the pandemic — remote online seminars, online education, online food delivery
– e-commerce. We have moved everything online. It is most likely that online education will
stay even if this pandemic situation is over.

Many companies are now more serious about digital transformation (end of hanko). During the
pandemic, some anecdotes, like people in accounting, have to come into the companies to put
stamps. Now that may be changing. There are other significant regulatory changes as well.
Remote medicine has been approved, at least temporarily, and probably for a long time; fast
approval process for drugs, and so on. We are experiencing many changes, and the many
changes are yet. So people talk about the new normal.

Furthermore, I want to make here that the new normal will be well; so many things will be
different. So that means the future will be different from the past in terms of almost all aspects
of life and livelihoods, the profitability of certain businesses, and the type of goods or services
people demand. The future will be different from the past. So we must expect major
restructuring and reallocation of resources in the economy. In that sense, COVID-19 is not
only a macroeconomic shock.

It is worth mentioning a US study (by Steve Davis, Nick Boum and Lose Maria) which has
looked at what the US corporations are forecasting. So they used the data from a survey of
business uncertainty and calculated the difference or the extent of reallocation that the
corporations are expecting. So they ask how much employment they expect to increase in three
months or decrease in three months. They calculated something called excess reallocation.
Excess reallocation is defined as the growth of an expected number of jobs or job gains at
firms that plan to increase employment.

Moreover, excess reallocation is defined to be the gross change in jobs. So that means the job
gains and the job losses, but you add those up minus the absolute value of the net change
obtained by summing over or the forecast. So what this does is calculate the extent of the job
or relocation that is not necessary. For example, if there is a net job gain of 3 million and a loss

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 16

of 1 million, the net job gain is 2 million. Socially speaking, this is a miscalculation. Because
in reality, in order to achieve a net gain of 2 million, all we need is a job gain of 3 million and
a job loss of zero. However, in reality, what is happening is that 3 million jobs are created and
1 million jobs destroyed in order to have a net gain of 3 million jobs. So that means these 4
million jobs either created or lost. So that 2 million jobs, the rest of 4 million jobs is, in a sense,
kind of an excess of the reallocation. So that is the idea behind excess reallocation, probably a
better way to explain what exists reallocation: job destruction or job loss backed by new jobs
and new job gains. So whichever interpretation you make, it is the same thing; the excess
relocation is a perfect measure of the extent of relocation.

Moreover, the US study found that during the COVID-19 crisis, the net creation of jobs is
expected to decline. It means, overall, the jobs are expected to be lost. However, excess
reallocation measure jumps up. So that means during the pandemic, many corporations
eliminated jobs. However, at the same time, many corporations created jobs as well.

Furthermore, this is necessary because the COVID-19 was a relocation shock that some
firms have to decline, and they need to have to reduce employment. However, in some other
companies, the business continues to grow. It I call ― Offline off and Online on. Some
companies benefit from this change. Some even become trillionaires fully (what about
Amazon? Microsoft? Toshiba? Siemens? and so on). There may be some other companies who
newly enter the market to take advantage of the new opportunities. However, there are enough
companies so that who is actually gaining adding to the jobs.

Today we are using the zoom meeting system. Moreover, as you all know, that zoom is a
company in California, who benefited a lot from the change brought about by the company due
to the pandemic. So let us say they had been adding more people to their companies. So there
has been much change in the way the business opportunities created after the pandemic.
Moreover, they do the same type of relocation, access relocation, measure sales, and find all
the companies expect to reduce sales. However, some companies are increasing at an
unprecedented high rate in sales at the cost of reducing sales in most companies.

Let us see the stock market index. The Tokyo Stock Exchange calculates the industry index,
and they calculate the stock price index for each industry and each of these stock prices are
normalised to be 100. Figures in the significant Stock Exchange that during the pandemic―
all stock prices started to fall. However, for some industries, the decline was much more
significant than some other industries. For some industries, the stock prices recovered from the
bottom. Now, actually, for some industries, these stock prices are well above about 100, which
means they recovered the losses that happened during the pandemic ― by looking at Figures―
what I see― while the stock prices recovered, the difference between industries seems to have
increased over time. Many people talk about the stock price reflects the future of the economy;
how much the companies will make in the future. So, we can consider this as future
expectations that investors have in the second year and a proxy for the Japanese economy's
future. Worldwide, perhaps the most talked-about subject today is― what to do to recover from
the ills of and destructions done by COVID-19?

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 17

My take on this subject of "shock therapy" is altogether different from most others. Why?

