BETWEEN FOUR WORLDS: CHINA, RUSSIA, JAPAN AND AUSTRALIA;

BETWEEN FOUR CAREERS: DIPLOMAT, ECONOMIST, JOURNALIST AND JAPANOLOGIST;

BETWEEN FOUR LANGUAGES: ENGLISH, CHINESE, RUSSIAN AND JAPANESE


Chapter 23

BATTLING JAPAN’S MISTAKES

1. The Hashimoto Debacle

2. The Koizumi-Takenaka Debacle

3. The Koizumi Opposition

4. Keynesian and other Solutions Ignored

5. The Population Crisis

6. Conclusion


By now readers may have the impression of a latter-day Don Quixote wandering across a waste land of global foreign and economic policy, pointing his pen indignantly and impotently at all and every mistake or atrocity that comes his way.

It is an image with some truth.

And if anything the image gets stronger with time.

For while nothing can compare with the atrocity of the Vietnam in the sixties, when he arrives in the nineties he seems buffeted on every side by mistakes and atrocities.

In foreign policy, it was the gloating talk about Cold War victory which led to the cruelties in the breakup of Yugoslavia, the Kosovo affair and the brutal bombing of Serbia (of which more later). This was soon to be compounded by the Iraq and Afghanistan interventions, followed by the anti-Moscow fuss stirred up by Georgia over South Ossetia.

In economic policy our Quixote tilted at two unstoppable windmills. One was the economic rationalists bent on destroying Australia’s manufacturing economy (of which more later). The other was with the supply-side rationalists bent on destroying Japan’s fine economy, beginning in the mid-nineties under prime minister Hashimoto.



The Hashimoto Debacle


By 1996, in the year before the Hashimoto administration’s foolish embrace of supply-side economics, Japan’s annual growth rate had recovered to four percent - the highest among the OECD nations.

Thanks to that recovery many of the bad debts created by Bubble collapse were being resolved.

‘A rising tide floats many stranded boats’ was a common theme at the time.

And if the tide had continued to rise Japan’s economy could well have been up and running five years after Bubble collapse – somewhat longer than what is usually needed for most economies to recover from serious downturns, but still quite creditable.

But it was not to be given that time.

As mentioned in the previous chapter, the ideologues, the ‘peasants’ and the Hooverites were to get to work. Recovery was to be nipped firmly in the bud.


.......


In the wake of Bubble collapse, tax revenues had continued to lag, naturally enough. The government had resorted to traditional Keynesian-style pump priming spending to help recovery, wisely enough. Official debt continued to climb, as was to be expected.

None of this was sinful, though a more efficient tax could have curbed some of the increase in public debt. But while the figures for the debt were high – around 500 trillion yen, it was still low compared with personal financial assets at 1500 trillion yen. And it was debt to Japanese, not to foreigners.

More importantly much of those financial assets were held in cash or short-term deposits by rich, elderly, miserly-minded Japanese seemingly determined to take the money with them to the grave.

In effect the government had been borrowing and using for public purposes dead money - the liquid funds that Japanese citizens were unwilling or unable to use for productive or private purposes. That is a very appropriate thing for a government to be doing, especially if the funds are used wisely.

Even if used unwisely that is still better than leaving the funds unused. Even unwise spending will eventually end up putting money into the hands of consumers who will use it to buy the things they need and so keep the funds in circulation.

Money alive is better than money dead.

But for the ideologues and the Keidanren conservatives, high levels of government debt were a sin. Repayment would be a burden for future generations.

(But since much of the money had been spent for road and rail constructions that would be used by future generations, why shouldn’t future generations bear some of the burden?))

Already much of the budget was going in interest payments, they said

(But this burden was bound to decline as Japan’s abnormally low interest rates continued, as was almost certain under Japan’s mistaken economic policies).

The deficit would get worse in the future if government spending was not immediately checked, they said.

(Few realized that there is a strong school of economic thought, in the US especially, that says governments are entitled to create money for spending in deflationary situations. In other words, borrowing is not needed, but more on that later.)

But Japan had made up its mind. The debt had to be cut. The all-important mood or kuuki (atmosphere) for severe fiscal cutbacks had been created.

The idea that it would lead to a 1929 Hooverite-style deflation of the economy was put in the too-hard-to-think-about basket

Besides, to oppose mood-based conventional wisdoms was, as always in Japan, to commit political and journalistic hara-kiri, as I was soon to discover.

.......

The Hashimoto administration (1996-98) began the debacle by setting for itself the absurd goal of akaji kokusai hakko zero – zero issuance of deficit government bonds. 

To do that, of course, the cuts in government spending would not only have to be drastic. 

Since they focused on public works, the economy would suffer even greater cuts in demand (cuts in public works have strong negative ripple effects across the entire economy). 

This in turn would reduce tax revenues, which meant government borrowing would have to remain high to offset the fall in tax revenue. Deficits would continue. The zero issue of deficit bonds goal would be impossible to reach. 

But akaji kokusai hakko zero was one of those nice-sounding slogans. The mood was set. So akaji kokusai hakko zero it was, regardless of reality. 


Students of Japan’s war-end kamikaze attacks will see the similarities.

The Nihon Keizai Shimbun (Nikkei) Role

The Nikkei people were key players in all this. Their writers had become addicted to hard-line US supply-sider ideology. They even managed an editorial contemptuously denouncing Keynesian economics as jidai okure – out of date.

Then as the economy went into a highly predictable coma, the ideologues turned once again to US economic supply-side dogma for an answer.

This said that a weak economy could and should be rescued by tax cuts rather than increased government spending.

True, in the US such cuts might have a stimulatory effect. Indeed there was even a school of optimistic US supply-sider thought that said the economic stimulation from tax cuts would produce the tax revenue increases needed to offset the loss of revenue from the tax cuts.

But as anyone could have predicted (and as I did, mainly in Japan Times articles), in consumption-weak Japan tax cuts would tend to be saved rather than spent. They would have little stimulus effect.

Nevertheless cuts were tried, and sure enough, they had little stimulus effect.

But they did manage to reduce government tax revenue even more, which increased calls for reduced government spending, which reduced tax revenue even more, which increased government debt, which …

The downward spiral I had feared and written about was well underway.

.......

In trying to make my warnings, a particular problem had been the national, mood-based aversion to public works spending.

One reason for the aversion, I once suggested frivolously, could be the irritation the academics and commentators felt when coming home late at night they found their roads blocked by construction.

Another reason could be the curious Japanese lack of interest in large construction projects.

