Friday, October 03, 2003

The Problem with Japan

I don't tend to give Japan the coverage on here that its' economic importance and proximity to North Korea would seem to warrant, and it isn't because I am ignorant of the country; on the contrary, I am (or at least was) reasonably fluent in Japanese, have been to Japan, know the history of the country pretty well, and admire its' artistic and literary traditions. If I tend to ignore events in Japan, it is for one reason alone, namely a cynicism bred of disillusionment about the prospects for real change in that country.

In all the years I've been observing Japan, any number of would-be "reformers" have come and gone, and yet the same old problems always remain - a banking system in crisis due to an excess of bad loans, a political class that is beholden to construction companies, farmers and other special interests, a dubious Keynesian reliance on expensive but useless public-works projects, an unwavering faith in the possibility of export-led growth (in spite of the rise of South Korea and China) - whether it is 1996 or 2003, the catalogue of ills never seems to alter in the slightest, nor does the existence of some man on a white horse promising to elect "drastic changes" to get things moving again.

It is with these thoughts in mind that I link to this TIME Asia article on Japan's problems. It may not be an in-depth economic dissertation on the Japanese domestic economy, but I think it does a good job of showing just how inefficient and hidebound Japan's domestic sector really is, in sharp contrast to the image of super-efficiency one is likely to get if one has only exporters like Sony, Honda and Matshushita to look at. Pundits like Paul Krugman would like to believe that Japan's problems are merely monetary in nature, but from where I stand, that sort of thinking is all too reminiscent of the proverb about people with hammers seeing all objects as nails. At the end of the day, the key to increased prosperity is productivity1, and no amount of monetary magic is going to increase productivity of its' own accord, if highly inefficient sectors of an economy continue to go untouched by competition.

1 - Unless one lucks into windfall gains, of course; I am doubtful that any of the Middle Eastern beneficiaries of oil wealth have much more productive non-oil sectors than they did before the coming of the "black gold."