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Part Two – What Can We Learn from Japan ?
“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
[ “Part One – How Japan’s Miracle Fell Apart” appeared in the August 1-15 issue of MegaScene. It recounts how Japan’s economy fell from being fast-growing and challenging the U.S.A. for global dominance in the 1980’s to a stagnating and declining economy today. In essence, a massive financial crash in the early 1990’s saw Japanese businesses, banks and households lose much of their savings and wealth when a property market bubble suddenly collapsed. Since then, the Japanese economy never fully recovered. It fell into a long-term trap of deflation and recession. This was caused in good measure by the failure of the Japanese Government and the Bank of Japan (the central bank) to adequately stimulate lasting recovery and growth. This story is eerily similar to recent experiences of the U.S.A. and Europe. In late July, major political events occurred in Japan and America. In Japan, Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) won a major election victory giving it an outright majority in Japan’s parliament – the Diet. Thus Abe won a mandate to undertake radical reforms to relaunch faster economic growth and to avert national decline. In the U.S.A., meanwhile, President Barack Obama announced an ambitious program of structural economic measures to promote long-term growth and prosperity – in a speech at Knox College, Galesburg, IL. As in Sofia Coppola’s fine 2003 movie “Lost in Translation”, it is to be hoped that the message of the need for major change in both countries will not be lost. This second part of a two part column asks how and what specific lessons can America learn from Japan’s “lost decades” experience. ]
Japanese Lessons for America ? : To be sure by no means all factors affecting Japan are present or as strong in other advanced economies such as the USA. But several key aspects of Japan’s experience should give us pause to reflect on the changes America needs to undertake to ensure long-term prosperity : ~ In Japan, as in the USA, continuing political stand-off between parties and vested interests over long periods have made necessary reforms virtually impossible to undertake. Ironically, in Japan, this was more because of the strong consensus orientation in Japanese society. This led repeatedly to compromise with little change, rather than major breaks with past performance. ~ Due to past success, there was a high level of complacency initially among Japanese political elites and Japanese generally, that underestimated the risks their economy and society were facing. That continued until it was too late to stop rapid decline. It led to the high debt/low growth deflation trap Japan has been locked into for over twenty years! ~ Reform efforts in Japan have been repeatedly stymied by the inability of Japanese politicians to resist pressures of powerful vested interests – such as farmers, doctors, healthcare and other service industries – to chart a change- and growth-oriented economic strategy. ~ Despite the imminence of population aging and major decline, Japanese have shown a strong cultural resistance to calls for even moderate opening to faster immigration,. ~ Slow economic growth, low interest rates, and low business and consumer borrowing have aggravated continuing long-term weakness in Japanese financial institutions.
What are the Challenges for America? : The USA is still the world’s largest and richest single national market. It has the single largest and deepest financial services industry; the greatest number of leading research universities in most fields and most of the world’s largest, global-reach corporations in many industries. ~ However, compared to twenty years ago, in a number of key areas America’s position has been slipping significantly : In student attainment at high-school and college levels, life-expectancy and healthcare quality, infrastructure quality, among others, the USA rates now below the top twenty in world country tables. This according to such authoritative international institutions as the Organization for Economic Cooperation and Development (OECD) and the World Economic Forum (WEF). ~ Moreover, worryingly, there is an apparent unwillingness among many in America’s political class – and perhaps among us Americans more generally – to recognize the challenges the USA now faces. For, globalization has not only given our economy strong growth (notably in the 1990’s). It has brought with it new systemic problems that need to be faced now rather than later. In the new global jobs’ market, only major new investments in skills and infrastructure – on a far broader scale than hitherto, will ensure sustained long-term prosperity. These will be vital for renewed prosperity to be share by a broader middle class and for reduced income equality to be achieved. ~ As in Japan, but for very different reasons, there seems to be a continuing and deep-seated inability of both major political parties – and particularly the Tea Party wing of the GOP in the U.S. Congress – to work together to find consensus for major reforms on the key challenges the USA now faces. As a result, stalled efforts to agree long-term reforms – eg., in fiscal policy, public investment in education and infrastructure, or on entitlements – give way to histrionic repetition of hyper-partisan short-term gimmicks on both sides – like the counter-productive sequester.
Conclusions : President Obama’s July 2013 Knox College speech was a powerful and convincing evocation of the main challenges facing America’s renewed long-term prosperity and middle class revival. Most notably he stressed much greater emphasis on education, infrastructure, pensions, healthcare, and home-ownership. However, for all the fine oratory, I was struck by the mismatch between the broad goals and the limited means proposed to achieve them. Regardless of whether this is out of political prudence given divided government and gridlock of today, or out of limited vision, the proposals seem altogether inadequate to meet the scale of the major challenges at hand. In Japan, meanwhile, Prime Minister Abe has launched his “three arrow” program. It has, for the time being at least, given a strong boost to economic confidence – especially through its massive monetary easing program by the reinvigorated BOJ and massive public works spending for fiscal stimulus. The jury is still out however, on whether Abe can muster the broad political support for growth-oriented reforms that open up Japan’s inefficient domestic markets; and whether this time Japan can achieve lasting major change.
In both Japan, then, as well as in the USA, political consensus and determination to stay the course on implementing true structural reforms will be key to both countries’ long-term success and future prosperity. For Japan the big challenge will be to overcome an endemic culture of consensus that makes breaking with the past almost impossible. For America, by contrast, it will mean overcoming a endemic culture of political dissension and gridlock, that also masks a deep-seated inability to change. As major trading partners and allies, the success (or failure) of the one will inevitably affect prospects for the other. I, for one, hope that both Japanese and American political leaders will now show the full statesmanship that is sorely needed. Maybe – taking a cue from Sofia Coppola’s movie “Lost in Translation” – Shinzo and Barack should join Charlotte and Bob for a week-long conversation soon – if not in Tokyo, then perhaps in Helsinki or Seoul ?