Studying some more (look at me go!)

Alright, I’ve got to get through two more countries for my Comp Econ review: Japan and China. The ignorant American in me wants to say that they’re basically the same. The ignorant American in me is mostly wrong, and I’ll tell you exactly why.

Japan is like that really smart, but mean kid in elementary kid that would get a perfect on all his spelling tests and would shove it in your face every time. But it’s okay, because that kid always ends up getting picked last in freeze tag.

Japan took a lot of China’s culture and made it their own in the beginning. Then they got all offended, and basically shut itself off from the world for 250 years starting in the 1600’s because apparently a bunch of other areas tried to control it, or whatever. Really, Japan? Grow up, that’s what bratty 5 year olds do. Anyway, once it decided to play nice with all the other surrounding countries, it paid off its samurai (most of them became business men), gave farmers land, and opened the country to outside influence.

Through the early 1900’s, Japan really wanted to take over other places, and mostly succeeded.Their economy grew rapidly through the 1930’s, mostly because of the army buildup. Then they tried to screw with the United States. Haha, they lost.

America then took over Japan in 1945, demilitarized it, and made Japan more capitalist. Japan used to have these things, zaibatsus, which were basically huge conglomerate groups that worked together. Well, America stopped that, and made corporations fend for themselves.

1955 marked the creation of the Liberal Democratic Party, a conservative group. Fun fact, this group still rules Japan! That’s a super long time.

Japan’s economy has been pretty successful for a while. But why? Some attribute it to it’s familistic groupism, where basically everyone acts like one great big family, and everyone has each other’s backs. In firms, this is acted out by way of the three sacred treasures. These treasures are unfortunately metaphorical (bummer I know), but they are: lifetime employment, seniority-based wages, and enterprise unions.

Having a job guaranteed for life may seem awesome, but in reality it’s only guaranteed for about 30% of the labor force. And if it’s guaranteed, the company basically owns you. This theoretically creates loyalty, and makes people more productive.

Seniority-based wages also is supposed to build loyalty, and is built of the Confucian belief of respecting elders. However, when wages aren’t built off of productivity, productivity tends to decrease. Many firms are moving away from seniority-based wages and towards efficiency-based wages.

Enterprise unions are labor unions within a specific corporation, as most workers just move within one single firm for the majority of their lives. These unions account for the small wage differentials between the higher-skilled workers, and the low-skilled workers within a firm.

The Japanese use a different kind of industry organization as well, called the keiretsu. Horizontal keiretsus are pretty much like zaibatsus; they’re firms in different industries linked through one bank and a trading company. Horizontal usually follow the three sacred treasures. Vertical keiretsus are usually a set of suppliers linked to one major producer through a long-term contract. These keiretsues don’t usually follow the three sacred treasures.

It’s also said that the Japanese follow a J-mode type of organization. This J-mode is characterized by the attitude of sharing results horizontally. For example, companies getting together and telling each other what worked and what didn’t from their own experiences. This depends on long-term relationships between workers and firms, and banks and firms.This is also carried out through consensual decision making – basically making sure everyone involved in a decision on board. that’s why the Japanese take forever to make business decisions. Something else that is encouraged? Ringi-sho, which is basically the little people of the company sending memos up to the big guys, letting them know what they’re doing wrong. I think that’s pretty cool, you know? Everyone gets a voice! Yay!

The rapid growth of Japan may also be attributed to the Ministry of International Trade and Industry’s industrial policy, which involves them investing in promising parts of the economy and getting the pay off from it.

Japan also saves a lot, creating a lot of opportunity for investing, but with the population aging like it is, this may decrease saving significantly.

Japan was been characterized as a market capitalism with elements of a traditional economy, and indicative planning and guidance. They’ve got a huge debt problem right now, as they keep spending more money, since the people aren’t.

The income in Japan is equally distributed better than most other countries, probably from the set up of labor-firm relations. However, the Japanese also work a helluva lot more, and take less vacations. Not to mention their pollution problem, and their lack of fossil fuels. The fossil fuel problem is opening up a new efficient energy market in Japan, which may offer more growth for their economy.

On top of all of this, Japan is mean. Women don’t get paid a lot, and they really don’t like foreigners, which really doesn’t help their trade relations, at all.

Japan’s slowing growth is worrying the Japanese government – and so Abenomics is born. Abenomics is the combined expansionary fiscal policy, increased monetary policy, and reform heavy plan that Abe, the current prime minister of Japan, is trying to use to turn Japan around.

This could fail miserable. Who knows how successful “reforms” actually are in the political realm, and Japan is already in tremendous debt.

Uh oh Japan, better start playing nicely with all your trading buddies, and stop spending all your money in one place!

Indirect Studying

I don’t know what it is about a little box to type in in a Safari window, but this is so much more fun than typing in a Word document. Therefore, I’m going to tell you everything I know about Germany’s economy so I don’t fail my Comp Econ Exam.

This class is pretty interesting, you just really have to get into it and focus (which I’m really bad at).

Germany is like one of those people you grew up with that went through a really weird phase in middle school, then got semi-normal in high school, but you still won’t talk to them because you’re still a little bit scared of them.