The opening of a new shinkansen line, a 10-20 kilometer tunnel under volcanic ranges, or a major cross-country toll road would be a cause for national pride and joy in most nations, China especially. But in Japan it often hardly rates as news.

Maybe there was a cultural bias in favor of the small and detailed rather than the big and over-whelming, bonsai and bento-boxs rather than dams and tunnels. I once suggested.

But the main reason, for progressives at least, was that public works were seen as a source of the flagrant waste and corruption that had helped keep the LDP in power for so long.

That was understandable enough. But it was typical Japanese ‘baby/bathwater’ logic.

Rather than attack the wasters and the corrupt, you solve the entire problem by getting rid of all public works, both good and bad.

That way you do not have to go through the messy business of digging out and punishing the individuals responsible.

Several times on the TV programs of the progressive Asahi stable – its influential Channel 10 Sunday AM program especially – I tried to warn of the harm to the economy from cutting needed public works with good flow-on effects in Japan’s deflationary environment.

For my pains I was seen as some kind of achronistic dodo. Or worse, as favoring the LDP corrupters.

Further invitations ceased, abruptly.

Meanwhile the cuts in spending, combined with the continuing weakness of consumer demand, were already working to sink the good ship Japan Inc.

But that did little to revive my already sunken reputation, especially among those anti-waste progressives.

A Sinking Ship

But even as the ship was sinking the band played on.

The brass trumpet continued to be the influential Nikkei which was turning ever more rightwing and anti- Keynesian by the day.

The conductor, unfortunately, was the influential but certainly not rightwing LDP secretary general, Kato Koichi.

Kato knew little about economics. But he was keen to show himself as open to US economic wisdom, and in those days the dominant US wisdom was supply-sider doctrine.

Even Clintonite liberals were sold on the doctrine, as I discovered when a group of them visited me in Tokyo.

Kato Koichi

I had known Kato for some time. His career had been similar to mine.

He too had been a foreign service official trained in Chinese (which he continued to speak well). He had then resigned to go into LDP politics; he came from a wealthy Yamagata political family in northern Honshu.

Within the LDP he had been branded as a pro-China progressive.

But partly because he also spoke good English, he had also cultivated ties with the US elite (he had spent time at Harvard) , who had then introduced him to supply-side economics.

By the mid-nineties he was a powerful light in the LDP, with his own faction and predictions of being a future prime minister.

And so it might have eventuated.

But with Nikkei pushing and Kato at the helm, and with the Keidanren conservatives blowing constantly in the sails, the good ship Japan was being steered firmly into the path of the looming iceberg of inadequate demand.

Nikkei and Keidanren were able to shake off the blame. But not Kato. And even less Hashimoto.

Disaster Strikes

In 1999 the ship was in real trouble.

Everything except the mistaken economic policies was blamed – the Asian financial crisis, SARs, lack of political will etc.

But the fact remained that the economy which three years earlier had been on the point of being refloated was again sinking.

It was a disaster of Titanic proportions, and should have been recognized as such.

And Kato had to share some of the blame.


The Yamaichi Collapse

Crucial to the disaster was the forced collapse of Yamaichi Securities in November 1997.

I have no brief for Yamaichi. It was no more reputable than any of Japan’s other Big Four bloated security companies seeking to survive partly by constantly luring investors into stockmarket manipulations.

But it did not deserve to be collapsed for the ‘sin’ of tobashi – organising the account books so that clients facing heavy book losses in securities could shift the securities to other accounts to postpone settlement, hopefully when markets had recovered.

After all, if the tide was to resume rising, as it had till 1996 and as the Hashimoto people were promising in the future, their boats could well start to float and their paper losses might well disappear in the future.

True, all that may have been somewhat illegal. But the alternative was far worse – make the investors suffer their losses today, which would add to the downward spiral and push other investments into danger territory.

When that happened there would be no future to wait for.

Tobashi, to the extent that it prevented or slowed that downward spiral, could even be seen as virtuous. Indeed, it was later to be justified by the realization that US-style the ‘mark to market’ accounting dogma was a major cause of the troubles both for the Japanese economy and the US economy a decade or so later.

But for our Hooverite purists looking for stables to clean, tobashi was evil.

Yamaichi was told to clean up its books, immediately.

Inevitably it, and many of its clients, were forced into premature bankruptcy.

The shock to the economy, both real and psychological, was enormous.

It set the stage for the subsequent economic collapse.

Chain Reactions

Something the Hooverites and anti-Keynesians never seem to realise is the flow-on effects of their various purification moves.

Their thinking is simple and static. The dynamic effects of policy changes lie outside their narrow range of vision.

This is especially so in Japan where so much thinking is what someone has called phenomenalistic.

You focus only on the phenomenon in front of you without regard for causes and effects.

The idea that if you push one bank or company out of business, immediately dozens of other economic actors are affected, never seemed to register on their narrow seismic scale.

Something you thought would cause only mild harm can easily have seismic effects causing much greater harm and damage.

It is called the multiplier effect, and economists usually estimate at two or three. In other words a minus effect of 10 ends up causing a total minus of 20 or 30.

But in my own thinking the minus effect of a blow delivered when an economy is weak can be much larger, fatal even.

This is especially true in Japan where the influence of mood and monomane ( copy cat) factors can be crucial.

If newspaper A is waxing pessimistic over some economic setback you can be sure that all other media will also be waxing pessimistic.

If A is selling out or refusing to buy for some pessimistic reason, then everyone else within range of A will want to sell out or refuse to buy.

Contrarians are a rare species in Japan.

In the wake of Bubble collapse people were refusing to buy cheap property promising 8-10 percent annual income returns even though interest rates were minimal.

Why? Because everyone else had been spooked by earlier property disasters and were still refusing to buy.

It was years before buyers began to realise the good returns from property relative to interest rates.

And when they did realize, they did so once again en ‘monomane’ masse, creating yet another property bubble in CBD areas where rentals were still quite high.

This copycat factor means that in Japan, even more than elsewhere, stimulatory action in the depth of recessions is crucial, as is restraining action at the height of booms.

Fortunately temporary relief was to arrive with the Keynesian policies of Hashimoto’s successors, Obuchi and Mori (2000-2001).

But it was only a matter of time before the supply-siders were back in the saddle.


2. The Koizumi-Takenaka Debacle


I have already hinted at Koizumi’s personality eccentricities, especially in his family affairs.

It was not for nothing that Tanaka Mariko (Tanaka Kakuei’s daughter, also a politician) made her famous description of him as ‘henjin’ (weirdo).

Ignorant of economics, henjin left the management of the economy almost entirely to this young, immature, acolytic and originally little-known economics professor from Keio University.

