Is Japan back?

---

See the Sol Sanders Archive By Sol Sanders SPECIAL TO WORLD TRIBUNE.COM

When economic historians a hundred years from now write about Japan [if there are still practitioners of the dismal science then], I have a hunch they will see the timeline quite differently than we contemporaries. Despite its horrendous blood, misery, and waste, the 1936-53 period, the Great Pacific War, will appear only as an interregnum. Socio-economic history will show the Japanese, unshackled by the U.S. Occupation as a result of the Korean War, picked up where they left off before the military broke off the modernization begun in the Meiji Era of the mid-1800s.

They will recognize a new revolutionary period [a ÒSecond MeijiÓ] began with the bursting of the Bubble Economy on the last day of 1989. For it was not only the pricking of a gigantic speculation, but the beginning of a whole new economic system with its attendant political and social manifestations. "Basically, Japan went from an economy that was enjoying above peak level growth in the last half of the 1980s, with soaring real estate and stock prices and major overseas expansion of banking operations, to a 60 percent decline of asset prices within about two years," Professor Michael Hutchison of the University of California at Santa Cruz, says. "It's a decline that rivals the Great Depression, and they've been working through it ever since."

That it took the Japanese a decade to sort out the debris is not surprising. After all, it was an economic engine which had served magnificently; giving a resource-poor little set of islands the only successful modernization in the whole non-European world before World War II. It had been so successful, in fact, there were American and European observers sure Japan would dominate the world economy. [Some of them are still around writing errant nonsense now as then.] Unhappily, they even convinced some of their Japanese friends. And it was not easy to break through the hubris ø especially if there were pain involved.

That is not to say any evaluation is so easily simplified. Of course, there are other exceedingly crucial parallel movements ø some not promising, not the least the demographic catastrophe. But for those acquainted with Japanese mores and folkways, changes of the last few years have been, yes, revolutionary. Many of the changed patterns have long been common in other industrial societies: The abandonment [if still only partial] of Òthe convoy system whereby failed enterprises were rescued from collapse by competitors. The breakdown of restrictions of entry of foreign capital, even including purchase of banks and financial institutions. The takeover of major [and prestigious if tottering] companies by foreign ownership and ø far more difficultø supervisory control. Major employers recruiting new staff at differing salaries for different skills; or even more dramatic, the erosion of rigid seniority for promotion and compensation. The wholesale crossover of investment and creation of new enterprises by one ÒfamilyÓ [prewar zaibatsu, postwar keiretsu] member with one from another group. Cutbacks in employment, and the end of the old dictum of Òlifetime employmentÓ. Abandoning tied subsidiary component manufacturers who often had to absorb downturns disproportionately.

It is still arguable, of course, continuity is the chief characteristic of Japanese business [as it is in the culture generally]. But if the changes are put up against traditions just a few years ago, the adjustments are strikingly significant. It is impossible to argue, of course, the extent to which these business culture modifications are responsible for what appears to be the end of stagnation. They appear to have increased productivity, long a failure of the Japanese system despite its almost religious work ethic.

But there is good reason to believe we are at the end the decline, even though there have been false starts before. First-quarter 2004 economic growth has climbed at a faster-than-anticipated rate of 6.1 per cent. [outstripping the 4.4 percent growth in the U.S. in the same period] Companies are increasing inventories more than predicted ø often with new products like cellphones, flat-panel displays and digital cameras. This is the eighth consecutive quarter of expansion. .ItÕs estimated increased spending from renewed consumer confidence has fueled half the growth. The stock market is up 45 percent over the past 13 months; unemployment is down to a three-year low of 4.7 percent. There are still worrying problems. The deflation in consumer prices is not over. Although the largest banks ø after drastic mergersø appear profitable once more, smaller regional banks still are overburdened with debt. Unemployment of young workers remains high. There is worry with exports leading the recovery, and particularly with the prospect of a slowdown in China on the horizon which has been a rapidly growing market. Record-breaking balance of payments surpluses could again create political problems.

But with all that said, the worldÕs second economy is perking again. And its new version may yet have [welcomed] surprises as in the past for the rest of the industrial world.