Lost decades never returnMichio Morishima is a globally-known Japanese economist who is frequently mentioned as a candidate to pick up a Nobel Prize for Japan. In his book “Why Will Japan Collapse?” published in 1999, he prophesied that Japan would fall by 2050. The ruin would come from politics, he wrote. He observed that from the Tokugawa shogunate, a feudal military-led government that lasted until 1868, through the lost decades in Japan that started in the early 1990s, the country’s failures can be traced to political factors rather than economic ones.
In his 2003 book “Will Japan Recover?” Korea’s well-known political science professor Chang Dal-joong also blamed a lack of political leadership for Japan’s lost decades. The country needed to come up with a breakthrough to pull itself out of a decades-long depression and yet it failed to do so because it was without strong and convincing political guidance.
Economic success is built on political prowess to a certain extent. In the middle of discussions on ways to create jobs, one head of an economic organization complained there was no good solution if it had to go through a review-and-approval process in the National Assembly. A group of business leaders met with a political party head recently to plead for fast approval of 10 business- and economy-related bills, but got no assurances.
Many are worried about the Korean economy. They fear the economy is headed for a lengthy structural slump that Japan is in and can not pull itself out of. I agree. The social symptoms are similar. The biggest one is the rapid aging of the population. Hiroyuki Murata, a pioneer in aging studies, said that if a time machine could send you back to Japan 22 years ago, you’d discover Korea today. People aged 65 and above accounted for more than 12 percent of the total population of Japan in 1991. The data was a harbinger for Japan’s lost 20 years. South Korea will hit the same demographic threshold this year.
Aging is frightening because it can dramatically change the social paradigm. The economy loses vitality due to poor productivity. The consumer market becomes depressed because seniors with little or no income do not spend. The result is an economy that hardly grows. During the last two decades, Japan’s economy receded or grew at a snail’s pace of 1 percent to 2 percent. Korea’s economy this year is estimated to grow under 3 percent. It is the third consecutive year that the economy has underperformed its potential growth rate of mid-3 percent. It is the longest slowdown for the Korean economy.
The thinning out of the middle class is another social phenomenon to watch. At the end of the 1980s, Japan declared “ichioku-sohchu-ryu,” literally meaning 100 million (or its entire population), all middle class. People who thought themselves to be in the middle-income class accounted for 80 percent to 90 percent of the population.
But today, the gap between the rich and poor in Japan is wider than the average of the Organization of Economic Cooperation and Development. By 2007, people who called themselves middle class decreased to the 30 percent range.
We are no different. The middle-income ratio that reached 80 percent in the early 1990s has slumped to 60 percent. Public sentiment is even worse. Those who believe they belong to the middle-income bracket now account for less than 50 percent. The collapse of a middle class can lead to loss of hope and confidence in a society. In a survey by the Hyundai Economic Research Institute, as many as 98 percent of the respondents were pessimistic of moving up and doing better in the future. When hope flees, resentment sinks in. To a society, anger and bitterness are actually more dangerous than hunger.
The Korean governance system runs on similar mechanisms as Japan’s. To be correct, Korea imported the Japanese system. Korea Inc. has been patterned after Japan Inc. The country runs on a triangular formula of cooperation among politics, bureaucrats and business.
We also copied Japan’s adaptation of the V formation of flying geese. The government leads large companies, which are followed by a flock of smaller companies. In Japan, the system collapsed in the early 1990s and the lost decades are the fallout. Korea may follow Japan’s trajectory of doom.
The only answer lies in politics. Politicians have an obligation to iron out differences and overcome conflict to deliver compromise and agreement. They must find direction in reform and push it with sustainable and consistent force. Japan has failed in this area. Its political sector has been so unstable that it was pronounced dead. Japan has had 16 prime ministers since 1990. They lasted a year on average. Reforms were not done.
Korea is no different. Lawmakers are forever fighting. One important task of the president is to pay heed to various needs and complaints and practice politicking by engaging opponents. The legislature turned icier toward the president after her address to the National Assembly earlier this week.
According to a Samsung Economic Research Institute study, Korea’s social conflict is the highest among OECD members. Politicians aggravate the social divide instead of bridging it. If social conflict is brought to the OECD average level, our gross domestic product could expand by as much as 20 percent. If politicians performed their roles well, we may not have to fret about a lengthy slowdown. Will our politics shape up only after our economy sputters out?
*The author is an editorial writer of the JoongAng Ilbo.
by Kim Yeong-ook