What is the difference between a developed society that has remained in an economic slump for 20 years and one with steady prosperity for the same period of time? The answer is not clear. But that question dogged my mind in a recent two week visit to Japan after a gap of 20 years.
The Japan of today is amazingly prosperous. The first thing you notice is that it is spic and span clean: not a cigarette butt on a station platform; metro car floors you could eat off of; all new autos including many Mercedes and BMWs; endless flows of prosperous Japanese students and other tourists; ultra modern buildings everywhere; restaurants full of diners; Kobe beef at $250 or more a pound. In back streets of Tokyo and Kyoto, there is not a sign of poverty, dirt, or disease.
This picture of Japan is radically at odds with global expectations after decades of slow or non-existent economic growth and deflation. What is going on, and what can we learn from it?
Japan has a per capita income comparable with the United States, but its 20-year growth rate has been anemic. Its birth rate is well below the average for developed nations, but its savings rate remains among the highest in the world. Consumption as a percentage of GDP is well below the United States. Its stock market remains stagnant and well below its historical highs. Its interest rate levels are as low as a negative rate in some cases.
But, after its property bubble burst about 1990, it largely avoided the excesses in housing markets and derivatives that caused the serious credit problems in the US in 2008. Its unemployment rate remains very low because its employment polices insure a job for almost all citizens. And, of course it is very different from all other developed nations in that it is still an island state home to 130 million people, 90 percent of whom are pure ethnic Japanese with few religious issues and minimal immigration.
How have they navigated these past two decades with such steady results? Despite a lot of political turnover they are still a monolithic society with a remarkable sense of togetherness. One small but telling example is that a large percentage of Japanese people start their days exercising either in public, or at home to the same TV hosts. (Is it possible that a nation that exercises together and works together stays together?) There is a much smaller gap between the highest paid and least paid than in the US; although, there is also less social mobility and less innovation and entrepreneurship than in the US.
It is generally easier to allocate more than less. But the Japanese seem to have done more with less by making their people reasonably happy despite fewer resources. This surely has roots in Japanese welfare, with its remarkably fair treatment of people of all ages and needs, and Japanese education, a world leader built on intensive early literacy lessons and a "distillation" methodology that identifies and caters to the best students. Throughout their education and lives, Japanese teamwork and collective good is stressed and rewarded. This all for one, one for all mentality is rare in today's world, but it serves Japan well.
Overall Japanese economic growth appears to have stalled in the last twenty years, and as a result its public debt has reached dramatic levels that would make American deficit hawks shudder. But unlike the United States, the Japanese own much of their debt, and their willingness to save through government bonds pays off in infrastructure investments in transportation and internet access.
Global headlines describe Japan as a sluggish basket case. But as Europe comes to grips with a common currency and fractured fiscal policies and the United States faces its own excesses, one has to wonder whether Japan may not have quietly, possibly even unintentionally, discovered a new way to manage its economy: a low-inflation system that sacrifices dynamism for steadiness.
The Japanese seem to have discovered that their national wellbeing can be achieved even with declines in relative economic prosperity. Their population seems to be willing to make shared sacrifices to maintain the elements of daily life that they consider most important: social harmony and order, safety and environmental health.
As the leading economists' definition of economic success is all about consistent growth, how come Japan has, under the radar, defied the odds and created steady prosperity in recent years without the harmful inevitable excesses of volatility that seem to come with a singular pursuit of growth? One thing that stands out immediately is low birth and immigration rates. How much of that is conscious policy based is not clear. Another thing that helps them it seems is that the Yen is not a reserve currency. Despite their domestic level of debt, the Yen has continued to get stronger. Another factor perhaps is that their banking system, despite its upheaval twenty years ago after their property bubble burst, and their savings rate remain strong and vibrant so that Japan is free from concerns about the actions of foreign lenders.
That said perhaps a deeper wider understanding of the current Japanese "success" and their apparently stable prosperity might inform some constructive new thinking elsewhere among the world's political/economic gorillas about their fixation on growth.
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