Japan can do without preaching on how to fix its economy

By Henry Hilton

Japan keeps getting it in the neck. Outsiders just love to instruct its state and citizenry on how it ought to behave. Apparently the world knows far better than this supposedly beleagered nation on all the superior ways to run an economy, conduct a democracy and act cooperatively overseas.

Others, it would seem, have digested the required lessons from Japan’s infamous “lost decade” of zombie banks, fiscal mismanagement and minimal growth. Wiser men in North America, Europe and Asia keep on telling us that the Japanese authorities were guilty of multiple foul-ups in the 1990s and that there is absolutely no way that the clever guys abroad are going to repeat the same old mistakes.

Under their scenario, the early summer of 2009 is already seeing those “green shoots” of recovery beloved of the official hand-outs and PR guys. As evidence, they are quick to point to the fact that global stock markets are already anticipating a return to the good years, government debt is under control and a nice bit of controlled inflation will do wonders for all that red on slack balance sheets.

The hurrah-crowd reckons that by next year, the biggest problems will be comfortably behind us and the supposedly great recession of 2007-2009 will all turn out to have been no more than a great aberration.

But hold your horses folks. The latest stories from the U.S. suggest that the housing market has yet to really hit bottom and that consumer confidence may be only slowly turning around.

Given that the very best news is little more than a reduction in the rate of the current slowdown, then it sounds as if the markets are getting ahead of themselves. It’s hard to count even a few “green shoots” on this more realistic score card. The land of the bankruptcies of first Chrysler and now General Motors, plus the father of all Ponzi scams in the Bernie Madoff affair, is unlikely to be lecturing others on how to run their national economies in the foreseeable future.

Of course, Japan is still in the doldrums but take a look at the extraordinarily dismal figures now being reported out of Germany and the scale of projected unemployment in both Britain and across Euroland. Tokyo certainly wins no prizes at present but maybe jaundiced observers might do well to pin the tag of the sick man of the G-8 nations on someone else.

The same hesitancy surely ought to apply also to judging domestic politics. Japan has been rightly criticized for the fact that both leaders of its two main parties are heirs to well-established political dynasties. Prime Minister Taro Aso and Yukio Hatoyama, the newly elected leader of Japan’s main opposition party, have undoubtedly been helped on their way through such close identification with earlier postwar premiers.

Yet the problem of inherited seats and the unfair advantage of possessing the right “name” is far from just a Japanese issue. It is pretty common across both democratic and absolutist states in Asia and is not unknown, of course, in Europe and North America. Think North Korea and India or the Kennedys in the U.S. and the prewar Chamberlains in Britain.

Given the magnitude of the present parliamentary scandals in Britain, it is also improbable that there is going to be much criticism of how Japan conducts its parliamentary affairs in the near future. Fresh and decidedly juicy revelations morning after morning on the expenses claimed by many MPs suggests that any who thought the Brits were in a different league for honesty and fair dealings will have to think again. The sums may be smaller than in Japanese scandals but the shadiness is the same.

Reform of the Westminster model with a less powerful executive and the need for fixed parliamentary terms is the probable outcome in Britain that could perhaps have possible implications too for the Japanese Diet. The right of both the British and Japanese leaders to call a general election when things are going their way is seen by many to be an unfair advantage that may well be on its way to the junkyard.

Clearly, neither the so-called Anglo-Saxon model of small government and neo-liberalism nor the more extensive and greater regulation of the continental “old” European schemes is looking particularly successful at the moment. Deregulation didn’t work and the free-for-all approach has led to the de facto nationalization of UK and U.S. banks, but the more cosseted Eurozone economies are now entering deflationary territory and the scale of manufacturing problems in Germany is far larger than elsewhere.

The resulting global mess ought to leave at least one piece of welcome news for Japan. Since no one country is coming out of the global downturn with much to its credit, Japanese officials and the wider public should now be free from further lectures by others on how to run an economy or regulate a financial system or operate an open, democratic political system.

The “Japanese way” is performing just as inadequately as that of the Anglo-Saxons and the Europeans. Since there are mistakes everywhere, let’s hope the critics of Japan will take aim instead at their own politicians and bankers. Japan deserves a decent period of silence.

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Latest 15 of 54 Total Comments Show All

jhk at 06:25 PM JST - 10th June

Perhaps Australia is trailing Canada, is trailing Japan, is trailing the UK, is trailing the US in Real Estate, Securities, Banking, Airlines, Manufacturing, Tourism, Commodities, Resources, Environment, Consumption, Unemployment (Any others?).

What good is anything if unemployment keeps rising. It is sad and perhaps irritating to some that there are bums and people on UI, but the reality is that they used to sit beside you, perhaps you contributed to them losing their job, and ironically you could be next.

In the developing world, the average annual salary does not even compare to one month's spending of a freeter.

So to get back to the article, and its message to us foreigners, lets focus on fixing our own problems, perhaps at the individual level, because, apparently we are all in this together.
Brunobear at 09:54 PM JST - 10th June

jhk. I don't understand your first point. Australia is still in positive growth, albeit modest. It's housing market remains strong and rising. Its resources are back in demand and prices rising. It may run a modest budget deficit but has effectively no public debt - all the other countries are drowning in it. Our four major banks are strong and four of only ten in the world with a AA rating. Lets get the facts right!

