The Japanese economy is far from being a basket case. In fact, during the 1990s, Japanese living standards and trade surpluses continued to rise and the country extended its lead in key technologies. But the gloom story diverts attention from Japan's closed markets and its economic alliance with Chinaby Eamonn Fingleton / November 20, 2002 / Leave a comment
For a decade now, the western consensus has been that Japan is an economic basket case. But this is a dramatic misreading of a perennially secretive society. Indeed, it may come to be seen as one of the most significant misreadings in economic history.
The geopolitical implications of this misunderstanding go far beyond Japan or east Asia. The myth of Japan’s “collapse” has encouraged the west to imagine that the east Asian economic model (largely an extension of the Japanese model) is inherently flawed. Beyond a certain point, the argument runs, a nation must embrace the Anglo-American free-market model or flounder. Amongst other things, this view has fostered a dangerous degree of complacency towards the rise of the overtly authoritarian Chinese economic system. Incomes in China are still only a fraction of Japan’s but if ever China comes close to matching Japan’s success it will be bigger than the EU, the US and Japan combined.
Any summary of the case against the consensus must start by acknowledging that Japan has, of course, suffered serious financial strains in the last decade. But these strains have been largely confined to the financial sector and have done little, if any, damage to other areas of the economy. On the contrary, the wider Japanese economy has quietly thrived-so much so that, in many of the ways that matter to Japanese policy-makers, Japan has actually now surpassed the US to become the world’s leading economy. In particular, measured in terms of its ability to project economic power abroad, it is Japan, not the US, that is the world’s leading superpower.
As generally recounted, Japan’s story in the last 20 years is a morality tale of the perils of overarching ambition. It begins in the mid-1980s when Japan suddenly seemed to be sweeping all before it. But just as this new Sparta was on the verge of vanquishing the freedom-loving west, fate-in the form of the Tokyo stock market crash of 1990-intervened. The wheels came off the Japanese economic pantechnicon. Ever since, Japanese leaders have been engaged in increasingly comical efforts to get them back on.
This story has enormous appeal in the west-not least for the free-marketeers who edit the business pages on both sides of the Atlantic. But the key reason why this story has been so widely accepted is because various vested interests want it to be believed. The most important such…