Takenaka had few credentials other than endless appearances on TV talkshows and lecture platforms where he was usually either bland or wrong (I have already mentioned how on a platform I had shared with him in Nagoya he had got the US dot-com boom completely wrong).

One of his more memorable moments in the Koizumi years was a TV performance saying how lifting restrictions on baby-sitting would be a valuable boost to employment and stimulant to the economy.

(Years later we were still waiting for Japan’s cultural bias against baby-sitting to disappear.)

Like Kato, and possibly because of his own academic weaknesses, Takenaka had developed strong connections with US economists – a route favored by many other young Japanese would-be economists, Keio University economists especially.

There they inevitably fell under the spell of the supply-sider, market fundamentalists then dominating US economic thinking.

Indeed, Takenaka seems to have felt so much under their spell that it was later claimed he shifted his address to New York each year so he could avoid paying resident taxes in Japan – charming behavior by someone responsible for the fate of the Japanese economy.

Japan was soon to be hit with the full blast of US supply-sider dogmatism.

(It was also to be rumored later that his strong US connections made him less than unhappy to see US financiers use sophisticated short-selling techniques to profit greatly from the collapse of the Japanese banking system over which he was about to preside).

Supply-Sider Logic

Supply-side economic theories had their origins in Thatcherite UK and Reaganite US.

At the time they made a kind of sense. Both economies suffered from low household savings and excessive demand relative to domestic supply.

Chronic inflationary pressures and balance of trade deficits were the natural result.

To solve both problems interest rates would have to be increased and government spending cut.

This would then throw the economies into stagnation or recessions. Low interest rates and more government spending would then be needed for recovery.

But recovery meant that before long the latent strong domestic demand would re-emerge and revive the twin inflation and trade deficit problems of the past.

Once again interest rates would have to rise and government spending would have to be cut.

It was to be called the stagflation or stop-start economy.
.........

Gradually a solution dawned on the planners.

If domestic demand was inherently strong, they said, the answer was to make domestic supply inherently strong.

And to do that, it was argued, governments had to go out of their way to liberalise, privatize, deregulate, cut taxes and cut public spending.

Small government became the order of the day.

In theory the formula seemed reasonable enough, if applied to a demand-rich economy.

But we will never know whether it would have worked in practice, because the all-important ‘small government’ never happened.

Governments could always find reasons –wars, elections, political ambitions– to expand spending.

Some privatisations and some deregulations may have been of benefit.

But the all-important ‘small government’ slogan ended up as big government.

Budgets were increasing rather than decreasing, though the tax revenue increases from expansionist programs did help keep budgets in balance.

And as it turned out this expanded government spending did not worsen the crucial inflation and trade deficit problems since they were being cured by other means.

Inflation was cured largely by cheaper imports and by crushing trade unions (unreasonable trade union wage increase demands can be a major inflationary factor in demand-strong economies).

Cheap imports from Asia together with strong capital inflows from around the world also helped cure or ameliorate the trade deficit problem.

Then when both economies began to recover due to those extraneous (and unpredicted) factors, the supply-siders were quick to claim the credit.

Worse, it was assumed that policies based on the same doctrines would work in Japan, where the problems were in fact the exact opposite.

Instead of inadequate demand and excessive supply, Japan suffered from excessive supply and inadequate demand .

But no matter. Included together in a package called ‘structural reform’ together with promises to attack Japan’s ever-present problems of bureaucracy and waste, cuts in government spending were sold easily to the Japanese pundits, who then sold it to a Japanese public.

The Hashimoto debacle was to be repeated on a grand scale.

But first some background.

The Obuchi-Mori Recovery

Hashimoto had been replaced by Obuchi Keizo, whom the foreign media with great delight had described as ‘cold pizza. ’

In fact he was a man of some principle, warmth, commonsense and humanity. He had for example over-ridden objections from Japan’s wretchedly hawkish Foreign Ministry in order to force Japan to sign the landmine abolition treaty.

Obuchi also shifted economic policies back in a more Keynesian direction (I may have been slightly involved through membership of the advisory Hosomi committee I mentioned earlier).

Predictably, Japan’s economy began to recover.

But Obuchi was to die from heart failure, the result, I believe, of constant badgering from rightwing alarmists demanding he waste time and energy on something called ‘crisis control’ – their excuse for having Japan and its military constantly looking out for potential threats to national security.

Shortly before his death he had to spend hours in a ‘crisis control’ bunker fretting over a minor train accident that had nothing to do with national security.

Fortunately recovery continued under his successor, Mori Yoshiro, who also favored the Keynesian approach.

By year 2000-01 the economy had moved out of the Hashimoto recession to regist slightly under two percent annual growth. The stockmarket had recovered to the Nikkei 20,000 level.

But the Mori regime also was to be short-lived, ironically as a result of Mori ignoring the crisis control fanatics who had insisted he abandon a Sunday golf game to join them in the crisis control bunker to fret over the accidental sinking of a Japanese training vessel thousands of miles away in Hawaii.

Mori had already antagonized the media by failing to give them the attention and sound-bites they craved. They were quick to use the golf game affair to push him out.

In fact I saw him as one of Japan’s better prime ministers. I had seen him close up in the Obuchi education reform commission and was impressed by his sharpness.

He had also made some intelligent moves to resolve disputes with North Korea and Moscow.

But Japan’s giddy media had decided they did not like him. Because he made no secret of his gut conservatism he was portrayed as some kind of blundering buffoon.

In his place we were to have Koizumi Junichiro, a far greater buffoon and determined seemingly to push Japan’s economy over the edge with the slogan of ‘structural reform’ (kozo kaikaku).

The Kozo Kaikaku (Structural Reform) Disaster

Koizumi had come to power with little record of reform.

He had been minister in charge of health and pensions back in the eighties when some of the worst heath and pensions scandals to hit Japan were brewing under his carefree command.

But in the LDP leadership elections to replace the unfortunate Mori Yoshiro, he came out strongly demanding fiscal reforms.

In particular, I recall a pre-election meeting where waving hands and hair he passionately pledged that he would cap annual deficit budget financing at 30 trillion yen and then reduce it.

(In fact under his watch the cap was to be broken repeatedly, reaching over 35 trillion yen at one stage).

He also promised to cut drastically the 500 trillion of public debt.

(In fact it was to increase by 200 trillion yen during his five year regime).

But few were to notice this abject failure to achieve promises.

He had the media in his pocket. Standing almost daily before the TV crews hungry for sound-bites, all he had to do was repeat with glinty eyes and firm determination those magic words: Structural Reform.

