Lessons From Japan's Lost Decade
Tuesday, June 16, 2009SUSIE GHARIB: While President Obama is preparing to unveil his financial reforms tomorrow, he could learn a thing or two from Japan's lost decade. That's when the Asian nation experimented with many reforms in the 1990s as it tried to revive its economy but had little success. Lucy Craft reports on the painful lessons that Japan learned and what it took to turn things around.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Aqualine, a state-of-the-art, nine-mile combination bridge and tunnel spanning Tokyo Bay, is the kind of outsized infrastructure project Japan has long relied on to keep its economy humming. Thanks to white elephants like the Aqualine, public debt here now stands at an almost unbelievable 200 percent of gross domestic product -- by far, the worst public debt in the industrialized world. No wonder Japanese taxpayers are steamed.
TRANSLATION OF: VISITOR: I think these big public works are unnecessary and a waste of taxpayer money.
CRAFT: Built at a cost of $12 billion during Japan's troubled economy of the 1990s, the Aqualine is now one of the most deluxe and deserted, roads in Japan, says Hosei University Professor Takayoshi Igarashi.
TRANSLATION OF: TAKAYOSHI IGARASHI, PROFESSOR, HOSEI UNIVERSITY: The Aqualine was a total mistake. It was built on overly optimistic projections. Tolls had to be raised to cover costs, further depressing usage. We'll never pay it off.
CRAFT: Japan is brimming with dubious public works projects like the Aqualine, the legacy of years of fiscal spending programs run amok. And yet, after Japan's severe downturn in the 1990s, Japan did figure out how to restart growth. Japan's successes as well as its failures, experts say, offer a road map for dealing with the U.S. financial crisis. Japan spent its so-called lost decade of the 1990s fitfully trying one conventional fiscal and monetary fix after another. Trillions of dollars later notes Morgan Stanley economist Robert Feldman, Japan finally embraced a new tack -- a vast, sweeping and unprecedented program of reforms.
ROBERT FELDMAN, SR. ECONOMIST, MORGAN STANLEY JAPAN: They didn't have everything right until there was a big enough crisis and they had a charismatic leader in the form of Prime Minister Koizumi and a very, very solid staff of people working (INAUDIBLE) to say, OK, we're going to do this. We're going to get it done. And he had to prove that he meant business. And when he did prove that he meant business, everybody fell in line.
CRAFT: A growth strategy, including deregulation, sparked lucrative new businesses. A safety net was created for reform losers. Bad loans were aggressively written off and so-called zombie banks shuttered. Solid public support was mustered and regulators got tough about asset valuation -- in other words, a perfect storm of positive factors.
FELDMAN: And only when all of them are working at the same time do you get a recovery. If one of them is missing, you're not going to get the recovery.
CRAFT: Of course, say scholars like Igarashi, public works that generate benefits beyond job creation are worth emulating.
IGARASHI: Japan's public transport system is advanced and well-run. America, on the other hand, is very backward in this regard. If the U.S. shifted from cars and planes to bullet trains, it would create employment, spark healthy competition among cities and really revitalize America.
CRAFT: The overriding lesson of Japan -- in extraordinary downturns, it takes much bolder action than ordinary macro remedies to fix what's broken. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