Secondly, know one is knocking on Japans door pushing their economic remedies. Some good souls who understand the importance of a strong Japan and share concern with its people, extend an offer of a helping hand. Japan can accept them or ignore/reject them. In Australia, we have other things to do, like working hard and making it more prosperous than it is. At the top of the ladder. We were down but not quite out in 1991 too.
TokyoVP at 12:01 AM JST - 11th June

Obama Lectures Aso:

Obama: Hello, Taro, how are you?

Aso: Fine, Obama-san, thank you for calling.

Aso: There is a city in Japan called Obama, and the people there dance...

Obama: Listen Taro, this call is important, the world economy is in trouble.

Aso: Huh...the economy is in trouble??

Obama: Hell yes it is...have you been drinking again?

Aso: Well, only at the hotel...it is safe and inexpensive, you know.

Obama: Listen, Taro...we need to talk about "imbalances" as the cause of the world-wide recession. You see, Japan had a trade surplus with the US for 27 straight years, leading to an excessive imbalance of treasury bills owned by Japan which kept US interest rates artificially low...and that started the sub-prime fiasco, leading to the fiscal mess we are in.

Aso: Ah soo desu ka. When will the American economy be fixed so Japan can export again??

Obama: Taro, let me try to explain it another way. My Grandmother once told me a story about a golden goose that laid golden eggs...
OhioDonna at 03:17 AM JST - 11th June

There is not easy way to fix any country's economy. The country that fixes first will be the winner and new world champion.
jhk at 04:48 AM JST - 11th June

I do recall many Japanese saying this is a US only problem about a year ago, and Canadians likewise six months ago, and I hear similar from you about Australia. I think unemployment in Australia, although lower than most, has gone from about 3% to 6% over the last year. And I maintain that unemployment is the best indicator because it is real people.

Analagous to blood, the solution to the problem seems to lie first in stopping the bleeding. For example, there seem to be many homeless working hard at collecting cans and bottles if this is not working hard enough for you.

There is a saying in Japan, the nail that sticks up gets hammered down. I've never made sense of this quote until recently, but anyone who touts prosperity, working hard, and being at the top of the ladder to me, is the problem and the solution.

For example, a good percentage of readers are members of TAC, Chambers of Commerce, and other clubs. They are also very familiar with performance indicators and KPIs. Perhaps you, or anyone who prides themselves in sitting on these boards, can stick unemployment at the top of the dashboard, or the percentage of their wealth usefully spent on eradicating poverty, and not just tax deductions. This command center of business decisions, access to information, flow of money, allocation of resources, policymaking, and jobs, frankly, is the problem and the solution.

To get back to the heart of this article and its message to foreigners in Japan, particularly ones that make more than 50k per year or hold management positions, don't worry about what we should be doing, worry about what you should be doing, particluarly in terms of this income gap problem. Don't worry, we will be knocking on you door to follow up on this.

Lets nail these facts down also.
Brunobear at 07:34 AM JST - 11th June

ihk. Australia's unemployment has risen from 4.7% to circa 5.5%. No one is collecting bottles because we have unemployment benefits. Our economy is turning back up again because our Government acted correctly.

It is not hard to fix an economy. There are some basics that once you stray from them, things start going wrong. Get them right and Japan's 60 million industrious workforce will do the rest. We don';t want anyone having to scavenge to survive in the world's second biggest economy.
blue_monday at 11:38 AM JST - 11th June

@Simon_Foston

Hard to say how many hereditary politicians there are in the UK's House of Commons, but not so hard to spot them in the House of Lords, or indeed Mr Brown's new cabinet, or the Mandy Fan Club as it is now known.

I agree with the gist of this article, it's about time those of us who chose to live and work in Japan started supporting our hosts. Japan isn't perfect, but it isn't bad, and in some ways may be ahead of the western economic model. The 90s in Japan weren't too bad if you were prepared to be flexible and work for a living.

It isn't so long since the foreign share holder activists where ranting about how Japanese companies should be run according to western rules. The Japanese reply was that if things got tough the foreign money would leave. The world economy went belly up, and most of the foreigners got scared and ran, as predicted.
jhk at 01:58 PM JST - 11th June

Brunobear, well lets see where Australias unemployment will be next month, if there are any hardworking homeless collecting bottles, and figure out this income gap thing, of which I would think is as basic as we can get.

So as you sit "at the top of the ladder", what kind of things can you do today, given your leadership position, UI benefits, and prosperous nation for the remaining countries, which are bleeding employees, other than to tout how you guys are ok, but busy worrying about yourselves, on a Japanese newsite, in an article that is saying we don't need any preaching on how to fix its economy.

Unemployment is going up in all countries, including Australia, there is a widening income gap, and those at the "top of the ladder", including foreigners and members at the Tokyo American Club, American Chamber of Commerce, Australian Chamber of Commerce, and any other organization that is "members only" and "high fees", as I will say once again, are the problem and the solution.