Anyone who disagreed was quickly thrown into exile at worst, or silence at best.

I was to be one of the victims.

Media Guilt

By themselves Koizumi and Takenaka could not have wrecked Japan’s fundamentally strong economy.

Media-based PR played a key role.

The public loved the idea that a mere slogan – Structural Reform – would rescue Japan from its self-imposed economic woes.

The OL (office ladies), moms and grandmoms loved his long hair and lion-hearted image.

‘Exciting’ was a word to be launched into the political lexicon, with sad consequences for the future.

Later as the phoniness of it all became apparent some were to begin to talk about Koizumi’s gekijo (theatre) politics and his ability to mezmerise audiences.

But by that time it was too late.

Punditry Unleashed

The TV pundits were crucial in creating the Koizumi myth.

By definition, these people are not blessed with any economic wisdom.

But with Koizumi and his sound-bites and flowing hair in psychological control it was inevitable they would want to go along with the ‘structural reform’ wisdom.

On TV program after program they would stand before the cameras reciting those magic words - Kozo Kaikaku – as if it was inconceivable that anyone could possibly disagree.

The result was that all Koizumi had to do was dub some hare-brained reform as kozo kaikaku, and some serious critic as a reactionary opposed to kozo kaikaku, immediately they would weigh in with deep-throated approval.

The all-powerful kuuki, or atmosphere, by which consensual Japan likes to decide things, was put firmly in place.

And as with previous kuuki in Japan’s history – the rush to miliatarism in the thirties for example – once established it is impossible to oppose, no matter how wrong or evil.

Kozo Kaikaku became a mantra carved in stone.

(But the punsters had fun with the word ‘kaikaku.’ Changed to ‘kaiaku’ it means ‘change for the worse.’)
.....

Particular damage I suspect was to flow from the Nikkei Channel 12 daily late-night one hour program on the economy.

There Takenaka Heizo, with his supply-sider dogmatism, would appear night after night repeating the Structural Reform mantra.

I suspect also that for the quirky, bachelorized, economics-ignorant Koizumi, with little else to do in the late evenings other than sip wine, listen to music and watch TV (he was notorious for his lack of close friends), this program was crucial to his selection of Takenaka as economics guru.

Between them they performed well – bringing the wrecking ball to the glimmerings of economic progress achieved by the Obuchi and Mori administrations.

The stockmarket was to collapse within a year to around the 11,000 mark. Dozens of sound companies were to be forced into bankruptcy. Fiscal deficits and public debt were to balloon.

Yet with Teflon skill, Koizumi could still avoid criticism from his mezmerised audience.

When finally the economy was rescued by the export boom to China - the nation Koizumi had done so much to antagonise – the pair of them were quick to claim the credit.

Wrecking the Economy

In many ways the economy mistakes of the Koizumi-Takenaka era were a magnified version of the mistakes during the Hashimoto era.

Cuts in government spending quickly threw an economy already weakened by the dot-com bust into a downspin.

As more firms went bankrupt, bank bad debts increased.

Takenaka then chose just that moment to impose the US fad for the market value accounting, which simply managed to exaggerate losses and add to the general gloom.

This combined with compelling banks to declare the full extent of their bad debts further added to the gloom, and automatically postponed the “rising tide” recovery which would automatically have cut those bad debts.

But the public were quite unable to realize any of this.

To them, and Japan’s light-headed media, Takenaka marching into the banks and forcing them to disclose the full extent of possible bad loans looked like brave moves to expose and exorcise the harmful diseases in the banking system.

No longer could the banks cower behind tobashi-style thinking to postpone that much-deserved day of punishment.

In fact all that those ‘brave moves’ were doing was doing forcing the collapse of the banks that otherwise could have survived if and when the economy recovered, as it surely would have under normal polices.

It was a repeat of the mistaken policies that had forced the US into recession in 1929.

Then as the banks did in fact begin to collapse the bankers had to depend on injections of government money, and accept government control, to survive.

In effect a regime that had said it was going to push privatization was going in the opposite direction of effective nationalization.

But once again the mesmerized public and media failed to notice.

Then to help the banks recover and repay funds they had received, special favors were made, including zero interest rates, allowing them to continue with their excessive customer fees while demanding privatization of their efficient post office rivals.

(For a simple transfer of a small amount of funds a bank would charge a service fee of up to 600 yen; the post offices 200 yen.)

........

Meanwhile confidence in the economy and the stock market was also collapsing as each of these disasters unfolded, which further weakened the banks and others holding stocks.

These pressures in turn made the banks unwilling to lend, which in turn further depressed the economy.

The downward chain reaction effect of all recessions - an effect to which Japan by nature is even more vulnerable than most - was in full swing, orchestrated by people who seemed to have little understanding of the mood-influenced mentality of their own people.

Worse, they also had great tolerance for the ‘trash and cash’ tactics of their friends in the US financial community who would short sell furiously the shares of yet another bank targeted for semi-collapse and then buy back at great profit after rescue measures were announced.

Japanese investors were naïve to such techniques.

........

Bankruptcy auctions soon became the one part of the economy showing vigor.

In my own small area of Boso we would see half a dozen or so properties thrown out for bankruptcy auction each week.

Most had been mortgaged for large amounts by willing banks in the Bubble era.

Now they were being dumped on the market often at only one fifth or tenth of their original bank mortgage valuation.

The banks did not seem to worry. After all they had been told by Takenaka to clean up their bad debts, or else.

Their losses would be covered with public fund injections.

But the human distress was enormous.

In the countryside much business is done on trust. So when firm A was forced into bankruptcy immediately dozens of its buyers and suppliers would be in trouble.

I knew many of the people caught in this squeeze. Often they were fine businessmen who did not deserve to be caught in this vortex.

But down they would go, together with the people who had trusted them.

None of this seemed to worry the pundits and the policy-makers back in Tokyo.

After all, thanks to Koizumi Japan was going to clean up its financial stables, once and for all, wasn’t it.

It was a classic example of what the Japanese call match/pump.

First of all you use matches to create a fire. Then you try to get kudos from bringing in the pumps to douse the fire.

........

A favorite theme justifying the forced bankruptcies had been the need to create a floor quickly, from which the economy could rebound.

The example of the US Savings and Loan crisis of the late eighties was fresh.

But the S and L crisis represented only a small three percent of the US economy.

The crisis Koizumi and Co. had managed to create involved twenty to thirty percent of the Japanese economy.

The possibility of the entire economy going through the ‘floor’ was real.

