Talk about going Japanese


George Osborne in Japan

For years Japan has been the great cautionary tale, of how not to recover from a financial crisis and of more than one 'lost decade'.

When the financial crisis hit America and Europe in 2008, policymakers were sure about one thing: they would avoid making the same mistakes as the Japanese.

But nearly four years later, the west is still struggling, and Japan's lost decade is starting to look pretty good.

That's partly because the forecasts for countries like the UK are now so much worse than they were a few years ago.

Japan grew by just over 0.8% a year, on average, in the ten years after its bubble burst in 1991. That's a big change from what came before - but it's no worse than the latest OBR forecast for 2007-16. The forecast for parts of the eurozone is worse.

You might wonder why the UK Chancellor of the Exchequer, George Osborne, would want to include Japan in his trip to Asia this week. But as we know, he does like his high speed trains. Japan has 1,500 miles worth.

Big lesson

As I mentioned in my last post, I interviewed him on Wednesday in a depot full of gleaming Shinkansen, a few miles down the track from the main Tokyo station. He's interested in using Japanese technology for the new 120 mile link from London to Birmingham. If it ever gets built.

He told me the big lesson from Japan was that it takes a long time to recover from a major financial crisis - even if you smugly believe you have learned all the right lessons from watching what happened here (as many in Washington and London did, back in 2008).

Interestingly, he said the other lesson was that you needed to confront your problems sooner, rather than later - whether it's the bad debts in the banking sector or the structural problems in the economy, or a massive government deficit.

Richard Koo, of Nomura, has made a name for himself over the past few years warning that America and Europe were failing to understand the Japan case. When I spoke to him, he agreed with most of what the Chancellor had said - and, crucially, the bit about the deficit.

He's one of many who think that Japan tried to withdraw its fiscal stimulus too quickly in 1997 - the result was five quarters of shrinking GDP, and a sky-rocketing deficit. And this was fully seven years after the crisis hit.

But, live though that issue is in Britain, it feels a bit stale here in Japan. And so does the standard picture of the country's experience that is painted abroad.

The outside world tends to focus on what's gone wrong in Japan. In the New York Times recently, the writer Eammon Fingleton pointed out some of the many things that had gone right here (and kicked off a lively debate in the blogosphere in the process).

Ageing population

There are still only three countries that export more manufacturing goods than Japan. It even has balanced trade with China. Unemployment is less than 5%.

Oh yes, and Tokyo restaurants have more than three times as many Michelin stars as Paris.

It's tempting to say, if this is stagnation, then bring it on. Of course, it's not that simple, and Japan's challenges are still immense.

Its public debt is nearly three times Britain's. Its population is ageing fast. And even Japan's defenders admit that the change in its economy and its society has a long way to go.

But, you do come away thinking that this is far from the worst case scenario - for Britain or the countries under pressure, for example, in the eurozone.

The problem is I'm not sure the Japan experience is even possible, at this point for much of the West. This country came into its "lost decades" with advantages that many of the advanced economies now under pressure clearly lack.

Social cohesion

For example, Japan had plentiful (too plentiful) domestic private savings to finance massive government deficits, and a manufacturing sector that still faced strong global demand for its products.

There's also that famous and strong sense of social cohesion. With low levels of income inequality, you don't hear fury about "fat cats" in Japan. The pie might not be growing much, but nor is there uproar that a small number are getting too much.

Finally, there's that one big upside of an ageing population: a shrinking workforce meant Japan's unemployment could stay low, even if the economy didn't produce many new jobs.

There's little chance of that in the UK, as the Chancellor was reminded Wednesday with the latest jobless figures.

All things considered, he might come away thinking Britain could do worse than follow the experience of Japan. Alas, if the forecasters are right, we might well.

And so might a number of other countries who thought they had it covered, back in 2008.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 42.

    SF: Interestingly, he said the other lesson was that you needed to confront your problems sooner, rather than later - whether it's the bad debts in the banking sector or the structural problems in the economy, or a massive government deficit.
    ~ ~ ~
    Cue: Laughter

  • rate this

    Comment number 41.

    Reliance on world class manufacturing to keep you going


    Dependance on re-hypothecated debt, nano second "investments", hedging, CDS etc that's proven to be hugely BUST but still taking us all for a govt sponsored ride

    All that against the background of one of the most equal societies on earth vs one of the most unequal

    Good luck with absorbing those lessons Gideon old chap

  • rate this

    Comment number 40.

    Th interest rate hike caused the Jap crash. Jap. was challenging US-UK global hegemony. Two atomic bombs, WW2 defeat and occupation still ensure Jap subservience. Fear for the future (and of the past) ensured that consumers dont spend but save. The interest hike (by a pro US govt) did its job, checking Jap progress. Crisis as US economic policy. Wise up, Steph. This time the target is China.

  • rate this

    Comment number 39.

    Japan is no longer a manufacturing or exporting nation. While Germany exports 50% of GDP, Japan only manages 15% due to the strong yen. Japan's trade account is often in deficit. Over 30% of Japanese manufacturing is carried out outside Japan and this is set to rise to over 40% soon. All of this doesn't count towards Japan's GDP, but it does generate a lot of current account surplus for Japan.

  • rate this

    Comment number 38.

    This is type of thing that is handicapping Britain:
    In its November report Treasury Committee recommended the Court of the Bank of England be replaced with an independent Supervisory Board. However, the Bank has instead proposed to set up an INTERNAL Oversight Committee reporting to Treasury Committee.
    This is called putting the fox in the hen-house.


Comments 5 of 42



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