[OUTLOOK]Japan's woes offers a good lessonWe mortals cannot foresee our own future, much less the rise and fall of nations. But humans by nature try to predict what will happen. That is why so many erudite analysts have struggled in vain to come up with a theory or an analytical process that predicts the changes of the world order and individual nations only to be proved wrong over and over again. One of the historical examples of predictions gone wrong will no doubt be the predictions by Japan experts on the prospects of Japan's economy.
The writer is chairman of the Institute for Global Economics.
Japan's economy, once mighty and fearsome, was under the intense scrutiny of the international community again as experts gathered in New York for the World Economic Forum. The participants said that the Japanese economy would be the most dangerous potential threat to the world economy this year. And they blamed the Japanese government for the harm that Japan's slow but steady downfall would have on the rest of the world.
What is happening here? Just 10 years ago, experts on Japan from all over the world were unanimous in proclaiming Japan's ascent to the top of the world's economic ladder with the beginning of the 21st century. Even Paul Kennedy in his renowned "The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000" talked about the fall of the United States along with Japan's continuing prosperity.
Mr. Kennedy, a professor of history at Yale, predicts in this 1989 book that unless there was a large-scale war, natural disaster, or a world economic depression like in the 1930s, Japan would be the fastest developing major power, with the exception of China. According to Mr. Kennedy and many other scholars, Japan would be mightier than it ever had been by the 21st century.
This awe-striking and almost intimidating picture of Japan is not the Japan we see now. So why have all these expert predictions on the future of Japan's economy gone unfulfilled? As the old saying goes, even a worthless stone in someone else's mountain can be a valuable lesson. Let us take this opportunity to think about this question and the implications the answer holds for us.
To put Japan's not-too-simple problem simply, Japan is suffering from a combination of deflation (opposite of inflation) and the mounting insolvency and inefficiency of its financial industry. What's more, Japan's economy has lost its old vigor, but its bureaucracy has yet to lose its old habits and is reluctant to change on its own.
The lack of strong political leadership to herd this bureaucracy toward reform is another reason why Japan's much needed and urgent economic restructuring is faltering. Ironically, a famous scholar once said that Japan's economic strength was in its "developing nation style" economic system, led by the government and manned by bureaucrats.
Japan's economic rise would have been impossible without its own national virtues. But it was also helped greatly by several external factors. Japan was able to invest all its efforts and resources into economic growth because it was under the U.S. defense umbrella. The United States was more lenient of the Japanese practice of propping up its export-led economy with a weak yen and protecting its markets in all sorts of ways. And those were the good old days when the American market was wide open.
Japan's government-led "developing nation style" economy had achieved brilliant success exploiting the advantages of the times. However, a great deal has changed since then. The United States has changed its Japan policy and the accelerating wave of globalization has swept over the world economy. No longer is Japan's government-led economy valid in this new world economic order. Despite these external changes, Japan's leadership and the majority of the people who have become accustomed to the living standards of a developed country have yet to acknowledge the nation's crisis. Their lacking a sense of strong urgency precludes any chance that decisive structural reforms will be implemented soon. And while the Japanese hesitate, the whole world watches with anxiety.
A small comfort Koreans can find in our own misfortune after the Asian economic crisis in 1997 is that we have gone through an amazingly wide range of economic reforms - with pain and all - in an amazingly short period of time. But it's too early to utter a sigh of relief. Just look at the precarious stones in Japan's mountain of economy. The valuable lesson we can learn here is that we should, with a sense of urgency, spur ourselves to continue our efforts in areas still in need of reform, such as labor, public enterprises and finance.
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