The year ahead - Japan

Japan, Inc., Jan, 2003

"There are very bright individuals who are not being tapped," Matsumoto says of recent university graduates. "They have great potential, but you have to foster them."

RELATED ARTICLE: The Koizumi Cabinet Sheep To The Slaughter

writer, lecturer and former president of Tama University

WHEN THE KOIZUMI PEOPLE told us they could revive Japan's economy by privatizing the Highway Corporation or the post offices, we knew they were into rearranging Titanic deckchairs. Now, with the boat taking in water furiously, we are told that the answer is something called the Industrial Revival Agency, which will rescue enterprises bankrupted by Koiztmi policies. In other words, from arranging the deckchairs they are now into organizing the lifeboats. And they still think they are rescuing the ship.

The mistakes made in the handling of the Japanese economy in recent years have been monstrous. To any impartial observer, it should be obvious that a nation with abnormally high household savings and [yen]1,400 trillion in personal financial assets is going to suffer a massive demand gap unless everything is done to push that money back into the economy. But instead of trying to close that demand gap, the planners have been doing their best to widen it with their bank purging and fiscal stringency policies. When they should have been pressing the accelerator, they were slamming on the brakes. When they should have been going forward, they were trying to go backward. Or to go back to the Titanic analogy, when they should have been pumping water out, they were busily pumping it in.

Only an economy as strong and resilient as Japan's could have stayed afloat as long as it has. But now it too is in danger of sinking. Much the same mistakes were made in the US in 1929, with consequences we all know about. And since the names and mistakes of the guilty then have been recorded for posterity, maybe it is time to start doing the same for Japan, if only to help prevent the tragedy from happening again next time -- assuming there will be a next time.

Heading the guilty list is none other than the prime minister himself. From the beginning it should have been obvious that he was ignorant of economics. In speech after speech, he would rail on semi-hysterically about the official deficit problem with no hint of realizing how or why it was there and what could realistically be done about it. Inevitably, he would have to leave policy details to the darling of the TV talk shows -- the garrulous and unflinchingly dogmatic Keio University economist Heizo Takenaka.

Koizumi's main aim has been to hit back at some of his factional enemies by abolishing the entities they used as sources of corrupt funds. That has some political benefits. But it does nothing for the economy.

Next on the guilty list comes the Japanese public with its unthinking and emotional weakness for the word kaikaku (reform). For a while it was "political reform" (now shown up to be a shambles). Then it was admimstrative reform, then education reform. All ended with negligible results. But at the time, everyone had a nice warm feeling that things were being done. Now we have Junichiro Koizumi with something called "structural reform." Before him came Ryutaro Hashimoto in 1997 with his promises of fiscal reform (i.e. the fiscal stringency policies that sent this economy into its first tailspin and which are now being repeated by the Koizumi reforms).