And when I say that, I mean it. First of all, Germany in the beginning wasn’t even a Germany, it was a bunch of little tribes hellbent on ruling all of Europe. I’m sorry, but if you want to rule an entire continent, you should at least get your tribes together into one uniform state first, I mean am I right. Otto von Bismark was just that guy. He got all of the little tribes together to make the German Kingdom in 1871.

After 1871, it was pretty much smooth sailing, that is up until WWI (oh lord). Germany grew astronomically after that, mostly because the Germans are pretty awesome with science and technology.

Moving on to 1919. The Versailles Treaty was just signed. Germany’s got a lot of debts to pay, and a lot of land being taken from them. The government thought it would be a good idea to start printing money to pay these debts. Hint: never do this if you are pres of the Fed. It will basically devalue your currency. The country went into a huge hyperinflation, with the currency decreasing in value almost by the hour in the really intense bouts. Luckily this was brought under control by 1923 – just in time for the Great Depression to take over the assault of Germany in the 30’s.

The Great Depression hit Germany, and hit it hard. Things were so bad, the people were looking for anyone that could fix their situation. Who could blame them? Hitler came in, and was all “I can totally fix this guys, chill”, and instead took power, outlawed all other political powers, and oversaw the Holocaust. Seriously, worst person ever.

It hurts me to say this, but Hitler’s economic choices did help Germany out of the Depression. Germany’s GDP doubled between 1932 and 1938. Hitler imposed a command capitalist system, and held corporate state standards (basically, Hitler made corporations and workers get along, no matter what). He imposed price controls, dumped a ton of money into the war, created a ton of cartels to keep people employed, controlled trade with other countries and tried to dampen that to become more self-suffiicent as a country, and built a lot of highways and bridges and stuff.

World War II happened, and Germany was split up faster than you could say “Ya lost, Nazis.” The country was split up into 6 zones. West and East Germany was created. The West, called the Federal Republic of Germany, was helped by the US, and the East, called the German Democratic Republic, was owned by the Soviet Union.

It’s sad really, because the FRG focused on becoming for of a laissez-faire economy, but with a huge sector for helping people out (technically speaking, a social market economy), and the GDR was basically stripped of it’s factories, infrastructure, and resources, and kept it as more of possession than an area to be fixed and you know, not repressed. Compare to: Dudley as FRG, Harry Potter (pre wizarding world) as GDR, and the US being Dudley’s parents.

Let’s ignore our poor wizard for a second, and talk about Dudley. Some great things happened to the FRG after the split. First of all, Ludwig Erhard is the man. He believed in a strong government that could split up cartels, and support free markets, and large social safety nets. Basically, the best of both worlds.

Erhard had this crazy idea, to create a new currency which was equal to previous wages, but basically devalued all debts, to remove all but a few price controls, all in the span of a few days, and without telling anyone. Now that is power. And guess what? It worked. Boo yah. This was deemed the Big Bang approach (in german words – Wirtschaftswunder), and the economic awesomeness and growth that ensued was called economic miracle. 

With that much growth all at once, there was bound to be a slowdown. Unemployment is rising again, and some problems are starting to surface, which could be blamed on a number of things, including the global slowdown, or the European Union slowdown.

Meanwhile, poor little Harry Potter was stuck in the cupboard under the stairs, AKA the GDR was being ransacked by the Soviet Union and basically left for scraps. The GDR adopted a command socialist system, so basically the state owned everything. They had these things called Kombinats, which were started in 1979. The Kombinats were huge combines owned by the state that were directed by steering mechanisms, which were not focused on gross output.

Let’s stop and think for a second. Germany was split in two. One was taken over and made into a command socialist economy, with the state owning basically every part of production, and the other was taken over by a guy who believes in the invisible hand. Two very systems, two very different outcomes.

The GDR had really low unemployment, greater large-scale economic stability, a little more extensive social safety net, and greater income equality. The standard of living was lower, and productivity was lower. The FRG was way more efficient, had a higher standard of living, and took care of their environment more. Comparatively though, both the FRG and GDR had pretty similar social safety nets.

In 1990, the two parts of Germany were unified. Yay right? Nope. This was really expensive and complicated since one was socialist and the other was capitalist. The tried the big bang economic transformation again, to try and get the socialist part to become capitalist. This was really lame and difficult, because they adjoined currencies, and they were SO not worth the same amount in either area. The GDR currency was overvalued, and the FRG became undervalued. The output of the GDR collapsed. Unemployment rose in the East. The THA was created to privatize in the East what the Soviet Union messed up. Germany reluctantly gave up their own currency and now use the Euro through the ECB, which is located in Germany.

Germany’s labor market is a littler weird too. They do what’s called codetermination. The workers are elected to both an advisory board that overlooks worker’s day to day worries, like wage, hiring, firing, etc. Workers are also elected to a supervisory board which oversees higher management things in bigger firms (500+ employees).

Nowadays, Germany is trying to spur growth again, but is also scared of the impending shrinking of their skilled engineer pool. They still have a pretty extensive social safety net, and pretty high taxes, but not anywhere close to Sweden’s burden. They rely heavily on exports, and manufacturing. Bonus points for: having the biggest economy in Europe, and having the highest  GDP per capita (even higher than the US, good on you!), having the smallest government deficit, AND having the highest growth than most of Europe, even though their growth rate is slowing a little.

Good job Germany, you go. I will not be judging you for your awkward weird phase back in middle school (AKA the Holocaust and Nazis).