As the US faces one the greatest economic crises it has ever known, a number of political figures or commentators have pointed to Japan’s "Lost Decade" as cautionary tale for America. It is presented as an object lesson in what happens when either too little is done, or from the other side of the aisle, what happens when one relies on supposedly discredited Keynesian economics.
I have had a fair amount of experience in Japan and have more than a passing interest in its politics and economy. As a number of my friends and acquaintances are aware of this they have sent me emails asking my view on what happened during the "Lost Decade" and how America can avoid it.
Well, there are some lessons that America can learn from Japan's experience, but they are nothing like what most people seem to think they are. Follow me below the fold for more.
Whenever anyone starts spouting off about Japan's lost decade and how we should do X to avoid the terrible mistakes Japanese leaders made, my first reaction is to ask them if they know who was prime minister during the Lost Decade. Invariably, they do not know. Actually, it should come as no surprise that they do not know. The truth is that there are very few Japanese that can answer that question. You see, Japan actually had no fewer that eleven prime ministers during the Lost Decade.
Put simply, there was an utter lack of consistent political leadership. No one lasted in the post long enough to even articulate, let alone implement a coherent plan for recovery.
Something else that very few Americans know about the political situation in Japan during the Lost Decade is that even though the country went through prime ministers like AIG goes through bailout cash, the same party was either at the head of or the major component of the ruling coalitions for all but about eleven months of the twelve or so years of the Lost Decade.
So, if Japan had a basically stable ruling coalition during most of this time, then why the instability at the top? The reason for this is that the ruling party (the Liberal Democratic Party) is divided by numerous factions. These factions are built not around ideological division, but rather around personal loyalties and patronage relationships. Moreover, the LDP draws much of its power from the rural districts that been steadily losing people to the cities during much of the postwar era. Because they have held power for so long, they have managed to prevent an equitable redistricting. The upshot of this is that rural districts with dying economies are over-represented in the LDP.
These politicians, like politicians everywhere, do their best to bring home the bacon to their constituents. In Japan this is largely done with infrastructure projects that use local personnel in the construction. So, when factional intrigue led to toppling of one LDP faction leader, the others would try to scrape together a viable intraparty coalition. How would they do this? Why with stimulus packages that doled out more pork for useless projects to the big shots in other factions.
The result? Bridges to nowhere, and in the Japanese case that does not mean "underutilized bridge to a small community that really doesn't need such a large infrastructure project". It means quite literally a bridge to nowhere. Here is one such bridge:
In case you are wondering, that is not a trick of the light. There is no road or path hidden from view on the other side of that bridge. This picture is exactly what it appears to be: a bridge to nowhere. Here is another view.
These photos were taken in 2001, near the "end" of Japan's Lost Decade (then in its twelfth year) while the stimulus money was coming fast and furious. They were taken on the road to a scenic getaway called Odaigahara on the border of Nara and Mie prefectures. The road winds through a small river valley. There are roads on both sides of the little river at the bottom and along much of the top. Bridges connect the sides of river at the top and at the bottom about every kilometer or so. All of this to allow tourists to get away to a place of natural beauty.
Nevertheless, some local big shot seems to have convinced the good folks in the Construction Ministry that all the roads involved are too windy and so they decided to build what appears to be a highway that will utilize massive overpasses to take the bends out of the road and get people to the natural beauty that much faster:
But bridges aren't all that they built in this little river valley to help facilitate its tourism industry. They also engaged in some scenic paving of the hillsides:
Why, you may wonder, are they paving the hillside? Well, it's because they want to make absolutely sure that it won't collapse onto the road below. You see, that tends to happen in Japan more than it does in America. Why is that? Well, if you look above the concrete, you will notice something interesting about the forest there: all of the trees are the same species and they are equally spaced. Why is that? Well, you see that provides even more work for the constituents of these rural areas. After the Second World War, Japan's Forestry Agency decided that they needed to take full advantage of Japan's natural resources and so they decided to create a timber industry. What was the best way to do that? Well, in the view of the good folks at the Forestry Agency it was to clear cut the forests and replant them with exactly one species: sugi, or Japanese cedar that may be used for timber. In fact 43% of Japanese forest land has now been replaced with forests that have exactly one species. The only problem is that they destroyed the entire ecological balance, creating allergy hell for many Japanese people, as well as leading to erosion of their hillsides. Which, of course, means that hillsides can collapse. Which, of course, means that they need to be clear-cut and reinforced with concrete.
Thus leading to more jobs in construction.
Japan's stimulus packages were largely wasted on useless projects like these, projects which did absolutely nothing to create new competitive sectors in their economy, but rather only propped up dying and useless sectors for a few more years. They did all of this at the cost of incurring the highest ration of public debt to GDP in the developed world and of destroying much of the country's abundant natural beauty.
So this leads to the question of how exactly Japan's experience relates to the American situation. Well, the long and short of it is that it isn't a very close analog. Japan's inability to extricate itself from its slowdown was more the result of how incredibly weak and venal its politicians were during this period than to anything relating to the merits of Keynesian theory.
Nevertheless, that does not mean that there is nothing that Americans can learn from Japan's experience.
We can certainly do plenty to make our situation worse.
For example,
One: We can insist on throwing good money after bad by escalating our commitment to the same bad policies that got us into this mess in the first place.
Two: We can do our level best to ignore the problems actually facing the country and concern ourselves more with political questions, being sure to do our very best to obstruct those who are actually trying to do something.
Three: We can divert precious resources to politically powerful, but overdeveloped sectors of the economy. In our case this would be the Defense industry, and we could do this by insisting that we throw money into utterly useless defense projects.
In other words, we can be hide-bound conservatives who stubbornly stuck to their demonstrably ineffective policies while their country's international position deteriorates.
But that's something that no one save a Republican is going to suggest that we do.
And they'll probably be telling us all about the "lessons" of Japan's Lost Decade while they do it.