[Viewpoint] Lessons from the ‘lost decade’
Published: 22 Mar. 2009, 20:48
So, in an attempt to separate the wheat from the chaff, let’s first consider what parts of the Japanese experience are unlikely to offer real lessons.
First, while the Japanese economy of the 1990s was on the ropes, the Japanese were still able to export to generally robust overseas markets. Consequently, even during those relatively difficult times, the overall economy wasn’t doing too badly.
Second, before 1990, the ruling Japanese Liberal Democratic Party had already established the practice of overspending on civil engineering projects, so that just about every stream in the nation was lined in concrete. Later, in the early 1990s when they resumed spending yet more on civil works projects, it was pretty much like gilding the lily - in cement. In contrast, America’s infrastructure is crumbling from at least a decade of neglect and is overdue for a major overhaul.
Third, banks in Japan were much slower than other nations in removing nonperforming assets from their books, partly for cultural reasons. There was an overriding concern about not doing anything too radical as that may create unforeseen consequences. The Japanese really hate surprises.
Furthermore, something occurred that you rarely read about in the press. Though the Japanese banking crisis was well under way when it happened, it took only one banker’s assassination by the yakuza to intimidate the entire Japanese finance industry from foreclosing on defaulting mortgages. This may be an exaggeration, but it’s impossible to calculate what percentage of the nonperforming mortgages were owned directly or indirectly by organized crime syndicates. But their holdings were definitely significant and bankers were loath to foreclose on those mortgages.
In contrast, the Americans, without intimidation from the mafia or gut-wrenching loss of face, are now talking about setting up a “bad bank” to immediately take bad mortgages off the books of banks - something the Japanese failed to do from the outset.
That said, there are at least two lessons Westerners [and others] may learn from the Japanese example. That is: deflation is in many ways worse than inflation. Once it starts, it is extremely difficult to reverse. National banks should shy away from cutting the prime interest rate to near zero, since once the economy slips into deflation, it can be surprisingly tricky to reverse the trend.
Of more significance is the long-term aftermath of a sluggish economy. Here is where Japan can provide another important lesson.
During the early ’90s, a counterculture developed where high school graduates voluntarily chose not to enter the best universities in favor setting up small businesses. But as that decade dragged on, even graduates from the better universities began discovering there were relatively few decent jobs. With this combination of an established counterculture and declining permanent employment opportunities, Japan witnessed the displacement and alienation of a whole generation or more of young people, who accidentally or purposely ended up working a series of part-time and short-lived jobs, with little skill development.
As a result, polarization of Japanese haves and have-nots took place between those landing regular, normally corporate, jobs with real career prospects and skills enrichment opportunities, and those who found themselves simply providing low-level service functions.
As the chances of getting into what was considered a “good job” diminished, cynicism, alienation and discouragement increased among Japanese young people about fulfilling the aspirations held by their parents and older siblings. Millions of younger Japanese have identified with a permanent lifestyle of basically hanging out.
They are known simply as furitaa, meaning a person who never marries and never settles into a steady or permanent job - in other words, a slacker. It’s not surprising that only about a third of polled Japanese teenagers have positive expectations of their future.
So, perhaps the most significant lesson to be learned is that the longer the recession lasts, the more likely there will be a lost generation as well as a lost decade. Once people spend a good 10 years after graduation without developing competitive job skills, they have pretty much lost out on most employment opportunities above the bottom rungs.
In many countries there are job training programs and schools for specialist skills, but obviously a 30-something job applicant will likely be at a disadvantage competing with a recent university graduate who may have similar skills but without a history of unemployment.
What I’ve described continues to happen in Japan. We are already seeing it happening in Korea - sometimes expressed in the form of street protests. And it could very well happen in the United States and other developed economies.
What remains to be seen is what will be the political and economic consequences of this kind of development. Should this phenomenon take hold in other economies, governments will need to decide whether to simply accept or work to counteract the formation of a new underclass.
And as to this, Japan offers no constructive lessons.
*The writer is the president of Soft Landing Consulting, a technology sales and marketing firm (www.softlandingkorea.com).
by Tom Coyner
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)