The Long-Overlooked Drag on Japan’s Productivity

Robot-driven automation has an adversary, and it’s not a dwindling and aging workforce

Tokyo, we have a problem
Could the real drag on the Japanese economy, which has been married to low growth for two decades, actually have less to do with a shrinking, aging population than everyone thinks?

While obsessing over age, has Japan missed looking around for other factors that might be pushing the productivity stats downward?

Sure, Japan’s working-age population began shrinking in 1997 (as well as a declining overall population since 2011). “One forecast predicts the current labor force of about 77 million could collapse by more than 40 percent by 2065.” But, while Japan is aghast at the numbers and the severity of the forecasts, is that the whole story or is there something else? Is there something that Prime Minister Shinzo Abe is finally recognizing as a major burden on the country’s productivity and economic revival?

Looking at the data for GDP per worker, Japan looks better than OK.

First, however, look at this unhappy chart showing Japan vs. U.S. from an overall perspective: “Real GDP Growth”.

Sad, eh?

But, when looking at the data for “Real GDP Per Working-Age Adult”, which shows how productive a country’s workforce is performing, we get a happy chart about Japan’s productivity vs. the U.S.:

apan is actually outperforming the U.S.

Better still, this Bloomberg chart shows Japan as a manufacturing G7 powerhouse:

Japanese manufacturers got the Abe memo: automate or we’re dead meat. Factories all over Japan have begun automating like crazy. There are still miles to go yet, plus no mass infusion of AI into the robot population, but the process of robot-driven automation is ongoing, getting better, and very laudable.

A small sample from a major industrial force that shows intent and direction: “Mitsubishi Heavy Industries Ltd. has cut the number of workers on its turbocharger production lines west of Tokyo by more than 80 percent.” Eight out of every ten workers is a heavy swapping out of humans for machines. A twenty-person production team in its Sagamihara plant was whittled down to three. Such industrial transformations are now a commonplace aspect of Japan’s manufacturing culture.

“Such advances,” writes Bloomberg, “explain why Japan’s factory productivity growth ranked highest among the Group of Seven nations over the two decades to 2014. Yet the nation’s overall productivity ranks worst in the G7…” What’s up with that?

Hiding in plain sight
Japan’s high-flying factories are held back from having overall good numbers by a resolutely intractable services and white-collar industry.

Koichiro Imano, a former professor of economics at Gakushuin University in Tokyo, put his finger on the challenge that PM Abe has yet to address: “They [the manufacturers] are very strict and so productivity in factories is very high. But it’s completely different for white-collar workers.”

While factory productivity was good, it was half that of the U.S. from 2010 to 2012 according to the Japan Productivity Center.

Services now account for more than two-thirds of Japan’s economy, so an Abe-directed automation push at an entrenched productivity drag is more than a good idea. Abe is aiming to double (2 percent) services productivity by 2020, which is all of three years off.

The vast and formidable domain of the workaholic, ten-hour-a-day salarymen is coming into view as a major culprit in the automation wars.

Just for the record: “A salaryman (transliterated from the Japanese which is itself borrowed from English), more formally a full-time company employee (正社員) …represent one-third of Japan’s workforce.”

“Some Japanese companies keep unprofitable businesses alive to maintain employment,” said Yasuhiro Kiuchi, the senior principal researcher at the Japan Productivity Center in Tokyo. “It’s common to keep businesses going if they’re not making big losses.”

Wow, say that again: “It’s common to keep businesses going if they’re not making big losses.” Seems Japan’s productivity also has a culturally-spawned drag.

It’s a productivity drag that is ripe for disruption, and it is happening.

Asleep at the switch

The work-crazed world of Japanese office life is legend. Extra-long 10-hour-plus work days and extra-long work weeks have been accused of promoting side effects like reduced birth rate, increased suicide rate, growing debt, death from overwork (karoshi), to workers arranging secret nap meetings or sleeping at their desks (inemuri).

Yes, that’s inemuri, the translation of which” hints at how crazy Japan’s office life can become: inemuri means to sleep while being present.” Moreover, it is culturally accepted.

According to Dr. Brigitte Steger, senior lecturer in Japanese studies at Downing College Cambridge, it means “unintentional napping” and the country’s unwritten rules of etiquette consider it as “evidence of exhaustion due to a fierce commitment to work, not a sign of slacker indolence.”

Most anywhere else on the planet that would be like a crazed IBM keypunch operator from the 1980s still holding out decades after technology has made key punching totally obsolete. As well as being honored for holding out.

For Japan’s business leaders, office habits like inemuri are widespread and culturally tolerated, which makes them more resistant to change, even though napping is dragging down the productivity success earned at the Mitsubishi turbocharger production lines.

Enter IBM Japan with Watson AI in toe as it swoops to eliminate nearly 30 percent of the payment assessment department at Fukoku Mutual Life Insurance Co. with the robot’s non-drowsy AI capabilities.

According to The Mainichi, “Fukoku Mutual will spend $1.7 million to install the AI system, and $128,000 per year for maintenance [saving] roughly $1.1 million per year on employee salaries. About a two-year ROI.

That’s eye-popping incentive for other Japanese firms to start lining up; and they are.

Prime Minister Abe, in an effort to reduce productivity drag, is seeking a 20-fold increase in the market for service robots by 2020, which is shaping up to be an epic confrontation between technology and the salarymen.

Sounds like the plotline for a Godzilla flick.