THE ¥4OO TRILLION BUBBLE

January. 1988/ TOKYO Business Today

Japan is never short of conventional wisdom. And the wisdom today says the world's economic troubles are all due to U.S. fiscal deficits. One well-known source of wisdom in this country has written in the Washington Post telling the U.S. quickly to 'wise up' on this issue, or else.

It is an interesting admonition. Of course, if the U.S. were to heed it Japan would be in more trouble than most. Japan's exports would fall heavily as the US. moved into a recession. The yen would further appreciate as U.S. demand for deficit financing fell. The current speculative bubble here would probably burst, leaving Japan with a lot more than egg splattered all over its nice clean tatami.

Japan didn't complain in the early days of the U.S. deficits. Then it was too busy lapping up the benefits it thought would last forever. To complain today, only after the inevitable retribution has arrived, smacks of the Hiroshima syndrome.

Come to think of it, doesn't Japan have something of a deficit problem itself? It was run up in the sixties and seventies for reasons even more irresponsible than Mr. Reagan's. Relative to GNP it is just as large as anything the U.S. has yet to produce. And the burden of this debt is the main reason why Japan has had to rely so heavily on U.S. deficit-financed expansion to pull its own economy out of the mud.

In many ways Japan is far more guilty of mishandling its economy than the U.S. Today there is much self-congratulation over the way Japan is riding out the yen appreciation and stock market shocks. The government's six trillion yen spending package is seen as the main reason. In fact Japan's economic upturn is based on the more than 400 trillion yen of extra wealth created earlier by 18 months of absurd speculation in land and stocks.

Four hundred trillion yen is equal to the entire GNP of Japan. It is a lot more than six trillion yen. And while most of it remains as paper wealth, it is clearly having a large effect on the spending habits of many Japanese. Any economy would look good if it could conjure up new spending just by blowing speculative bubbles. And any economy, including Japan's, would look very sick if someone were to prick the 400 trillion yen bubble on which it was based.

The U.S. may have to rely on fiscal deficits to propel its ailing economy. Japan is far more remiss. It has a much stronger economy. Yet clue to mismanagement it has to rely on other people's deficits and domestic speculation to push itself along. Even Mr. Reagan would need at least fifteen years to inject 400 trillion yen of non-existent wealth into his economy.

How did Japan get into this mess? The basic flaw in the economy is the highly skewed distribution of wealth in favour of capital and savings rather than labor and consumption. And by savings I do not refer to the fanciful vision of 120 million Confucianist Japanese all busily filling their piggy banks in advance of the rainy day. I refer partly to the forced saving that results when people do not have sensible consumption outlets. But I refer mainly to the enormous volume of funds slopping round this economy in the hands of companies, banks, speculators, utilities, doctors, farmers and anyone else virtually guaranteed large profits by the many distortions in the economisystem - distortions that would bring a weaker economy to its knees. We gaijin see the tip of this cornucopia in the lavish parties, fat consultant fees, bribes and purchases of overseas assets. But most of it remains bottled up in the economy, looking for speculative outlets.

Back in the high growth days this imbalance between capital and labor, savings and consumption, did not matter much. Most of the surplus funds were reinvested in badly-needed new production. Consumption could catch up later. The economic wheels turned smoothly. With lower growth rates, however, the situation changes. New production creates excessive exports. Much of the surplus money goes into shares or land speculation. The wheels keep turning, but in much more dangerous directions.

What this country needs, urgently, is a massive increase in healthy consumer-led growth. There should be a deliberate policy of boosting wages and bonuses, something the more enlightened in the business community are coming to recognise. Even better, put an end to the rorts, ripoffs and distortions that infest almost every corner of the service and agricultural sectors of the economy.

Today we see the construction mini-boom created by the 400 trillion yen bubble. It is an unhealthy boom, needing ever more speculation to sustain it. Japan could have had the same boom years ago in housing. Simply by relying on sensible land policies and a better distribution of wealth. Instead it did nothing. And now, having painted itself into a speculative corner, it lectures the rest of the world. While the U.S. burns, Japan plays the markets. Meanwhile the bubble gets bigger and bigger...

Home