Japan is currently losing its vitality. According to OECD statistics, Japan’s real wages have remained sluggish compared to other countries, and there is no end in sight to the weak yen and rising prices. To address these challenges, rather than relying on aggressive public investment to expand domestic demand and alleviate the deflationary recession, Japan must focus on regaining its lost international competitiveness.

However, even if public investment increases, the aging of the construction workforce—which bears the brunt of that work—remains a serious issue. While competition among industries to secure labor is inevitable, in the construction industry in particular, workers aged 50 and older account for approximately 55 percent of the workforce, while those aged 29 and younger make up only 10 percent. Securing talent through systemic reforms—including ensuring appropriate wage levels—is therefore an urgent priority.

In light of this, we spoke with Professor Satoshi Fujii of the Graduate School of Engineering at Kyoto University—who has spearheaded the “national resilience” movement in Japan and advocates for expansionary fiscal policy—about the nature of the challenges currently facing the Japanese economy and the role of the construction industry (Interviewer:Yuichi Sumi, President and CEO, Will of Construction Co., Ltd.）。

“Japan’s Decline at ”the World’s Fastest Pace”

角　Could you tell me about the challenges Japan is currently facing?

Fujii　Many people don’t realize this, but if you look back at history, you’ll see that various nations—such as Carthage and Athens—have fallen. Even the Qin Dynasty and the Ming Dynasty eventually fell. So, fundamentally, nations are destined to fall. The only difference is whether their lifespan is short or long.

The important thing is that we must firmly recognize the fundamental fact that “all nations are destined to perish.” Once we do, the possibility that Japan, too, could perish naturally becomes apparent. Once we accept this, the reality that Japan has clearly already entered the process of perishing becomes painfully obvious.

The philosopher José Ortega y Gasset once said, “There are essentially only two kinds of nations: those that expand their influence and those that shrink toward zero.” Japan is clearly shrinking toward zero. Just recently, Elon Musk tweeted that “Japan will cease to exist,” and I have to admit that his intuition is correct.

However, in the modern era—that is, in the 21st century—the concept of a “nation’s collapse” has taken on a different form than it did up until the 20th century. Up until the 20th century, when a nation’s power weakened, foreign powers would seize its territory—that is, carry out military invasions—in a manner that was clear to everyone. Of course, such bloody methods are still being employed in parts of Ukraine today, but these are exceptional cases, and such actions have become far less common than they once were.

On the other hand, after World War II, such overt acts of aggression essentially ceased. Instead, a practice emerged in which, while ostensibly recognizing a country’s sovereignty, its resources were effectively exploited in their entirety. In other words, rather than colonizing through overt military invasion, colonial rule came to be exercised by “legally” acquiring capital strictly in accordance with the “rules of capitalism.” Today, companies like NEC and Toshiba are being blatantly acquired by China. Japanese mega-corporations—the kind that would have been unimaginable to the average Japanese person in the 1980s and 1990s—are now falling into Chinese hands. At the same time, real estate in major city centers and key tourist destinations is also being acquired by Chinese capital. In effect, we are witnessing the steady advancement of a 21st-century form of colonial rule.

So, as for why this is happening, the direct cause is more than 20 years of ”deflation.” For macroeconomic reasons, prices fall because demand is low. As prices fall, everyone becomes poorer, and as people become poorer, demand falls further—we’re caught in a deflationary spiral. Japan is the only country in the world currently caught in this deflationary spiral. GDP is declining, and our growth rate is the lowest among OECD member nations. Starting salaries have also fallen to the lowest rank among developed nations. Japan is declining more than any other country. What we’ve been saying for 10 or 20 years is finally starting to be echoed in public discourse; people are finally beginning to realize the fact that “Japan is poor.” They’re realizing that Japan is completely falling apart—and at the fastest pace in the world.

