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Tempus fugit! Only a decade ago we were bombarded by the experts telling us Japan was the economic juggernaut. Nay, we were told only by imitating Japan, Inc., would America survive. The Japanese were ten feet tall!
How time flies! Now Japan is washed up, the Japanese economy is hopelessly ensnarled; the Japanese have proved the qualities of the US system. And, believe it or not, said by some of the same people.
Prophecy is the art of fools. But it might be a good time to take a common sense measure.
First, of course, there is the track record. Japan is the only non-European culture to have achieved modernity. It accomplished that at amazing speed in the 19th century, becoming a leading trading nation within a halfcentury. In 1945, it was defeated, demoralized, with a devastated economy. But within a decade again was doubling national income every half generation. Its growth rates may have exceeded any other economy, ever , certainly over as long a period. [Russia, of all places, probably did as well during the brief 1905-14 period.]
Now, what? “The 1958 paradigm” — in fact the economic model developed in the late 19th and early 20th centuries, a kind of state capitalism — finally achieved its goals. Japan became a full-fledged developed society, albeit one with distinctiveness. The nature — if not the structure — of that system can be easily described: everything to minimize consumption and maximize capital investment, first to learn to make products, and secondly to pay for raw materials for a country with virtually none.
A consensus had developed among Japan’s economic thinkers by the late 1950s that the model no longer worked: an economy as large [the second largest] and as complex could not be directed by bureaucrats. It would have to go to markets to steer capital as well as goods. But what the mind tells individuals [bureaucrats as well as ordinary people] is not always what the heart wants to hear: the Japanese power structure found it exceedingly difficult to get off the fast-moving train before it inevitably crashed.
The Establishment has been trying to pick up the pieces ever since. And the economy has been idling. By the way, while Japan has not grown at the 2.75% U.S. average, it has averaged 1% since the downturn began in 1993. What has to be done, in a general way, is fairly clear — not the least to the Japanese elite. Japan has to step up to a new level of competitiveness. With the growth of new industry in the rest of Asia and other odd parts of the world [Finland as the dominant figure in mobile telephones!] the techniques of export-led growth with high quality manufactures at covertly subsidized prices is not enough. Old Japanese economic-cultural icons — life-time employment, bulging personnel rolls, endless detailed planning, crony networks among kinretsu, expensive bureaucratic-business handshakes, massive agricultural subsidies, and most of all, “buddy” banks lending to their own properties — will have to go.
It is true that no draconian measures have been taken. But in no society do such reforms [read changes] come easily. It took the collapse of the U.S. economy in the Great Depression to initiate changes talked about for decades, in a culture noted for its flexibility.
The last few days indicate the denouement in the Japanese drama. The stock market — and Tokyo’s has always been something of a casino cum fantasy — has hit a 17-year low. Unemployment, unknown for 50 years — and facing a longer-term demographic catastrophe with birthrates dropping precipitously — has leaped. Japan’s most honored business names announced unprecedented cutbacks. Reactions to foreign competition are primitive — the howls from Beijing sound like those from Detroit and Cleveland in the 1950s and 60s.
It remains to be seen if, as has always happened, new political leadership to cope with the transformation will surface. Prime Minister Koizumi looks more show horse than work horse — but history movess in mysterious ways. There are even questions about whether the old Yamato Damishi is still there. Taking a look at that giggling , selfish, self-centered young female population, the target for trendy advertising, makes one wonder.
Still, in economic terms, one has always to remember that Japan is still the land of the rising household savings — double those of the Germans, almost four times the U.S.’. In fact, the present “consumers’ strike” is part and parcel of the conundrum. And, one might add, with those savings having been the better part of world liquidity over the past two decades, smart young Wall St. MBAers. so quick to give advice, might better wonder what it will mean if the Japanese do decide “to spend” those savings in new ways, avoiding the often misguided investment counsel of the West.
Sol W. Sanders, (solsanders@abac.com), is an Asian specialist with more than 25 years in the region, and a former correspondent for Business Week, U.S. News & World Report and United Press International.
He writes weekly for World Tribune.com.