First, I do not think COVID-19 has destroyed everything and is responsible for great
depression/recession/slowdown, social, economic, cultural, and political. It becomes, had
there been no COVID-19 pandemic, the economic depression/recession/slowdown would
have happened due to the very nature of the long-term business cycle (LTBC) under the
capitalistic mode of production. Under such as system – it is due to the very nature of LTBC
– great depression/recession/crisis is inevitable every after 20-30 years. From that
standpoint, it should have happened in 2018-19. And it happened. However, at the same
time, worldwide, the COVID-19 pandemic came to reigned not leaving. This simultaneous
double burden of economic crisis and pandemic – has never happened before in human
history. So, is the cause for grave concern (not the opposite).

Second, The inevitable great economic and social depression, recession, slowdown, crisis
simultaneously accompanied by COVID-19 caused the rise of "unprecedented in human
history multiple organ social-economic-physical complication (MOSEPC)". This
MOSEPC includes at least five diseases: (1) diseases of falling GDP and growth, (2)
diseases of rising real unemployment, (3) diseases of increasing inequality, the
concentration of wealth in few hands, rising multidimensional poverty and creation of "new
poor", (4) deteriorating physical and mental health – depression, distress, destitution,
deprivation, stress, and (5) diseases of increasing disrespect to peoples fundamental human
rights.

Third, All the above five diseases originated as a combined effect of LTBC of capitalism (or
at least an exploitation-based society) and COVID-19 pandemic – are interrelated and
interdependent. Therefore, the therapy based on diagnosis – the "shock therapy" shall be
designed and implemented accordingly. We know about three shock therapies – having
various degrees of strength to recover from the MOSEPC – the 'L' shaped, the 'U' shaped,
and the 'V' shaped. For everywhere, including for Japan, I suggest that the 'L' shaped shock
therapy should be pursued, intended to 'full cure' of the society with her people and
economy (see Figure 1). However, the most ideal would be the 'L' shaped shock therapy
because it is wrong to assure that everything was right before the COVID-19: everywhere
inequality was high; money-wealth-power was highly concentrated; power – everywhere
was run and dictated by the Zombie corporations – rent-seekers; nowhere in the world- -
democracy is the kratos of the demos, multidimensional poverty was in the rise.

Fourth, while I am not against the "process of things" (while it is essential), I strongly suggest
that the Japanese government (and all other government) should change the traditional mindset
of governance. Which is – give emphasis, "not on the process of things give determined
emphasis on the outcome of things".

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 18

Figure 1: Multiple organ socio-economic depression and complications due to
COVID-19: Shocks and Therapy
Trend before COVID-19

Therapy for treatment of 5 diseases

Figure 1A `L’ shaped therapy: No cure

* diseases: (1) diseases of falling GDP and equitable growth, (2) diseases of rising real unemployment, (3) diseases of
increasing inequality, concentration of wealth in few hands, rising multidimensional poverty and creation of “new poor”;
(4) diseases of deteriorating physical and mental health‒ depression, distress, destitution, deprivation, stress, family
disruption‒dissolution-rift-conflicts, (5) diseases of increasing disrespect to people’s fundamental rights.

Trend before COVID-19

Therapy for treatment of 5 disease*

Figure 1B
`U’ shaped therapy: Moderate cure
* diseases: (1) diseases of falling GDP and equitable growth (2) diseases of rising real unemployment, (3) disease of
increasing inequality, concentration of wealth in few hands, rising multidimensional poverty and creation of “new poor”;
(4) diseases of deteriorating physical and mental health‒ depression, distress, destitution, deprivation, stress, family
disruption‒dissolution-rift-conflicts, (5) diseases of increasing disrespect to people’s fundamental rights.

Trend before COVID-19

Therapy for treatment of 5 diseases *

Figure 1-C ‘V’ shaped therapy: Extremely good treatment schedule

* diseases: (1) diseases of falling GDP and equitable growth (2) diseases of rising real unemployment , (3) disease of
increasing inequality, concentration of wealth in few hands, rising multidimensional poverty and creation of “new poor”;
(4) diseases of deteriorating physical and mental health‒ depression, distress, destitution, deprivation, stress, family
disruption‒dissolution-rift-conflicts, (5) diseases of increasing disrespect to people’s fundamental rights.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 19

Let me turn again into reallocation and relocation shocks. The relocation shock requires
economic restructuring. Economic restructuring means the process where old and inefficient
production arrangements or corporations or the production units destroyed and replaced by new
and efficient production arrangement. Therefore, some jobs will be lost; some jobs will be
created, some new jobs will be created. It is also called "creative destruction" (by Schumpeter).
Creative destruction involves the reallocation of workers, and the workers need to move from
failing companies to new farms or growing farm. However, the questions remain open as to
how such relocation will work? What will happen to those who do not have enough skill
compatible with the new job market? Who is going to import new entry skills? What will
happen to the employed not in a decent job? What will happen to the older people who worked?
How do the micro and small entrepreneurs would survive? However, to get out of this COVID-
19 recession and redo the economic growth, Japan needs to adjust to this reallocation shock.

