Wednesday, April 15, 2009

Japan’s Lost Decade: Lessons for the U.S

There may be some interest in this transcript of Brookings Institute / Nikkei discussion on Japan’s lost decade with opening remarks from Heizo Takenaka, Former Minister of Internal Affairs and Communications and Minister of State for Privatization of Postal Services, Japan.

Personally, I never drank the Koizumi cool-aid, although clearly Takenaka is an enormous fan. But I thought Takenaka’s claim that they STOPPED the Lost Decade was, well amusing, on the back of Japan’s recent announcement of yet another, allegedly at least, massive stimulus plan.

Japan’s Lost Decade: Lessons for the U.S. 4 March 26, 2009

“Eight years ago we had a very special Prime Minister named Junichiro Koizumi. Under his leadership, we terminated -- stopped Lost Decade. As was mentioned by Richard, I worked in the government from 2001 to 2006 to support former Prime Minister Koizumi. Koizumi was a very special and unique prime minister in the history of Japan's politics. How unique and how special he was. First, he nominated me as a minister. He's very unique actually. Second, he continuously supported my policy for more than five years, though many influential politicians were against my policy. He's very special in that sense. Anyway, owing the leadership by Prime Minister Koizumi, the Japanese economy has come back -- financial crisis was over.
So let me quickly review the trend of the Japanese economy and the economic policy responses. Then I will discuss some lessons from our experience to stop financial crisis and the lost decade. It is needless to say that U.S. financial trouble and Japanese trouble.”

The transcript of the proceedings can be found here.

Japan’s biggest problem has been, in my view, that it has had no idea what kind of country it wants to be post-industrialisation. Another way of putting that, perhaps, is that it has no clue where to find the kind of continued growth developed nations have been accustomed to.

The answer may well be that there is no where TO go. That in fact, that kind of economic growth is finite. And indeed unsustainable. (Clearly not a view Takenaka would subscribe to, since he apparently solved the problem earlier this decade.)

This view was somewhat outré in an era when the US and UK where “seemingly” finding new and better ways to grow, harness productivity and keep their populations employed. Now that myth has been blown away (despite the glaring cobwebs), (and with the Schumpeterian impact of the Internet becoming even more obvious each day) perhaps, there is more chance of our societies undertaking some fundamental reviews of what kind of societies we CAN be in the 2020s and 2030s and beyond.

It may be that more considered, fundamental changes are needed.

One venture that has caught my attention in recent months is the move by Lawrence Lessig (of Creative Commons fame) to create a program of study at the Safra Center at Harvard to examine the impact of money on decision making, or as he puts it in his blog, “to focus on the many institutions in public life that depend upon trust to succeed, but which are jeopardizing that trust through an improper dependence on money”. (See here.)

Lessig’s views are far from mainstream in the US, although they stand a greater climate of becoming so in the current political climate, I l believe. But, with Japan’s lost decade turning into a lost generation, the pronouncement by Takenaka quoted above struck me as sad. The whole buy-in to Koizumi’s ‘greatness’ seemed to rest too much on the impact of Japan’s exports growing as a result of excessive consumption throughout the world taking on a fevered drumbeat of acceptability.

There does seem to be a belief in Japan that all is needed is another Koizumi (and perhaps Takenaka…). I doubt this is true. But an examination of the impact of money on decision making in Japan – now that is something that could bear fruit.

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