So, why are we experiencing deflation? In a nutshell, it’s because “domestic demand is low,” but the direct cause is the “consumption tax hike.” However, if investment were to expand sufficiently—to the point of outweighing the negative effects of the consumption tax—we could overcome deflation. Therefore, it could also be said that “deflation is caused by low investment.” Furthermore, investment not only stimulates demand through the “flow effect” (as it is generally known), but the infrastructure created by that investment also revitalizes the economy through the “stock effect” (as it is generally known), thereby further stimulating demand.

To begin with, our country is a capitalist nation. And when it comes to how capital is formed, it is formed through investment. Therefore, without investment, a capitalist nation is bound to collapse. So, why is investment in Japan so low? It’s because ”public investment”—investment carried out by the government rather than the private sector—has been sluggish.

To begin with, private investment is spurred by public investment. For example, when a Shinkansen station or an expressway is built, a town develops around it. Once these towns are established, private investment takes over. For instance, buildings are constructed around Shinkansen stations, and once those buildings are up, they’re equipped with electrical appliances. As electricity consumption increases as a result, investment in the power sector also expands.

Therefore, in order to stimulate private investment, public investment is necessary first and foremost. And what do we call this, distinct from public investment? We call it “public works.” Japan has few public works projects—in other words, “little construction”—which is why private investment is shrinking, demand is shrinking, deflation is setting in, and the country is hurtling headlong toward ruin. This is my final conclusion.

Japan's National Resilience Policy Scores ”10” Out of 100”

角　Why is the Japanese government pursuing fiscal austerity?

Fujii　There are various ways to answer this, but first of all, Article 1, Section 1 of the “Act on the Establishment of the Ministry of Finance”—enacted when the Ministry of the Treasury was replaced by the Ministry of Finance—states that “the mission of the Ministry of Finance is to ensure fiscal soundness.” The Ministry of Finance has reinterpreted this “fiscal soundness” to mean “implementing austerity measures,” and as a result, it is raising taxes while simultaneously cutting public works projects.

Furthermore, in order to force cuts to public works spending, they are lobbying the mass media to promote the notion that public works are the root of all evil, thereby instilling fear in the public that “if debt continues to rise at this rate, Japan will perish.”

So, to give a simple answer to the question, “Why does Japan practice fiscal austerity?” it comes down to, “Because it’s written in the Ministry of Finance Establishment Act.” Since bureaucrats function as technocrats—machines that adhere to the law—they are earnestly, guided by their own sense of justice, simply carrying out austerity exactly as prescribed by law. Even if we present them with mountains of evidence saying, “But doing that will ruin the country!” they’ll just say, “No, no—I’m just following the law.”

角　So the Ministry of Finance is acting as that trigger, isn't it?

Fujii　That’s right. While many citizens may not be aware of this, through various research projects I’ve conducted at the university, I’ve uncovered the truth—based on testimony from journalists and government officials—that the Ministry of Finance is clearly engaging in these propaganda activities. By engaging in this kind of propaganda, the Ministry of Finance is intentionally creating a public atmosphere that suggests we must not run up debt, must not undertake public works projects, and must not expand social security.

One strategy for overcoming this is to help people understand the issue from the perspective of national resilience, as I just mentioned. Another approach involves using economic theories such as Modern Monetary Theory (MMT)—which clarifies that the government is the supplier of money and therefore cannot go bankrupt due to its own debt—to expose the flaws in the Ministry of Finance’s austerity policies. We are pursuing both of these approaches.

MMT is often derided as a “crazy theory,” but even without using the term “MMT,” there are plenty of ways to explain and prove the necessity of expansionary fiscal policy. In any case, the Bank of Japan can print money however it likes. It’s kind of like AKB48’s handshake tickets. As Mr. Abe said, the Bank of Japan is effectively a subsidiary of the government, so it can create as much money as it wants. To put it simply, this is what we mean when we say, “The government has the power to issue currency.”