It was only averted by the semi-nationalisation of the banking system, and then the China factor already mentioned.

Getting the Economy Wrong

Early in the Koizumi years I was in a TV debate with Sakakibara Eisuke, seen by many foreigners as leading expert on the Japanese economy.

He pooh-poohed my warnings about the depth of the bad loan problem, particularly if the Koizumi policies continued.

According to Sakakibara the danger was much less than that created by the Savings and Loan crisis, and the US had recovered easily from that.

Later he was to make himself look even more foolish warning in 2003 that quick recovery from the bad loan crisis would see interest rates soar, causing a dangerous collapse in the prices of government bonds, which in turn would cause yet a new crisis to the economy, and to the banks especially.

This alleged economic expert still did not realize that the Koizumi policies and their likely continuation would keep the economy, and interest rates, down on its knees for a very long time.

But the foreign journalists and bankers liked him, mainly because he could speak some English, and was always available for talks, advice etc.

The conservative foreign economic media – the Economist, The financial Times, The Wall Street Journal – liked not just him but the full range of ‘Structural Reform’ policies.

The one bright spot in all this is that those of us who did realize the economy would remain on its knees were able to make a lot of money from the yen carry trade – exploiting the long-term interest rate differential between the yen and other currencies.

I often wonder how those conservative investors felt about all this.

They would have lost a lot of money by going along with the pro-Koizumi financial gurus, including almost all those writing for the main Anglo financial media busily predicting how the Koizumi-Takenaka policies would soon see Japan making quick recovery.

They must have lost a lot of money also by going along with the same gurus who for years doubted the reality of China’s economic progress.

The classic double whammy.

Good Reforms?

True, some of Koizumi’s so-called ‘reforms’ made a kind of sense.

The knife needed to be put into some of the more corrupt bureaucracies that had flourished over the years – the Highways Corporation especially.

But often the knife reflected Koizumi’s personal likes and dislikes within the bureaucracy rather than a genuine desire to see Japan reformed.

Some also praise Koizumi’s desire to destroy the LDP factions he had come to detest on his path to power, and even the party itself because of the way it had slighted him for so long as an unruly maverick.

But factions, for all their faults, do much to create stability – witness the success of Australia’s factionalised Labor Party over the years.

They also help keep petty dictators at bay – something the UK conservative party badly needed during the Thatcher years.

That they survived and have been revived post-Koizumi was not surprising.

Post-Office Privatisation

The saga caused by Koizumi’s quirky dislike of Japan’s surprisingly efficient post office system was typical ‘theatre politics.’

Demanding that it be privatized, he insisted that anyone in his LDP party who opposed had to be expelled, and ‘assassinated’ by deliberately chosen rival LDP candidates in an election called on the issue.

As ever the media and the commentators loved it.

Yet it was a quite phony issue.

Even in our atomized Western societies the post offices play an important social role in rural areas.

In groupist Japan the post offices with their variety of functions – pensions payments, savings facilities etc – play an even more important social role.

In the depopulating countryside they play an even more important role.

Yet as ever the mesmerized public opinion went along with him. He won a major election victory as a result.

Later everyone was to wonder what the fuss had been all about as the ‘assassinated’ objectors were welcomed back into the LPD.

........

The role of the post offices in saving Japan’s economy from complete collapse was especially important .

During the Bubble period they were able to attract a large share of private savings, which were then loaned to the government for public works.

If those savings had gone to the banks, much would have ended up simply adding to the mountain of bad loans to land speculators, gangsters and pie-in-the-scale resort schemes.

Japan’s Bubble disaster would have been even more spectacular than it was.

Even the use of post office funds for a some pork-barrel highway or bridge project would have been preferable to bank-financed spending on yet another gangster-operated golf course destined to add simultaneously to gangster fortunes and the bankruptcy lists.

Yet Koizumi was more than happy to go along with the private banks and insurance companies clamoring for privatisation and unhappy about having to compete with the very efficient financial services provided by post office system.

Efficiencies provided by the post offices, in addition to low charges for money transfers, included:

• savings deposits could be cashed out freely without any of the hassle and charges imposed by the banks.

• good unpretentious customer service, often provided by motivated high school graduates anxious to improve themselves, rather than by the bureaucratic, primped up graduates from run-of-the-mill universities employed in the banks.

• branches spread across the nation, even in remote areas, providing travelers with service wherever they went.

And so on.

The post offices were not only good competitors. They were also a fine proof that even in Japan state-run enterprises can sometimes do better than private enterprise.

Yet they were marked for destruction. Rumors later suggested that the luxury lifestyles Koizumi was later to enjoy was financed by grateful donations from the banks and US insurance companies who benefited by the weakening of their major rival.

Koizumi Foreign Policy

Disaster also dogged Koizumi’s attempts at foreign policy, and not just because of his quirky willingness to antagonize Beijing with his obstinate visits to the notorious Yasukuni Shrine.

His true nature seemed to emerge in his childlike liking for the US, both for its president, George Bush junior, and for its lugubrious Elvis Presley legend.

His flippant remarks defending Japan’s support for the US over Iraq did not help.

Asked in the Diet about the failure to find weapons of mass destruction – WMD had also been the excuse for Japan’s Iraq involvement – the best he could say was ‘well they have not found Saddam Hussein yet, so why the fuss over not finding WMD?’.

......

True, his 2002 breakthrough to North Korea to rescue abductees was impressive. But that had been organized entirely by others, including the much media-despised Mori.

And his passivity in the face of subsequent moves by his LDP rightwing to turn this diplomatic triumph into a weapon of hatred for North Korea quickly destroyed any kudos he might have deserved.

He, together with the Gaimusho and other hawks, also managed to sabotage serious moves under the Mori regime to solve the Northern Territories dispute with Moscow.

Toward the rest of the world he showed little interest.

Fascistic Populism

For five full years and more, Koizumi held office without facing any threat to his position and without ever once having to explain the failure of his various policies.

It was a tribute to his Hitlerian ability to mesmerize his audiences.

As things went from bad to worse under his Hooverite economic policies he would just snap his favorite slogan at the cameras: no growth without fiscal reform; no gain without pain.

Heads nodded. No one seemed to think about the logic involved.

(Interestingly, when his successor, Abe Shinzo, was wise enough to turn this upside down to say – no fiscal reform without growth – there was a similar nodding of empty heads.)

Koizumi gained that ultimate in Japanese praises– that he was wakariyasui, easy to understand.

For the Japanese wakariyasui seems to be a very important quality.

One hears it used often, with the implication that one should just accept what is being said without thinking too deeply about meanings or implications.

