What Japan's Years of Paralysis Teach America

I was recently in the town of Sendai, north of Tokyo. It snowed, which was a lovely treat, something I never see at home in Hong Kong. Japan is a respite from the rest of Asia in many other ways. While much of the region is still hurtling along the path of development — a blinding whirl of frenetic construction and perpetual change — Japan is a vision of stability, a nation that has everything others in Asia want, and has already had it all for decades. Money. Technology. Global brands. A seat at the table with the powerful countries of the industrialized world. Those of us old enough will also recall that Japan used to scare the pants off Americans and just about everyone else. Back in the 1980s, Japan was the first of Asia's rising powers, a nation that seemed destined to overtake the U.S. as the dynamic force of the global economy. Experts looked to Japan in search of guidance that could rejuvenate an America that, many thought, had lost its way.

There are still a few things the U.S. can learn from Japan. One is its commitment to energy-efficient public transport. Anyone who sniffs at Obama's plan for high-speed railways should have joined me on the glide back to Tokyo. But the main lesson Japan can offer the U.S. today has nothing to do with rapid progress. It concerns the perils of inaction. (See pictures of Japan in the 1980s and today.)

For most of the past 20 years, Japan has been in a state of political and economic paralysis. Ever since its property-and-stock-price bubble collapsed in the early 1990s, the economy has teetered on the edge of recession, occasionally tumbling into one. With one exception (Junichiro Koizumi), the country has been captained by a series of leaders who seemed content to reluctantly repair the economy so that it doesn't outright sink, but not enough for it to return to the high-flying days of yesteryear. What I find most baffling about Japan is how a nation can be in such a protracted period of malaise and never seem to muster the will or ability to do very much about it.

Paralysis isn't unique to Japan; it appears to be a common affliction throughout the developed world. But by looking at Japan, we can get a good idea of the damage it can do. Unwilling to make hard choices, the government simply threw taxpayer money around, attempting to keep people employed without fundamentally changing the economy. The result is government debt approaching 200% of GDP. Overly protected at home, Japan Inc. has missed out on the globalization game; its companies, unable to adapt to a changing world, are losing global market share to more nimble competitors. The nation that once led the way toward prosperity in Asia is sitting by while its influence is being usurped by China. (See pictures of Japan and the world.)

As I sat in Sendai, looking warily across the Pacific toward my home country, I shuddered to think America was heading Japan's way. Everyone in Washington knows what problems the nation faces, but there is a Japan-like inability to take the necessary action. The broken U.S. health care system is an embarrassment, yet efforts to change it have been stymied for almost as long as moves to revive Japan's economy. The government's finances are deteriorating as politicians refuse to make the hard decisions on what the country does and does not need. The education system requires far more attention if the economy is to compete in the 21st century. And yet, these problems just linger on, getting worse year after year.

The sources of this paralysis are somewhat different in the two countries. In Japan, a combination of highly constraining social patterns, consensus-based decision-making and an ossified political process have suppressed new ideas and made the country resistant to change. In the U.S., there is no shortage of fresh thinking, debate and outrage — the paralysis is caused by a lack of consensus on how problems should be tackled. There are too many people in positions of power who seem to believe no real change is necessary, or that it can just be put off, for political purposes, to another day.

In a rich nation like the U.S., it's easy to be fooled into thinking there's always more time for problems to get solved. So it has been in Japan. The Japanese are wealthy enough that they don't suffer too much from the prolonged period of stunted growth. But Japan also stands as a warning to those who think tough decisions can be delayed indefinitely. Japan's public finally seems ready for something new. Voters last year tossed out the Liberal Democrats, who had governed almost uninterrupted since 1955. The new sheriff in town is Prime Minister Yukio Hatoyama of the Democratic Party of Japan. He's at least talking new ideas: reforming the government, improving the social safety net, cozying up to Asia. But his options are constrained by the mess built up over two decades of inaction. He's confronting an unsustainable fiscal position and an economy with deteriorating competitiveness. Perhaps America's political leaders should ask Hatoyama for some advice. Don't wait, he might say, or you could turn Japanese.

Read "Can Japan Put Its Economy Back on Track?"

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