Of course, there are those who believe that “the Bank of Japan is independent” and refuse to acknowledge its authority to issue currency or its status as a subsidiary of the government. However, even if we were to accept everything they say, virtually no one can deny that the Bank of Japan is, in economic terms, the “lender of last resort” for the government. Therefore, the Bank of Japan bears the obligation to lend money to the government whenever it finds itself in trouble. For example, if a company had a bank behind it that would never let it down no matter what happened, it could take on a considerable amount of debt, right? The government is in exactly the same situation.

So, no one can deny that the Japanese government—backed by the Bank of Japan, the most powerful bank in the country, which even holds what is essentially the authority to issue currency—will not go bankrupt easily, and that is why it can pursue bold fiscal policies. So, I just hope people will understand that point.

However, even without bringing up MMT or any of the above arguments, it goes without saying that if we don’t invest, the economy will naturally decline. After all, companies like Toyota, Panasonic, Tesla, and Amazon wouldn’t grow if they stopped investing. Similarly, since our country will also fall into decline if we don’t invest, we can advocate for expansionary fiscal policy based on a “business-oriented” explanation—namely, that spending money now is necessary to ensure fiscal soundness.

In any case, given the current deflationary environment with a shortage of currency, it’s a self-evident fact—one that no one can deny—that someone needs to increase the money supply. So, when it comes to who should supply it, the government is the one that should do so. By undertaking public works projects, the money supply will increase, making it possible to shift from deflation to inflation, while also improving living conditions and boosting industrial competitiveness. That is why public investment possesses tremendous power—it strengthens infrastructure while simultaneously expanding domestic demand, killing two birds with one stone.

Of course, if we implement a consumption tax cut alongside public works projects, Japan’s growth will become even more assured.

角　What kind of reforms do you think should be implemented to create a trend toward promoting public investment?

Fujii　I really think this is why we needed a politician like Mr. Abe. He talked about “Abenomics” and “national resilience,” didn’t he? While many people might oppose the idea of “expanding public works,” almost no one would object to the idea of “making our nation more resilient.” Isn’t that obvious, even just looking at this year alone? Flash floods and earthquakes are occurring all over the country. And typhoons are getting unbelievably huge, aren’t they? That’s why the idea that we must make our nation more resilient in the face of these natural disasters is surely shared by many citizens.

And, of course, if this kind of resilience-building is necessary, it follows that we must allocate a sufficient budget for it—which is precisely what Mr. Abe was attempting to do through “Abenomics,” which included national resilience-building. Of course, it would be ideal if there were another politician—not necessarily Mr. Abe—who could tackle this with genuine commitment, but at least as of today, Mr. Abe was the politician with the greatest capacity to do so. The fact that he was cut down by a bullet is a devastating loss for Japan. My honest impression is that this has pushed Japan—which was already in a dire situation—into an even more difficult predicament.

角　How do you evaluate the government’s “National Resilience Policy”?

Fujii　Discussions on the National Resilience Plan have been ongoing in the committee that I chaired. However, having served for 10 years, I have now stepped down upon reaching the end of my term. Over the past decade, the plan has, to some extent—albeit gradually—been moving in the direction of expansion.

However, I had been arguing—even before the Abe administration took office—that we should spend about 200 trillion yen over the course of 10 years. Judging by that standard, the efforts made over the past decade would score about 10 out of 100… In fact, the net increase in the budget has been at most about 1 to 2 trillion yen per year, so in terms of budget size, I have to say that progress has been less than 10 points out of 10 compared to our ideal level.

Still, at this slow pace, we’ll definitely never make it in time… Since we haven’t managed to escape deflation and private investment isn’t picking up, the damage from major disasters in Japan is likely to be devastating. We really need to take more fundamental steps to strengthen our preparedness. Well, I suppose it’s better that we’re scoring 5 or 10 points rather than 0, but we’re still a long way from a passing grade. It’s a shame.

 

The God of Construction