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Letter from Japan: Hard Medicine
The "Japan way" has failed. It's time to act
By PETER McKILLOP
January 12, 2001
Web posted at 12:15 p.m. Hong Kong time, 11:15 p.m. EDT
There is nothing happy about the New Year in Japan. The nation enters the 21st
century with no end in sight to a decade-long slump that has seen Japan fall
from a global business powerhouse to a rapidly fading economic has-been.
Japanese bureaucrats take pride in reminding visitors that they are custodians
of 2,000 years of uninterrupted Mandarin-style rule, and thus not to worry about
a 10-year economic blip. With time, they argue, Japan will solve its problem.
Well time is running out. Japan's economic version of boxer Muhammad Ali's
'rope-a-dope' fighting strategy is no longer sustainable: Pick up any newspaper
and, like a hospital monitor, look at the plunging charts that monitor the
nation's economic vital signs. Alarm bells are sounding: In the past month, the
yen has weakened dramatically, the stock market is plunging, banks and insurance
companies are failing and Japan's mountain of government debt keeps getting
higher.
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Faced with yet another possible economic collapse -- its third in 10 years --
Japan's leaders can either continue to delay desperately needed reform, or, they
can begin to administer the hard medicine needed to ensure for the future
prosperity of the nation.
This being the start of 2001, may I offer a few New Year resolutions:
Ignore global markets at your own peril.
Japan's economy is no longer insulated from the swift and unforgiving nature of
global markets. Sure they are nasty and threaten Japan's cozy post-war cocoon of
artificial stability. But get over it. Globalism is a fact of life. Go with the
flow of global markets or perish.
Embrace change.
There is nothing a Japanese bureaucrat or salaryman hates more than change. The
irony, of course, is that Japan, when forced to change can do so at a lightning
speed. Consider its remarkable post-war transformation. Japan, today, is facing
the economic equivalent of the last days of World War II. The hardships are
nowhere near as severe, but the need for fundamental reform of its key
political, economic and cultural institutions is as great.
Sack workers.
Severing workers creates growth. This concept is an anathema in Japan. The
nation simply refuses to believe that a fluid labor market with huge upside
opportunities as well as treacherous downturns is better than a frozen,
Communist-style fully employed labor force. Such a system made sense in the
Soviet era of five-year economic plans where political logic overshadowed
economic logic. They also made sense in Japan when its export engine and global
grab for market share in everything from transistor radios to automobiles was
unlimited. But those days are over. With global competitors eating away at
Japanese market share, industry leaders have two choices: restructure your
business, or let it slowly starve. As the old saying goes: The pond frog that
once enjoyed the cool glacial waters of economic prosperity is now threatened to
be boiled alive by global economic fissures of volcanic proportions.
Cut taxes and slash government spending.
This is a post Cold War no-brainer that Japan still refuses to accept. Globally
the role of government in post-industrial democracies is shrinking and the power
of the individual is increasing. The fond wishes of Japanese bureaucrats to
maintain control on all elements of life in Japan is just that, a fading wish.
Get with the program: empower individuals and unleash their potential by
shrinking government and slashing taxes.
Create political gridlock.
Perhaps the most important lesson of the last eight years of political rule in
the United States is that political gridlock between Democrats and Republicans
has kept government interference in the economy to a minimum. Japanese voters
must figure out a way to do the same in Japan, and thus weaken the power of the
ruling Liberal Democratic Power (LDP) without giving rise to an equally powerful
alternative.
Stand up to China.
For the past 50 years Japanese diplomats have groveled and kowtowed to Beijing,
as its Mandarin rulers repeatedly clubbed Japan into submission with demands for
World War II apologies. Well it's time for Japan to stop listening to this
politically inspired rubbish. Japan has apologized for its actions in World War
II. Again, and again and again. Next time China's cheeky diplomats remind Japan
about its wartime past, it should essentially tell China to shove it or else.
Remilitarize.
Being a pacifistic global lackey of the U.S. was both convenient to Japan and
the U.S. when there was a significant Communist threat as well as lingering
concerns about Japanese intentions. The Soviet Union has collapsed and Japan has
so emasculated its sense of nationalism and patriotism that it would take
generations to get back to the bad old days of the 1930s. Both the U.S. and
Japan should insist on a more assertive regional and global role for Japan. It
will be good for Japan's spirit by ending a 50-year culture of political and
military dependency.
Any combinations of these changes would instantly bring change to Japan.
Initially, the results might not be pretty. No one likes the pain and anxiety
associated with change. But doing nothing is a worse option. The past 10 years
have shown that the "Japan way" has failed, that Japan can no longer rely on old
solutions to fix new problems, and ignoring the bleeping vital economic signs is
a sure route to an even bigger and more dangerous dilemma.
Happy New Year!
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