February 12, 2002
From the desk of Mindles H. Dreck:Japan
My recent blogging on risk and regulation got me to thinking about Japan. Specifically, why can't Japan make any progress getting out of it's deflationary malaise?
I do believe that Japan is an example of a country where the elite have attempted to program the economy and remove many of the risks. Japan is a country that has tried to grow without the downside of risk and entrepreneurship, particularly the downsides that would affect certain powerful interest groups. The domestic Japanese economy (the part we don't know well, not the Hondas and Sonys) has third-world levels of capital productivity. They have tried to keep every local retailer in business, attempted to foster lifetime employment, attempted to have the infamous Ministry of Interntaional Trade and Industry ("MITI"), stocked with the country's most elite graduates, guide the economy on a smooth growing trajectory.
It didn't work that well. Without the downside, there is no upside. Without the ability to risk, one cannot reap the rewards.
In the words of Woody Brock:
...the root problem is the lack of deregulation of Japan's domestic, 'prefectural' economy.The principal reason for this problem is the inability of the Japanese political system to distribute pain to special interest groups whose oxen simply must be gored. The sad result of today's status quo is corruption, lack of productivity, lack of competition, distorted labor markets, and problematic living standards (think $6 rolls of paper towels in mom&pop shops).
If you are interested in the "sclerotic" affect of interest groups on economies, and the importance of neutral "market augmenting" institutions such as contracts and property rights, check out further reading from deceased Nobel prize winner Mancur Olson, particularly his Rise and Decline of Nations. This book is an interesting complement to the more recent Mystery of Capital.
I am off to start my Andrew Sullivan book club reading. Blogging, for me, has come at the expense of television and reading. The former is fine, the latter is beginning to bug me.
UPDATE: Derek Lowe follows up, pointed out by hyperblogger.
Posted by Mindles H. Dreck at February 12, 2002 10:53 PM | Technorati inbound linksI lived in Japan for four years, and the amazing thing about it was you'd never know there was a recession going on. People were still spending money like crazy, construction was ceaseless, and no one talked about it. That last bit could've been due to the Japanese propensity for ostriching, but for the most part the country seemed to be doing well the whole time I was there.
If there's any one thing you can say is wrong about the Japanese economy, it's that the government holds no real power there and all the companies are so tied into each other that problems with one affects them all. They remind me of the "combinations" at the turn of the 20th century, whom the U.S. government chose not to regualate because everyone feared that to do so would bring the markets crashing down and would limit an American's right to accumulate capital.
The greatest strength of Japanese companies is their staggering diversity. Panasonic makes everything from electronics to bicycles, and almost every other Japanese company does the same. Ever by a coffee maker built by Mitsubishi? If there's ever a depression in the market for one thing, the company can quickly cut down on production for that product and increase production on several other products.
All in all, I think Japan will ultimately do well, but first they have to break from the Japanese tradition of ignoring bad news and trying to save face. They made billions, if not trillions, in bad loans and have tried to ignore this fact in the hopes that by pretending that the money was never lost, then it never happened. I think they need to face up to the fact that their banks have lost a ton of money and let the chips fall where they may. If they fail to do this, their economy will keep shuffling along like a zombie until it finally collapses. It's better for them to take their hits now and work on rebuilding and restructuring, then to wait another 10 years until it's too late and they need to be bailed out by the IMF or the U.S.
Also, I don't know where Woody Brock was shopping, but I lived right in Tokyo and never paid more than 250 yen for a paper towl roll. In fact, things were relatively cheap over there. I bought a five year old car for $500, junked it and bought a nicer one for $800. Almost all the other everyday stuff cost about a dollar more than it would in the States.
Posted by: Sgt. Stryker on February 12, 2002 11:52 PMInteresting. I lived there as well - in Osaka back in 1984. The exchange rate was around 235 yen to the dollar at the time, but I saw plenty of evidence of expensive retail when I was there. Even mass transportation, which was subsidized, was costly compared to here.
Here's an article on nascent open competition in Japanese Retail. There was a lot of buzz in the last few years about a clothing retailer ("Fast Retail") that sold casual clothes for MUCH less than Japanese consumers were used to paying. They did it by cutting out five layers of middlemen, and they become the economic enemy of the elite for it (much like Wal-Mart).
Unfortunately, like everything else in retail, they suffered the bottle-rocket trajectory of a fad.
I know what you mean about "not knowing that a recession was going on", but in total, the consumers there are definitely not "spending money like crazy".
Posted by: "Mindles H. Dreck" on February 13, 2002 05:52 AMComments are Closed.