Amazon founder Jeff Bezos has had a rough couple of months. First Donald Trump targeted Amazon with higher shipping costs, irked that the Bezos-owned Washington Post is holding his cronyism accountable. Next, the Supreme Court okayed US states upping taxes on goods that e-commerce giants sell to their residents.
Yet the Bank of Japan attributing its failures to an “Amazon effect” that it claims is exacerbating deflationary pressures is a bit much. That goes, too, for officials at the Federal Reserve and European Central Bank.
Are online shopping sites causing pricing-latitude challenges for Japan’s notoriously inefficient retail sector? Yes, but how is that a bad thing?
Shaking up a labyrinthine corporate system that imposes high costs on households is a central tenet of Prime Minister Shinzo Abe. The hope was that deregulation would resurrect Japan’s animal spirits. New innovation and energy would increase competitiveness, create new jobs and boost wages to reflate the economy.
Capitalism of the kind “Abenomics” purports to favor means give and take. Greater efficiency lowers some costs, while rising wages and confidence raises consumer prices anyway. It hasn’t worked out that way, yet for reasons that Bezos and ilk don’t have to answer for.
The BOJ’s problem is overconfidence in its influence on the third-biggest economy. It turns out that pumping trillions of dollars into an aging, rigid economy doesn’t work the way it might have in 1985. China’s rise and the race to the bottom on prices that it represents means the BOJ can’t normalize Japan’s cost dynamics on its own.
It is no coincidence that Japan’s savviest global company of the last 10 years is Fast Retailing and its ubiquitous Uniqlo brand. Not Toyota’s electric vehicles nor Fanuc’s robots nor Sony’s game consoles, but a made-in-China casual-attire clothier.
Consider, too, that Japan’s sexiest initial public offering in years is Mercari. It’s a flee-market app riding Japan’s powerful thrift-economy wave. Last week, it officially became Japan’s first “unicorn,” a startup with a valuation exceeding $1 billion.
Taken together, the success of these two names suggest consumers aren’t ready for higher prices. Hence the success of Amazon Japan or homegrown e-commerce juggernaut Rakuten. This latter company was part of Japan’s initial startup boom two decades ago. And Rakuten’s broadening interests also suggest the bargain-hunting ethos confounding the BOJ remains intact.
The BOJ’s real problem is Abe’s glacial pace in removing the shackles from Japan’s ankles. Governor Haruhiko Kuroda’s liquidity “bazooka” fired up stocks and corporate profits. It’s failed, though, to get executives to aim the spoils at workers via big salary gains.
That virtuous cycle relies on Abe cutting bureaucracy, liberalizing labor markets, incentivizing innovation and startup activity, empowering women and attracting more foreign talent. Abe and Kuroda have spent too much time treating the demand-side symptoms of a supply-side problem.
As disruptive as Bezos and his ilk can be to a developed economy, the competitive energy they create can reap big benefits. One of Japan’s biggest problems is that while its stock and property bubbles of the 1980s burst long ago, the gross domestic product imbalance never really did. Deflation was the answer.
Whether they realized it or not, bureaucrats chose a slow and modest 20-year drop in consumer prices over a crash. An added problem: China’s competitive threat is making it hard for Japanese companies to boost wages. That’s creating a bigger space for Amazon, Rakuten and Mercari to increase market share.
Yet retailers aren’t keeping the BOJ from reaching its 2% target. The blame goes to a timid government shirking its responsibilities.
If Tokyo wants to be more of a wealth creator than a protector of the status quo, Abe’s team must get busy with reforms. The Mercari IPO is a reminder of how Japan can still wow global markets. But it’ll take more than BOJ action to put the nation back on investors’ radar.