Japan: the Sick Man of the G7

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Japan: the Sick Man of the G7 - Part III of III by David Bond March 22, 2001

III Why all this is important

Japan’s Finance Minister said recently the Japanese government’s fiscal position is close to collapse.

That might be a bit of an exaggeration but as long as Japan remains mired in stagnant growth, the rest of the world, but most particularly the rest of Asia, will find it difficult to grow.

In the 1980s and early 1990s Japan provided a huge proportion of Asia’s needed capital. It was a source of technological transfers and was leading the entire region in developing, albeit slowly, a more unified approach to improved trade relations.

When Japan’s miracle economy suddenly collapsed it was not long before the rest of Asia followed suit.

Asia’s setback was soon felt by the rest of the world. The value of the U.S. dollar reached new heights as money fled Asia in search of a safe haven. The rising value of the dollar might have been good for America’s ego but it did nothing to help its exports. Moreover, as the currencies of Asia devalued, their products became cheaper in North America and everything from steel to garments, from automobiles to computers were suddenly flooding our markets.

While that certainly benefited consumers, producers in North America felt the heat not just of competition but the need to hold prices at a time of increasing tightness in labor markets. Eventually corporate profits started to erode because this was the only room available if firms were to survive the rapidly changing economic pressures.

There is more at stake than just potential competition in the North American domestic market. If Japan fails to restore itself to economic health and China continues to grow at better than 7% a year, in less than another decade China, not Japan, will be the second largest economy in the world.

China’s infinite supply of low cost unskilled labor will be increasingly used to produce clothing, textiles, and other such products. Consider the strategic aspects of such a development. With China the unopposed Asian economic power, the rest of the region will become increasingly more sensitive to the policies it might advance.

Japan requires extensive restructuring, and it will be costly. Many firms will be forced to close and many individuals will suffer loss of wealth. Unemployment will undoubtedly rise in the short term. If the government focuses on facilitating a rapid change, providing assistance to those most adversely impacted by the changes, then the most difficult period might last only five years.

Canada underwent a similar adjustment with the advent of the Free Trade Agreement with the U.S., when unemployment reached almost 15% in the industrial heartland of Ontario. Today the new plants built in both Ontario and Quebec are among the most efficient in North America. That is one reason why Canada will probably enjoy stronger growth this year than will the U.S.

Continued drift and hesitation on the part of Japanese leaders will lead only to worsening economic conditions. Decisive action is what is needed and there should be little doubt that once it does decide to act, the full force of the nation will be brought to bear upon the problem.

This is a country which transformed itself from feudal state to industrial power in less than 50 years, which rebuilt itself from virtual total destruction to an economic power in less than 20 years following overwhelming defeat.

For the sake of itself and the rest of its trading partners the need for action is imperative.

http://www.smallcapcenter.com/story.asp?storytype=&component=story.asp&mysection=columns&mypage=&storyid=11612

-- Martin Thompson (mthom1927@aol.com), March 31, 2001


Moderation questions? read the FAQ