japan flag 88.
(photo credit: )
‘We could end up like Japan,” or worse, “We are heading down the same road as
Japan of the 1990s.” In 2010, the very worst thing you can say about a country
is that it could potentially, or already, be like Japan. The idea is bandied
about with growing frequency, with the “we” usually referring to the United
States, but sometimes to “the West” in general.
A recent Time magazine
article took an in-depth look (by Time’s standards) at The Land of the Rising
Sun and explained, in clear and accessible language, what the main factors
behind this ongoing disaster are and why they are so persistent. Of course,
being Time magazine, this long piece was “balanced” by a shorter one –
effectively an op-ed entitled “Crisis? What crisis?” – that cast the whole
matter in a positive light.
Fair enough; every half-empty glass can
always be presented as half full. The problem about Japan is that
glass is half full, it used to be full – and it wasn’t a glass but a
nay, a veritable swimming pool.
There are indeed several ways of
presenting the amazing story of Japan, but they should start with the
if, in 2010, to be compared to Japan is the national equivalent of an
being told he or she is like a terminal cancer patient with advanced
Alzheimer’s, then in 1989, to be compared in any way to Japan was the
imaginable accolade, which few countries could even aspire to.
very well to move on to the next item, but even at the intellectual
Japanese story is virtually unique. History shows that nations that
leading roles tend to enjoy a prolonged period in the sun, at least if
don’t get invaded by their enemies. Japan rose to prominence, was
crushed by its
enemies and then recovered to achieve much greater prominence, all in
of 130 years – and then proceeded to destroy itself entirely unaided.
result is that in the span of 20 years, or less than a generation, it
from being the object of overt and undisguised envy to being the butt of
blunt contempt. For a nation obsessed about saving face and avoiding
is hard to conceive of a more abject fate.
But the decline of Japan is
not a matter of intellectual speculation, or even moral reflection. It
incredibly, urgently, relevant to just about everyone on earth. Its
in fact, is matched only by the degree of ignorance, apathy and
attitude displayed toward it, on the part not just of the average
Western countries but by businessmen and politicians as well.
analysis of Japan notes that the country has a massive and chronic
problem, on a scale that makes the Greeks and other PIIGS countries seem
Similarly, the degree of demographic decline in Japan is
far greater than that of any other advanced economy. This combination of
demographics and budgets ensures that the Japanese government, and hence
nation state, will go bankrupt within a few years. There is virtually no
combination of measures that could be taken that would prevent this
But if there were, they would not be taken. We know that for a
fact, because everything that could or should be done has been known,
and analyzed for between 10 and 20 years. However, not satisfied with
themselves to extinction by not procreating, and with destroying their
hard-earned wealth by chronic mismanagement, the Japanese have indulged
level of governmental and political paralysis that makes the Italians
acme of dynamic efficiency and impeccable integrity.
cocktail of negative national attributes, at the political, social and
levels, has more than offset the achievements of Japanese corporate
The country is now living off its wealth, at the micro and
macro levels, buttressed by the high levels of savings that are
necessary by the patchy and skimpy social-welfare system.
In the next year
or two the national pension system will move into a state of net
flow; i.e., withdrawals from accumulated savings will exceed current
new savings. The pension system will no longer be able to buy the
bonds that enable the government to spend twice as much as it takes in
revenues (yes, it is incredible; now perhaps you agree that Japan is in a
different class of profligacy).
When that happens, Japan will be in
trouble – but it won’t go bust. It will fall back on its national
which are so large that Japan is the largest single owner of US Treasury
on the planet. It will then start selling them, steadily and
because it wants to but because it will have to. The impact of that
will be huge, and it will be felt across every financial market on
is why Japan is important.