Saturday, April 2, 2011

"Japan's industrial structure will have to be redrawn"

Economist at the Centre for Future Studies and International Information (CEPII) and teacher of Japanese economy at the University Paris-Dauphine (Inalco), Evelyne Dourille-Feerdétaille the challenges of reconstruction in the Sendai area and impact what will have been the disaster of 11 March on the Japanese economic model.

Although the Sendai area represents only 7-8% of Japanese GDP, a lot of intermediate goods are produced. It has many steelmakers and steel mills, whose production is highly specialized on high-end sheet metal for car bodies, steel wire for tires, etc.. At the refinery level, there are shortages of gasoline but also kerosene.

However, part of the Japanese production of kerosene is exported to Asia, so there will be an impact on Asian airlines. There will also affect production of ferro-nickel-zinc, the region produced in quantity, with implications for the chemical industry. Finally, there are many factories in Sendai auto parts, semiconductor materials and electronic components, silicon wafers or substrates for computer hard disks.

Japanese level, the impact is immediate as the industrial model of the archipelago is on the lean. Globally, the impact will be felt within a month, because there are still stocks. But these components are so specific that Japanese technology transfer will not happen anytime soon. For now, the parent companies with the most urgent: how to have the least loss possible? How to continue to source? The Japanese face all problems at once: power problems with power outages daily logistical problems, after the destruction of part of road, unknown nuclear ...

Many manufacturers have stressed the urgency is to help the victims; industrial reflection will come later, during reconstruction. But certainly, the lean model - which had already been relaxed in recent decades as unsuited to the global division of labor - will be reviewed. There will also be a reconciliation between the units of production of components and assembly plants.

So the industrial will surely be redrawn and it will take some thinking to relocate industries. In part, yes. For the reconstruction phase in the north-eastern Honshu, there are real questions. What will we rebuild? How? It will not redo the factory destroyed in an identical, then it will determine the economic sectors most sense to develop in this region.

Later, it remains unknown to nuclear contamination, and we do not yet know it will take to evacuate an entire region. A reflection will also commit to the substitution industries, particularly agriculture and fisheries. The Sendai area represents about 2% of the Japanese livestock. At the national level is not much, but locally, it is a source of significant employment and income.

Even leaving aside the nuclear threat, many land and rice paddies were sterilized by the tsunami: how to rehabilitate them? Should we keep farming? It may need to turn to agriculture to high value added, such as the production of canning. The problem is to have the level of technology: South Korea and Taiwan have technological skills and be able to recover some market share in Japan.

But they have different characteristics than Japan, which has specialized in the automotive industry for example, the hybrid models. And then there's a problem of safeguarding intellectual property for the relocation of sensitive components. For components produced in the Sendai area, which can be classified in the medium-high range, one can imagine that Japanese firms relocate closer to the assembly lines and final circuits, the United States, Europe or in other Asian countries.

But as the technological level is not reached, there will be a great world's dependence on Japan and this hypersegmentation production. It is a plausible hypothesis. This disaster is going to think the Japanese population on energy waste and consumerism. We have seen reports on television talking about shortages in the shops, cameras zooming in on empty shelves.

But I have friends in Tokyo who explained: "It was a little less choice in shops, but we realize that we live well with less choice." We see that values such as generosity redéveloppent: there is an influx of young volunteers who want to go in the affected areas, while there is little we talked about a generation gap and the selfishness of youth.

Moreover, the Japanese population declines since 1998 for the labor force and since 2005 the total population. Japan can no longer be in a context of rampant growth. How do when one has excess production capacity with a decreasing number of consumers? One possibility is to export much, but it is a risky strategy: after the 2008-2009 crisis, Japan's GDP declined by 6% and is the country with the greatest reduction in the level of shock exports.

So we need to rethink the economy otherwise, with a lower cruising speed. But even with a growth rate of very low wealth per capita increases when you have a declining population. Japan will also have to rethink its planning because it will manage cities where the population decreases, which is already an approach that can be described as decreasing.

The affected areas will be at the forefront of this thinking on a new urban fabric that takes more account of the needs of the elderly. In Japan, thinking about a new model, based on less growth and less consumption is already underway. And the catastrophe of March 11 will accelerate this movement.

Interview by Mathilde Gérard

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