The complexities often involved in most serious debate – for example, ‘on the one hand this and on the other hand that’ - are not greatly welcomed in Japan.

Ultimately it is a fascistic approach – the assumption that the national collective should along with whatever its masters disctate.

True, some of the more enlightened realized what he was up to.

But even they did not seem too worried by the implications – that if ‘theatre politics’ were the way things were, then so be it.

That this undisguised populism could gain such unthinking popular support in a mature, literate society as Japan’s should be a warning to all of us

It tells us of the ease with which all our democracies can be dominated over by shallow men with media plausibility.

I had seen a much milder version of the same during the Whitlam regime in Australia, which I described earlier.

3. The Koizumi Opposition

At the height of the Koizumi populism I was called out of the blue by the intelligent LDP politician, Hiranuma Takeo.

I had not known him previously, but he wanted me to address a meeting of his top supporters.

He had read one of my articles criticizing Koizumi policies - the cuts in government spending, public works especially.

Hiranuma was not one of the public works zoku (tribe) of politicians keen as they say in Japanese to ‘enjoy the sweet juice’ from public works waste and corruption.

He was something rare in Japan – a politician with a liking for logic and morality, even if of rightwing persuasion.

Like me, he realized the harm done to the countryside by cuts in spending, and the need for such spending to revive the economy.

Later he was to realize the kakusa (income inequality) problem, caused in part by Koizumi policies.

......

My talk to Hiranuma’s supporters led to me being called in several times to address other small groups of party members also opposed to the Koizumi policies, sometimes even within the LDP Nagata-cho headquarters.

There too the IQ level seemed higher than the LDP average.

But all confessed impotence in the face of the mood-based consensus that had been created by Koizumi populism.

......

Hiranuma was to go on to oppose the Koizumi postal privatization; he realized the harm that would be done to remote rural areas.

Despite having served Koizumi faithfully as METI minister, during which time he had loyally disguised his anti-Koizumi fiscal views, he too was marked for ‘assassination’ i.e. to be expelled from the LDP and have one of the wet-behind-the-ears, soon-to—be-forgotten ‘Koizumi children’ run against him as official LDP candidate in the post office privatization election.

But he survived.

That election finally showed the shallowness of the Koizumi populism, with its attempt to exploit the Horiemon phenomenon – a juvenile, jumped-up IT entrepreneur called Hori who had relied largely on share manipulations, some illegal, to build a business empire.

Koizumi had supported him to run in a Hiroshima electorate to assassinate Kamei Shizuka, a conservative ex-police administrator with a conscience (he was strongly opposed to police interrogation methods) and who supported Hiranuma’s economic policies.

Fortunately Horie was arrested and found guilty before he could do any political damage.

But once again the foreign media showed their ignorance of Japan, defending Hori as a victimized, scape-goated, would-have-been forerunner of the venture-business, entrepreneurial boom allegedly needed to bring Japan’s economy out of the wilderness.

Voiceless in Koizumi-land

Meanwhile I could do little more than vent my frustration in Japan Times columns.

That this had some impact, at least among foreigners in Japan, was shown by the way I was pulled in for various chambers of commerce debates and talks.

But the foreign financial media listed above remained unrelenting in their naïve support for Koizumi and his ‘structural reform’ slogans.

A serious article I prepared for the UK Financial Times trying to point out the real problems in the Japanese economy remained not only unprinted but unanswered.

Meanwhile a run-of-the-mill predictably pro-Koizumi supply-sider logic by a former friend in Australia, John Edwards, was run despite his lack of any Japan background.

The Koizumi approach fit their rightwing supply-side biases. It also fit their image of Japan as a backward but diligent student needing injections of Economist, WSJ, and Financial Times reformist Thatcherite/Reaganite wisdom.

None of them as far as I know, has admitted how their favorite student managed to increase Japan’s official debt by 200 trillion yen while taking their advice.

On the contrary, they used Japan’s worsened economic condition as proof that it needed more of their mistaken advice.

Nor will they admit that part of the post-Koizumi recovery came from Tokyo finally ignoring their advice, with some loosening of the Koizumi fiscal stringency.

That loosening saw a rapid increase in tax revenues which in turn allowed further partial loosening – though not enough to give full recovery since Tokyo still seemed partially under in thrall to the public-debt bogey.

The foreign media then blamed continued post-Koizumi economic sluggishness on a failure to continue the Koizumi reform program.

It reminded me of those old-time communists insisting communist economic failure was due to lack of fullscale communist zeal.

(I once had the chance to ask some US-based supply-sider fanatics to tell me one reform, any reform, that would stimulate the economy.

(Their replies would have been golden. Their silence was not.)

(By all means have the reforms. But please realize their total effect on Japan’s economic recovery is bound to be marginal.)

(That economy can never recover properly until the vast amounts – over 600 trillion yen - socked away in largely non-productive personal financial assets can be brought back into the economy, to be spent or invested more productively.)

4. Keynesian and Other Solutions Ignored

The tragedy in all this was not just the many personal tragedies, including suicides, caused by the Koizumi policies.

They also contributed greatly to the creation of the kakusa (income differention) situation which was to do such damage to Japan’s hitherto attractive egalitarianism.

But for those policies, Japan could have become an economic and social model of great significance to us all.

For example, in an economy where individuals prefer to save rather than spend, then surely the government has the right to create the extra demand needed to keep the economy turning over.

Here the scope is endless – demands for improved environment, education, health, welfare, any number of public services..

Filling those demands would not only allow any advanced economy to return to the reasonably high growth of earlier developmental years, assuming the resources of labor etc. are available, which they often are, even in advanced economies.

More importantly it would be a growth that works to create a genuinely better society, rather than the Anglo growth model that depends heavily on the rich continuing to splurge and the others continuing to go into debt to spend.

It would come close to the dream of some Japanese in the past – to create a sparkling, bright (hikatte iru) society, a Switzerland of Asia etc.

Japan could have moved to create an attractive Scandinavian-style society without having to rely on Scandinavian taxes

Unfortunately that was not to be.

.......

True, there is the problem of financing this spending.

Sensible tax policies which do not cut demand are one answer.

In the case of Japan that scope is large – a clampdown on rampant income tax evasion is one obvious move.

But the emphasis should be more on indirect taxation.

Instead of the demand-reducing, corruption-creating and paperwork-producing consumption tax system (yet another unfortunate import from the West) Japan should simply have expanded its existing system of easily-collectible taxes on specific products and services, those with high social costs especially.

But in the case of Japan government borrowing of non-productive personal financial assets to finance spending also was, and remains, an answer.

