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 22.

    Japan has three great advantages we don't have, no union problems, a minimum of interference from government and they are not governed by the European Union. The other thing they have that we seem to lack, is pride in their country and a desire to work.

  • rate this

    Comment number 21.

    "policymakers were sure about one thing: they would avoid making the same mistakes as the Japanese." I think our governments and central banks dream of a Japanese outcome with extend and pretend loans and house prices taking 20 years to correct. Kick the can down the road to the next lot and have them blamed. It's not in the public interest of course, but in the interest of those in power.

  • rate this

    Comment number 20.

    Sadly Japan is not like the Uk. Their economy is balanced both in type and geography.Their social cohesion is critical, fundamentalist economic liberalism has destroyed this in the UK.
    Low wage differentials and loyalty to organisations are the norm, Greed has not been good in the US or UK,except for the few.

  • rate this

    Comment number 19.

    `there`s one big upside to an ageing population, a shrinking workforce....... little chance of that in the UK`

    Baby boomers anyone?

    Just accept that we have to pay people to do nothing.

    We`ve been blinkered for too long, it`s time for a complete re-think.

  • rate this

    Comment number 18.

    @7.Anthony Kaye
    Yet higher inflation as we have here in the UK doesn't work either

    At the peak of the 100-years credit cycle neo-Keynesianism breaks:
    - People can't spend any extra when they already spend 100% of their income plus the limit on 4 credit cards

    In fact, when things get to the point were people use 20% of their income just to pay the interest in their debt, they're spending less

  • rate this

    Comment number 17.

    So Steph - off to Japan.
    2 blogs has been your contribution since before Christmas then yet another jolly.
    When compared to other BBC Editors - Nick Robinson and Robert Preston, you don't seem to do a lot other than have trips abroad. Poor old Hugh Pym is left to do all the boring domestic stuff.
    I'm not convinced you're taking this position terribly seriously. Typical BBC...............

  • rate this

    Comment number 16.

    The West needs go "Austrian" not Japanese. The Austrian School is correct: interest rates need to rise to reflect risk and reward trhift; governments need to get out of the way and stop protecting zombie oligopolies and toady favourites. Real Capitalists would then soon acquire the assets and prosper.

  • rate this

    Comment number 15.

    The wage structures of workers and bosses in Japan have traditionally been balanced to a level that is acceptable to everybody.
    In the west there is only frustration and anger as job and salary cuts take hold, the young are abandoned to unemployment while failed bankers continue to pay themselves huge bonuses with our money.
    Even the EU gave itself a large raise!
    The future looks very bloody!

  • rate this

    Comment number 14.

    The only measurand needed is UK youth unemployment. It is questionable that demographics is the only driver of this problem. The removal of the debt fed UK property bubble has exposed what has been there for a long time, failing economic strategy. Take the Financial Sector out and the UK is no better than Portugal. Perhaps a review of Portugal would help to highlight the problems this suggests

  • rate this

    Comment number 13.

    "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."

    And we needed to ask the Japanese to find that out? I suppose we did. Oh the shame..

  • rate this

    Comment number 12.

    Think I am turning Japanese, think I am turning socialist (well social democratic perhaps). There is life with the deficit and if it means a more equal but slower growing society - bring it on. Of course the Japanese do not have to think about re-balancing their economy and is it not strange that they do not have a global role in finance - no need for trickle down when your factories are humming.

  • rate this

    Comment number 11.

    I'm turning Japanese
    I think I'm turning Japanese
    I really think so

  • rate this

    Comment number 10.

    Social cohesion in Japan makes a massive difference. Here - political correctness, multi culturalism and domination by EU bureacracy, perverse Human Rights Court decisions and unlimited EU economic migration swamping us. Little to be proud of - just a feeling we are letting everything decent go down the pan and there is nothing we can do about it. Makes you feel best just to look after your own.

  • rate this

    Comment number 9.

    This article is extremely poorly researched. Japan has a debt to GDP ratio of 225%, and this debt has been funded from within Japan by laws that force salaries to be saved in pension plans which then allow banks to multiply that money and lend it to the government. In short, people are forced to lend to the government. That is all over now, because of demographics, and Japan faces the bond market.

  • rate this

    Comment number 8.

    How can Britain follow Japan, when Japan used to have good trade surplus's, and more important money priced at zero, perhaps slightly negative.

    Not the same scenario

  • rate this

    Comment number 7.

    With inflation effectively zero or less, there's every incentive to save, not spend. Every govt. effort to bring on inflation ends in failure. It's a vicious circle v. difficult to get out of, so they can't inflate their way out of debt-how unlike us!

  • rate this

    Comment number 6.

    What is the work ethic of the indiginous population in Japan and their attitude to education here there is a substantial minority who don,t send there children to school or encourage them to work the mantra of this minority is if they can't find a job to suit them it is better to be unemployed with no job comes no prospects

  • rate this

    Comment number 5.

    If Japan was in an "Asian Union" which allowed workers from other countries to work there at will, then I suspect that their unemployment rate would be much like ours.

    Also on the point of "fat cats" - I read recently that the CEO of Nintendo earns around £150k pa. If Nintendo was a UK company, then no doubt it would be 20 times that and probably paid to a non UK citizen!

  • rate this

    Comment number 4.

    There is only one point in which the UK is like Japan, and that is keeping interest rates at virtually zero forever. Not sure if Japan had to do this. The UK clearly shouldn't and the only reason why it's done, is the political will to protect those most responsible for the crisis and sacrifice the prudent for it!

  • rate this

    Comment number 3.

    I agree that the demographic issues appear to be about as well understood by our governments as nuclear power to a Khalahari Bushman.

    No doubt everyone will 'learning lessons' and 'calling for a real debate' in 2025/30 when that particular issue really begins to work through fully, probably just a month or two after the present mess finally begins to fully move into History.


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