You "decision makers" and ones who control employees, land, assets, cashflow, make us pay rent, interest, fees, and buy your products, are the ones who are making the decisions to fire more employees, while the "bottom of the ladder", temp workers, homeless, unemployed, freeters, and the 20,000 children who die every day, are praying to a God, who is probably preparing a blowtorch for all of the things that you have done or not done, and especially, as you selfishly quote about yourself "we have other things to do, like working hard and making it more prosperous than it is".
Orchid64 at 03:55 PM JST - 11th June

The odd thing about this article is that it assumes that Japan is unique in being told how to run its own business. Everyone and his brother thinks its their place to run America, decide who its president is, what its social and tax policies it should be, how it should handle military issues, and it's foreign policy. Japan is not alone in being "advised" by a long shot. At least Japan mainly gets scrutinized for economic issues because they affect other countries. Everyone wants to run America.

Personally, I think all developed countries will see depressed economic growth and their citizens will see a reduction in lifestyle as a result of globalization and there's little that can be done about it besides getting citizens to accept the future or to put protectionist policies in place. Neither is a good option or a solution, but you can't consistently send jobs out to lower paid workers abroad and undermine the ability of your country's people to consume without having a bad effect on your own economy through time. Japan did well for quite some time, but mainly because it was at one point a developing economy. Now that it's developed, it's got nowhere to go but down, and there's no easy solution.
Brunobear at 04:13 PM JST - 11th June

jhk: The official Australian unemployment figures have just come out and they are 5.7%.

My strategies have assisted Australia to the success it achieved over the past 17 years and find its way through this current world financial crisis with minimum impact on Australians and their standard of living. As I write to our Federal Treasurer today, I am conveying that it seems we are through it without going into negative growth and the countries 11.5 millions workers can concentrate on their aspirations for the future. Our budgeted use of public debt of up to $300 billion will not now occur, though we will use some of it, perhaps $100 billion at worst.

I was not bragging about Australia's situation at all. I was stating facts that we have been able to manage money better than other countries because of an intrinsic understanding of how it really works. Most countries sadly live in financial fantasyland which impacts on the the people we both are concerned about, those lower down the pecking order.

I don't get paid for the advice I give the Australian Government and never have. No one knows who I am except a few. I don't seek honors, remuneration or public acknowledgment> If you know something others don't and you can assist in the public good, you should pass it on.

As I said in my first blog, I learned several things in a vital trip to Tokyo in October 1990, that assisted Australia in 1991 develop a strategy that steered us away from an economic valley of death to be the world's most prosperous country.

I am not asking Japan to pay me, I was just putting out I would help if asked. No one even knows my name jhk just my blog name.

You obviously don't know the Australian psychology. Australians will help anyone that is down.

Those CEO's who have no downside risk, that is they don't put their wealth on the line, but take salaries and bonuses of millions of dollars to screw there workforce for short term profit gains, make me sick too. They usually ride on someone elses good work, like mine as the Australian Bank CEO's did for the past 18 years.

I am a very modest living and humble person.
blue_monday at 06:56 PM JST - 11th June

@Brunobear and I thought Australia's strength lay in its natural resources .......
jhk at 08:02 PM JST - 11th June

Well then we will see in a few months time how well Australia fares, of which we could attribute your efforts and intentions, and I will continue to impart into the psyche of our readers in this forum that the aspirations of prosperity amongst the already wealthy is the sole cause of unemployment, poverty, lower consumption, less economic growth, a further widening of the income gap, and the beginnings of the "economic valley of death" that they are inadvertently creating for themselves.
Brunobear at 08:43 PM JST - 11th June

blue monday: Australia's wealth lays in its multi dimesional market based and unsubsidised economy and it cerebral and industrious workforce. Over 55% of Australia's population are in the workforce which is high compared to other advanced economies. Yes we are well endowed with massive mineral and energy wealth. Where economies like ours go wrong is when the Central Bank beauracrats let credit growth run rampant and then start playing Russian roulette with interest rates finding any bizarre excuse to start pulling the levers. The price of money affects wealth creation and destruction. It encourages or destroys the incentive to invest in wealth creating assets. Their is a natural rate for interest as there is for return on diversified investments over the long term. jhk: You won't remember my JT comment next week let alone in a few months time. It is getting the monetary settings right that leads to wealth creation and improves the welfare of the people we both share concern about, and that is the vast majority. The hardest thing with wealth is hanging on to it.
pathat at 12:19 PM JST - 13th June

Japan can do without preaching on how to fix its economy

Stop the "gaiatsu"! The Japanese don't need any help.

I mean, Henry Hilton has a long track record of being right, doesn't he?
azzassa at 10:32 PM JST - 13th June

The global economy is faced with "layered compression", and possibly soon to be followed by "modular infrastructural conversion", of which the most institutionalized of us, may have the most difficulty adjusting to such a change. For any of those that may intuitively know what I am talking about, I would recommend your intrinsic theological abilities, and perhaps we can rendezvous or reconvene somewhere in that area.

Nice, I see what you did there! I've taken a one year break from working and spent the whole time studying to be more capable once the intermediary shift has ended and the new zeitgeist emerges.