At a very high 1500 trillion yen, these assets remain at over $100,000 for every man, woman and child in Japan.

Of this about half is in liquid or semi-liquid form.

Reinvested productively in the economy, ideally by individuals but if not then by government, those funds could easily have helped keep Japan’s growth on an upward path.

That in fact was the policy pre-1997, pre-Hashimoto.

Today this pre-1997 spending is condemned for increasing public debt. And it is true if it had been spent more wisely, in areas of the economy with better multiplier effects, tax revenue would have increased and slowed greatly the increase in public indebtedness.

But even so, the spending did at least get the economy back on a growth path as consumers also gained confidence and began the replacement and other spending normally postponed during recessions.

For these and many other reasons government borrowing and spending was not quite the evil it is made out to have been, even if public debt then was pushing the 300 trillion yen level.

The real evil was the unwillingness to do something about the corruption in public works – corruption which did much to push Japan into its anti-public works consensus.

(A key villain was none other than Ozawa Ichiro, then assistant to Mr Three Percent Kanemaru Shin, who later was to bolt the LDP claiming with a straight face he could not stand LDP corruption.)

Also evil was the way much government spending had served to create and sustain an army of useless institutions whose main purpose was to provide employment for retired amakudari bureaucrats. *

In each ministry a delegated senior official does little more than arrange, or even try to create, cushy jobs with large retirement packages for colleagues facing retirement.

Keynesians to the Rescue

There has long been another answer and much more convincing answer to this problem of public debt. And it is this:

Provided there is little risk of inflation, and especially if there is continued deflation (as has been the situation in Japan), governments should be allowed get or create the money they need, free from repayment and interest payment obligations.

One way is to require the central bank to create that money and literally give it to them (for that, however, they have to be wise enough to retain some control over their central banks)

Failing that, they have the seignorage right themselves simply to print money (as the US did in 1963).

One or other, or both these policies, have been recommended for Japan in recent years by top US economists – Lawrence Klein, Ben Bernanke, Joseph Stiglitz and Paul Samuelson.

But non-rationalistic Japan did not even to realize what these people were saying, let alone act on it.

Klein even made a special visit to Japan in 2003 to urge such policies – a visit studiously ignored by the Japanese press which usually falls over itself to report the views of important visitors.

Clearly the foreign advice lacked the quality of being wakariyasui.

But the Koizumi /Takenake policy of destroying the economy in order to save it was very wakariyasui.

Japan’s Rightwing Keynesians

True, a small Japanese group calling themselves the Association for Japan’s Economic Recovery realizes the need for these policies. I was invited to some of their meetings.

(They belong to that interesting group of conservative or rightwing Keynesians I mentioned earlier – the group that emerged in the sixties to counter the dominant Marxist economics in the universities.)

Through publications, meetings and Diet questions they try hard to recruit and influence the policy makers.

They once spent much of their funds for a full page newspaper spread to push their message.

But to date they admit they have had little impact, even though they claim many sympathizers in high political quarters.

As they put it to me (and in the process confirmed my own views of Japan), once the consensus has been set – in this case the post-Hashimoto consensus for reducing official debt – it is almost impossible to challenge.

To do so is to put yourself outside the consensual mainstream. You are isolated and reduced to impotence.

Their one hope, they say, is to try to influence things by remaining in the mainstream, no matter how long and difficult that may be.

So they go out of their way to avoid strong criticism or confrontation with the mistaken economic policy-makers.

They rely heavily on meetings and written questions in the Diet querying government policy (the answers to which are often meaningless and ignored by the public).

But with a new post-Fukuda regime it is possible that Japan might finally realize it has to rely on public spending to re- stimulate its economy.

Once properly stimulated, private spending could be adequate to keep the economy turning over.
........

True, low interest rates can also help the economy once that dangerous Koizumi era combination disappears – investors reluctant to invest and consumers reluctant to spend.

Hopefully there will also be more spending by an aging population which finally realizes that it cannot take its money to heaven.

All this could well provide some of the demand needed to keep the economy moving upwards again.

But that in turn leaves us with the declining population problem.

The economic damage it creates could eventually outweigh greatly any good from present or future trends for economic improvement.

5. The Population Crisis

For over four years I sat on the Justice Ministry’s population and immigration policy committee. At first we talked much about policy to refugee applications, resulting in some slight changes for the better.

As ever, the changes were decided by the bureaucrats in advance with only slight attention to what we were saying.

But we did get to see something of the contradictions in Japanese policies – harshness to some worthy refugee applicants and undue tolerance to some of the unworthy.

In a situation where it is almost impossible to get into Japan without a visa of some validity, one has to assume that most claims for refugee status are flawed.

........

From refugees we eventually turned to the question of foreign workers in Japan, including illegals.

I like to think we did something to change the formerly barbaric situation where illegals when caught were locked up, often for months, taken to the airport roped together like cattle for forcible expulsion and not allowed back to Japan.

If there were special circumstances justifying their return they would have to wait a minimum of at least five years.

And these illegals often included people who had gone to much trouble to learn Japanese and were working hard to help some area of the Japanese economy.

We managed to see the law changed to allow those who gave themselves up to remain out of prison, and possibly to return to Japan after a year.

I am sure that this helped some of the illegal Peruvians I had got to know in Boso - attractive people of middle class origins forced by Peru’s then desperate employment and political situation to come to Japan to work in factories.

I was less happy when I went to the Immigration authorities holding-room for those who did turn themselves in – a room crowded each day with up to 100 young fit people, mainly Asians, all able to help the economy, some with small children playing happily together in Japanese.

Japan was expelling precisely the people it needed if it was to do anything serious about its population problem.

..........

On the committee, I came to realize that reform to immigration policies was unlikely if Japan did not realize the economic dangers of population decline.

Apart from Nakatani Iwao, another economist and my successor at Tama, none on the committee seemed to realize the dynamic downward spiral effects of declining investment as population declines.

Much entrepreneurial investment is based on expected future demand increases. If there is no expectation of increases, then no investment.

An amateurish paper produced by some METI bureaucrat seemed to see the economy in purely static terms.

Technology improvements and the use of female and elderly labor to fill any gap from falling work force numbers was handed out as evidence of a bright future.

The dynamic downward effects were ignored.

Besides, Japan’s problem was not falling work force numbers. It was falling investment confidence and demand.

On the contrary, as investment and demand fell there could well be a surplus available for the work force – from the ranks of the unemployed.

Immigration as the Answer?

Given the unlikelihood that birthrates would about turn, and even if they did about-turn there would still be a generation gap of around 20 years before demand recovered, immigration seemed the only answer.