Nevertheless, Japan has not done that very well. It is also evident from the response to the 2008
recession. It is to mention that each time in the past, when Japan faced a big macro-economic
shock, and reallocation shock, the Japanese economy's growth rate seems to have fallen.
However, the trade growth rate trend grows past the level of the GDP seems to have lost
forever, and even the growth rate seems to have reduced again. So, Japan never went back to
the past trend. Here the big question is, what would be the consequences if the same thing
happens in Japan after the COVID-19. The last 40 years history of the Japanese economy shows
that Japan failed to go back to the original trend each time Japan faced a significant economic
shock.

The other critical question is: How does a new and efficient production arrangement consider
the impact on the environment? The overuse of non-renewable energy would inevitably cause
catastrophe, which may be worse than the COVID-19 – the "respiratory pandemic". On this,
wise decisions have to be taken by the state, which might be vehemently opposed by the large
corporation – the Zombies. "Polluters pay" principle is a worse policy, justifying pollution. Her
people's mobilisation consent and conscious, concerted actions might work the best.

We know that the Japanese labour market is characters characterised by a lifetime appointment
system. So the companies do not fire the workers, and the workers do not quit the companies.
They work for the same company until the mandatory retirement (between 60 and 65).
Moreover, because the corporations under the lifetime employment system cannot adjust the
labour force when the economic shock hits them, the Japanese government spends a lot of
"gratis-money" save the corporations to continue to employ their workers. It is one of the most
critical failures of the economic policy in Japan to adjust to the economic shocks. This policy
serves the unjust interest of the Zombie corporations, who are protected but never increase the
real wages. This policy is basically a system of enriching the rich at the cost of punishing the
poor.

More so, under the above policy regime, employees do jobs safely. However, many people are
outside this protection of the lifetime employment system. Moreover, they tend to suffer during
the economic shock because they do not protect their jobs. Therefore, the government approach
to protect the companies protect employment does not work for workers outside the traditional
lifetime employment system. The whole thing is problematic because by protecting the
companies, including those highly profitable companies, the power policy creates a problem
by creating what is called zombie farms.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 20

The COVID-19 shock is even worse than many of the shocks that Japan experienced in the
past. Because the COVID-19 shock itself tends to harm those workers who are outside the
lifetime employment system. A study by Sagi Tao (University of Tokyo) reports that many
regular workers inflexible and ordinary industry where the impact of COVID-19 is more
ordinary or flexible, and only a small portion of regular workers is 17.2% in the social industry
and no flex jobs. So, this is where the COVID-19 shock is felt most. But for the non-regular
workers – 44%, almost close to half in social industry and no flexible jobs. So, the no regular
workers are already outside the lifetime employment system.

Furthermore, COVID-19 shock hit the jobs that they held more than the jobs regular workers
held. So, in a sense, they are doubly hard hit by COVID-19. In addition, the female workers
tend to be in the social industry and have no flexible jobs. These women are hurt more. If you
look at the non-farm employment, although employment declined, the decline is more
pronounced for female workers than the males. Also, the job destruction was more for females
than the males. So the cost of job loss was concentrated more on the women. There is a stark
difference between regular employment or Saiki time and non-regular employment. The
regular employment did not change very much, but no regular employment got reduced. In
terms of the size of the companies, if you look at the large companies who still have a more
lifetime employment system, especially the male employees have not lost their jobs. However,
the small companies and even medium companies, their job reduction was much more
prominent. So this shows not only the COVID-19 shock, but also it is a reflection of the
Japanese employment system in which some employment is protected but most who are outside
the lifetime employment system are hard hit. Protecting the companies instead of protecting
the individual workers – as an official policy helps the zombie companies and not the people
at large.

