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“The threshold of a new house is a lonely place.” ~ Margaret Atwood, 1965
“If we want things to stay as they are, things will have to change.” ~ Giuseppe di Lampedusa, 1958
“People aren’t overcome by situations or outside forces. Defeat comes from within.” ~ Banana Yoshimoto, 1988
“ Whatever it is you’re seeking won’t come in the form you’re expecting.” Haruki Murakami, 1994
“It is hard to let old beliefs go. They are familiar. We are comfortable with them and have spent years building systems and developing habits that depend on them. Like a man who has worn eyeglasses so long he forgets he has them on, we forget that the world looks to us the way it does because we have become used to seeing it that way through a particular set of lenses. Today, however, we need new lenses. And we need to throw the old ones away.” ~ Kenichi Ohmae, 2004
“I spent a year traveling listening to stories of proud workers losing their jobs when the plant moved to Mexico; of teachers whose salaries wren’t keeping up with the rising cost of groceries; of young people who had the drive and energy but not the money to afford a college education. These were stories of families who had worked hard, believed in the American dream, but felt the odds were increasingly stacked against them. And they were right. Things had changed.” ~ Pres. Barack Obama 2013
“For six years I traveled across the nation simply to listen. Everywhere, I heard people suffering from having lost jobs due to lingering deflation and currency appreciation. Some had no hope for the future. So, it followed that my second administration should prioritize getting rid of deflation and turning around the Japanese economy.” ~ Prime Minister Shinzo Abe, 2013
Last week, two major political events took place half a world apart and in two quite different, advanced world societies. But, watching them unfold, there were striking similarities in their theme and sense of urgency.
In Japan, Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) won a major electoral victory. It gained control of both upper – and lower – houses of the Japanese Diet. Abe thus has the opportunity – rare in Japanese politics over the past decade more often fraught by gridlock – to push ahead with major reforms. His “three arrows” of change program aims at turning the long ailing Japanese economy around.
Meanwhile, here in the U.S.A., President Barack Obama gave an economic strategy speech at Knox College in Galesburg IL. In it he outlined a long-term action plan to rebuild the American economy from the ground up based upon a renewed stronger middle class. Unlike Abe, however, Obama confronts a political system caught up in hyper-partisanship and gridlock. A divided dysfunctional government in Washington seemingly can get little done.
Listening to both men called to mind Sofia Coppola’s fine 2003 movie “Lost in Translation” set in Japan. In it, two Americans visiting Tokyo – a young woman, Charlotte (played by Scarlett Johansen) and an older man, Bob (played by Bill Murray) – try to help each other understand their individual life challenges that have eluded them until then. That is almost as much as their inability to relate to the Japanese society they find themselves in. Ironically, by talking things through in a quite different setting, they come away seeing things more clearly.
Like Bob and Charlotte, we may at first be tempted to consider Japan’s dire economic predicament and its causes quite different from the challenges facing America today. After all, Japan is a once vibrant, export-oriented global economic superpower, now with a fast-aging population – set to decline by 2050. Following a massive financial crisis in the 1980s, Japan has suffered over two “lost” decades of economic stagnation, and seems set for slow but inevitable decline.
By contrast, prior to the 2008-09 Great Recession, America had experienced over two decades of strong economic growth. And, as Pres. Obama said Wednesday, the USA has recovered more strongly than any other advanced world economy. But it has done so only slowly and with lingering high unemployment, fiscal deficits, and much higher government debt. And it faces a range of structural problems needing to be addressed to secure long-term prosperity.
Key Questions ~ So, there are perhaps stronger similarities than we might first feel comfortable with between the causes and urgency for economic rebuilding in the two countries. So, how did Japan’s once mighty economy see its fortunes change so much? How does America’s current situation compare with Japan’s now and in the 1990’s? What paths should Japan and the USA follow to turn their economies around? And how similar are the required actions?
How and Why Japan Lost Two Decades : Japan is the ultimate poster child among advanced industrial societies for transforming in a mere one hundred years from a low-income, war-destroyed economy (in 1945), first to a economic powerhouse second richest only to the USA (in 1980), then to an economy in flat-out decline with its population and prosperity set to shrink by a third by 2050. Japan’s economic crisis began in 1990, when fears of inflation caused the central bank (Bank of Japan, BOJ) to raise interest rates. This burst the massive asset bubble in the Japanese economy. Heavily inflated real estate prices plummeted by nine-hundred per cent. Overnight, banks, businesses and households found themselves financially massively underwater. To stay afloat, banks and corporations contracted their activities to restore cash.
Sounds eerily like America in 2008-09, doesn’t it? But in Japan the BOJ exacerbated the collapse through tight monetary policies that continued until 2012. And the Government of Japan (GOJ) made only half-hearted and soon reversed efforts at fiscal stimulus to restore growth. As a result, Japan’s economy grew only 1% annually over 1990-2010! Lack of sustained growth and repeated large but aborted fiscal stimulus programs pushed the GOJ’s debt to a world leading 210% of its gross domestic product (GDP) – over double that of the USA!
Prolonged deflation lowered prices of goods and services and wages, as it raised the value of government and private debts still higher. A weakened domestic economy with long-term stagnating consumer demand was unable to take up the slack caused by a strong Yen on Japan’s competitiveness abroad. Japan’s banks have faced continuing hidden weaknesses due to bad loans. An aging population is set to decline by a third (125 million down to 92 million) by 2050. But it is adding massively to public retirement and healthcare costs. This has reduced Japanese youth’s trust that these schemes will be there for them down the road. They face now stagnating wages, higher unemployment and greater income inequality than before.
Against this, Japan is one of the world’s strongest high technology manufacturing and exporting nations. It excels in such areas as computerized, high precision equipment, biotech, digital media. Japanese incomes are very high by global standards. Although less than before, they are enough to instill continuing complacency over the need for structural change. Poorly planned but massive public spending and investments – aimed more at supporting key political constituencies over efficiency and economic growth and opportunity – have further weakened Japan’s economic standing. So, education and infrastructure standards are high, but flagging and lower than before. Meanwhile, for all its export prowess, Japan has a highly protected, inefficient domestic economy in many sectors – notably agriculture, services, healthcare. Corporatism and complex, high-cost business regulations discourage start-ups and foreign direct investment (FDI). These factors combined have held back any strong domestic demand-led growth.
In short, Japan has been settling into a glide path for long-term economic and social decline. By doing so with stealth and against a backdrop of lingering affluence, it is yet more difficult to find the courage and determination to break old habits and change course.
[The concluding part of this article will appear in MegaScene’s next issue.]