Can the UK avoid Japan’s fate?

9th September 2010

It's only a week or so until we find out whether or not Naoto Kan, Japan's second prime minister in twelve months, will get booted out of office by his party colleagues and replaced by yet another one. And he's only been in power since June.

But what a dismal three months it's been. Mr Kan's government has been watching its popularity vanish down the plughole as the embattled premier Kan (soon to be known, perhaps, as Mr Kouldn't?) struggles with the problems that his forebears have left him – and mostly fails to come up with anything convincing. No wonder.

Japan's public debt is now twice as big as the entire country's annual economy.  Its consumers are staying out of the shops. Its employers aren't hiring. Its banks aren't lending. And its stock market is moving determinedly sideways, while we all wait to see how the Tokyo government gets its essential austerity programme under way. And all this at the moment when what the market really needs is a bit of drive and optimism…..

Will the West follow?

But hang on a minute. Where have we heard all that before? Britain's bulletin boards are buzzing with loose talk about why we're all doomed to follow Tokyo down the tubes. We've got the debts, for sure, and we're all bracing ourselves for the budget cuts and the tax rises that must surely follow soon. They're saying exactly the same thing in America, where the mid-term election talk is all about double-dip recession, 10% unemployment, stay-away consumers and a collapse of industrial investment. In Euroland it's the same story again, with the added twist that the euro is set to weaken as people fret about the imminent risk of government defaults  from Greece or Portugal.

Fortunately for all of us, the parallels don't hold up very well. Japan's biggest problem is that its economy is locked into deflation, which disincentivises consumers. (Hey, why buy something now when it'll be cheaper next year?) We, by comparison, have quantitative easing, which has pumped £200 billion into the British economy and which is likely to drive up inflation soon.

Japan has a currency that's damagingly strong, because it hurts Tokyo's exporters. Ours, in Britain and Europe, are getting generally weaker, which is generally good for business.

Keeping out of Mr Kouldn't's footsteps – Why it's different over here

We'll admit that we do have good cause to envy Japan's metal-bashing industries, whereas we Europeans rely on sophisticated service industries that have been badly damaged by the economic crisis. The trouble for Japan is that its historic manufacturing role is now being increasingly stolen by even cheaper Asian rivals. And that is a structural shift that will continue to dog Japan for long after this recession is over. We, on the other hand, will rebuild and recover.

Above all, Japan has only half a working democracy, because it has no proper tradition of open public policy. Until mid-2009, when Mr Kan's Social Democratic predecessor finally broke the mould, the country had been governed by the same Liberal Democratic party for 54 almost continuous years. That's 54 years when everything had been arranged in the back rooms by political fixers, and when debate had therefore been largely pointless.

Part of Mr Kan's problem now is that he still has no proper clue how to sell an unpopular political programme to a Japanese public that really doesn't want to hear it. We, on the other hand, have George Osborne – who might not be subtle, but who at least has a massive parliamentary majority to drive home his sledgehammer policies for the next four years, like them or not.

America won't have that certainty if Barack Obama's Democrats lose their working majority in the November mid-term elections. (As expected.) And there'll be bloodletting in Europe if the bond defaults ever start. But we, just for once, have quite a lot to be grateful for.

Now, how often do we get the chance to say that? 

Leave a Reply

Your email address will not be published. Required fields are marked *