Since the 1990s, many Japanese banks were undercapitalised. They wanted to hide the non-
performing loans by shifting those loans to non-performing companies ― the Zombies. They
discourage the growth of productive farms and hurts economic growth. Moreover, this is
another problem of policies to protect corporations instead of individual workers. During the
COVID-19 government undertook some policies to protect the corporation's old policies to
save the corporations again by giving subsidies to the corporations to continue their business
and/or providing loans through government financial institutions and private banks with zero
interest rate with no collateral and no guarantee. In this way, the government protects the
Zombies directly. The government's policy is that they want to avoid too many bankruptcies
during a COVID-led state emergency. In my understanding, based on empirical data on
bankruptcy in Japan ― it is nothing but "bankruptcy protection", which incentivises
bankruptcy.

Under the COVID-19 crisis, the amount of bank loans in Japan increased by 40 trillion yen in
the last half a year or so in the last three or four months. So this shows, on the one hand, shows
the government policy to encourage the Japanese banks, including government financial
institutions, to help some be "more effective". However, at the same time, these are loans, not
gifts. The corporations have to pay back those loans in the end. It can create excessive debt or
too much debt and create a "debt overhang problem". Experience shows that "debt overhang"
impedes economic restructuring, ultimately ending with "debt cancellation".

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 21

4. Some concluding remarks
I am neither a knowledgeable nor a wise man to conclude family about the complex
consequences of the shocks and may out therapies of COVID-19 pandemic for Japan (for that
matter, for any country). As a truth seeker and truth-teller, the following are my relevant
concluding remarks:

1. Japan is passing through the pandemic with relatively less health harm than many
other countries. However, the damages to the economy and society are much
beyond macroeconomic shocks and a reallocation shock. Japan's handling this
shock is a case of relative failure because the government rely too much on asking
Zombie Corporations (those who take credit from banks and usually do not repay,
then comes a recession/crisis when they get loans and subsidies, and again they do
not repay- this perpetuates) to help their workers, and not help the workers directly
the individual workers. By the name of protecting workers – the government, in
reality, nourishes the Zombie corporations. The policy is to enrich those who are
already rich at the cost of punishing the poor.

2. The essence of the shocks (and not the appearance of shocks) can simply be termed
a "Multiple organ socio-economic crisis and complications". It is a social-
economic-political disease― a structural disease. It is a combination of five
interrelated diseases, namely, (1) diseases of falling GDP and equitable growth (2)
diseases of rising real unemployment, (3) diseases of increasing inequality,
concentration of wealth in few hands, rising multidimensional poverty and creation
of "new poor"; (4) diseases of deteriorating physical and mental health‒ depression,
distress, destitution, deprivation, stress, family disruption‒dissolution-rift-conflicts,
(5) diseases of increasing disrespect to people's fundamental rights. All these
shocks are interrelated and interdependent.

3. The best possible therapy to address the shocks is a 'V' shaped therapy. Because
the so-called 'V' shaped therapy intends to bring back the economy and society to
the before-COVID situation. Before COVID, the society and economy were not
ideal with rising inequality, over-concentration of money-wealth-power into the
hands of a few, and rising multidimensional poverty and deprivation. The best
solution to cure all the five multiple organ diseases and shocks is to implement a "V
plus" shaped therapy (treatment protocol). Implementation of this "V plus" therapy
is an issue of political will. The best economic policy is the policy whose social
impact is positive.

4. Novel Coronavirus currently causing mayhem all over the globe. Historically,
every epidemic or pandemic has been instrumental in shaping and reshaping
the social-economic-political and cultural life. Typhoid knocked down Alexander
the great; Bubonic plague seems too fast track the downfall of the Byzantine
Empire; Measles and smallpox likely did the same to Roman Empire. The
likelihood is high that COVID-19 will be instrumental in changing people's lives,
livelihood, and society.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 22

 5. In 399 BC, the great philosopher Socrates sitting in jail before taking Hemlock,
said, "I will become very sleepy, then I will take my last breaths". Before that, "I
thought I would like to share something with you... Philosophers tend to think that
they know lot about the world, but me, I really do not think that I know anything at
all". He said, "The best way to test truth is to ask series of challenging questions".
He continued, "True wisdom is the knowledge of how little you actually know".
Then he said, "Asking questions may be the best way to get to the truth, but it is
also a fast way to make enemies".

Please ask questions. It is better to have many enemies to understand the "essence of things"
related to the social-political-economic structure we live in. We are facing the shocks of
COVID-19 and searching the therapy.

Post-COVID-19 JAPAN: Shocks and Therapy/Abul Barkat 23 June, 2021 23