But most on the committee remained obsessed with crime and integration problems.

They had been influenced by the problems with many of the 400,000 Nikkei Latinos whom Tokyo had invited to come and work in Japan during the high growth period and even later.

Japan had done this rather foolishly, thinking that Japanese blood and appearance would allow these mainly unskilled people to integrate easily, despite the fact that most were fairly uneducated and many preferred to cling to their attractive Latino culture rather than adjust to Japan’s difficult language and culture.

Many of their children were even refusing Japanese education and ending up unemployable.

Some were turning to crime.

There was also the more serious problem of criminal gangs from China, Taiwan, Hongkong and Korea, able to penetrate Japan’s visa requirements.

I was not unsympathetic to these problems. But that in turn was to give me another problem.

.......

Amongst foreigners in Japan there are some who seem to have a personal or psychological interest in proving that Japan is a racist hell.

They like to produce figures showing foreigners commit less crime than Japanese.

But it goes without saying that foreigners, both legal and illegal, trying hard to make it into Japanese society are not going to commit crime.

The problem lay largely with those Chinese and Korean gangs who came to Japan to exploit the relative lack of anti-theft precautions.

Their willingness to use violence brought a new dimension to the crime scene, one that was quickly imitated by Japan’s home-grown gangsters.

Here Japan was justifiably concerned.

I was in favor of any measures, no matter how drastic, to crack down on these people, in particular the ease with which they could forge documents or obtain short-term visas to enter Japan.

And without seeming to be racist I could understand also the Japanese desire not to end up with the ethnic and cultural problems of our Western societies.

Our laissez faire attitude to immigration – one which claimed the worthy goal of multi-culturalism but which I suspect began with arrogant and soon-to-be-demolished assumptions that our cultural superiority guaranteed that immigrants of any color or creed would easily be integrated and assimilated – had clearly failed.

(Fortunately quite a few others in the West are now beginning to realize the superficiality of the multiculturalism logo.

(But when I first started to point this out, in Australia in the seventies, I was quickly dubbed racist, despite having done a lot more than most to break down racial barriers, in my own personal life and elsewhere.)

Japan was more than entitled to say who could and should be allowed to enter and work in its unusual society.

Besides, assumptions of easy integration had clearly taken a bad knock at the hand of those Nikkei Latinos.

The Ugly Gaijin

At this point I should relate how about this time I had an especially nasty run-in with a strange group of seemingly moralistic foreigners (but some more interested in self-promotion) determined to hunt down and prosecute for racial discrimination small Japanese enterprises which had felt they had no choice but to use exclusion notices to protect their premises from Brazilian shop-lifters or unruly Russian sailors.

And when they succeeded in these anti-discrimination prosecutions the self-promoters in the group not only boasted to the media about how they had slain the Japanese racist dragon in his den. One of them even wrote a book about it.

(I later discovered that the self-promoting book-writer had severe psychological problems in adjusting to Japan. He had earlier in his Japan stay boasted in speech and print how he had rebuked and had had dismissed Japanese shop workers who had assumed that as a foreigner he would not know Japanese or Japanese ways.)

(Later he was to make himself look silly by declaring that the word ‘gaijin’ was the equivalent to US use of the ‘n’ word.)

So I found myself in a strange situation. When in print I criticized these people for their mistakenly excessive anti-discrimination zeal I was subjected to their prejudiced, savage website and print attacks.

Meanwhile on the Justice Ministry committee I was trying to counter excessively anti-foreign feelings and prejudices on the Japanese side.

Sometimes you just cannot win.

.........

But to return to the immigration reform committee.

It was clear that Japan did need foreign labor, both skilled and unskilled.

The Indians and Chinese who have done much to improve Japan’s backward IT software and finance industries were but one example.

With unskilled labor there is not just the obvious point that many firms cannot compete with the emerging economies unless it too has access to cheap labor – a point strong enough to persuade the usually very conservative Keidanren to work hard on our committee and elsewhere to promote relaxation of immigration restrictions.

As well there was something I learned the hard way in Boso – that the high cost of labor in Japan also chokes off new labor-intensive development investment.

Such new investment produces income gains across the entire economy.

These gains are far in excess of any loss of income due to wage repatriations by foreign laborers (which in turn are a valuable form of foreign aid anyway).

A Solution

What to do?

An expansion of the trainee system under which many Asians, Chinese especially, were able to find their way to Japan for two-three year work experience was one answer.

But longer term Japan seemed very much to need a point-system visa policy similar to that of Canada and Australia should be used.

Here foreigners who could clearly contribute to Japan, who had reasonable education and skills, would be favored.

Very heavy points would also be given to those who had made progress with Japanese – the key factor in the lack of integration ability that the Japanese were right to be concerned about.

But our ideas and proposals all ended up in the too-hard basket.

Tokyo continued its crackdown on illegals, causing much harm to smaller enterprises that relied on their labor (some were forced into bankruptcy) and depriving many small towns of the cultures and consumers that had given them some vitality.

I think it was around this that I began to give up hope Japan would ever move to the sensible policies needed for its survival.

7. Conclusion

This chapter is aimed not simply to point out policy errors since 1997.

The Japan that I had known in the past, for all its eccentricities, had always managed to show verve and dynamism, even when it was at its silliest as in the Bubble years.

But the past ten years have seen a sea change in national psychology.

The attractive dynamism has been replaced by a pervasive defeatism.

Simply glance at the TV and film footage of the crowds in the pre-Bubble era.

People may not have seemed rich or fashionable. But you can almost sense the optimism and the egalitarianism that for me in the past made Japan such an attractive country.

Today in the poorer backstreets of Akihabara and Shinjuku you sense the beginnings of the squalor and hopelessness that I used to see in Britain back in the seventies and Moscow in the Yeltsin years.

The countryside is a village-by-village disaster zone, with shuttered shops and barely a young face to be seen among the elderly shuffling along with their pram-carts.

It did not have to be that way.

The idiotic economic experiments over the past ten years, the Koizumi/Takenaka years especially, not only brought a still dynamic economy to a smouldering halt.

They have thrown a blanket of inequalities, poverties and frictions that has stultified this once dymanic society.

They have knocked the legs out of a society that could easily have become a model not just for Asia but for all of us.

And to think that it never had to happen in the first place.

* footnote. Amakudari is yet another uniquely Japanese groupist phenomenon. Ministries inevitably put the interests to their own bureaucratic group ahead of the national interest - koku eki yori sho eki.


Next. Life in the Slow Lane

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