Japan's Recovery Could Be 5 to 10 Years Away: William Pesek Jr. By William Pesek Jr.
dg> Key Comment IMHO " ``When I look around Tokyo, I don't sense any real urgency to change."
Tokyo, Oct. 25 (Bloomberg) -- Alex Kerr wasn't looking to make new friends last year when he published a controversial book on Japan's economic problems. In fact, the life-long Japanophile feared he might lose a few.
Such is the life of a man who wrote perhaps the most important work on Japan in years. ``Dogs and Demons: Tales from the Dark Side of Japan'' is a rebuke of the Japan Inc. model Tokyo refuses to discard after 12 years of malaise. In it, Kerr laments Japan's slump and Tokyo's inept response.
``I'm thinking a recovery here could be five to 10 years from now,'' Kerr explains over dinner. ``When I look around Tokyo, I don't sense any real urgency to change.''
Born in Bethesda, Maryland in 1952, Kerr first moved to Japan in 1964 when his father, a Navy officer, was posted in Yokohama. Since 1977, he's lived in Kameoka, a town near Kyoto. He wrote the book not to bash Japan, but to lament how politicians have damaged a country he loves.
Of course, one may be tempted to dismiss Kerr's views. There are more tomes claiming to reinterpret where Japan has been and where it's going than bookstores can fit in their bargain bins. Few works, however, have gone further to explain how corrupt politicians, bureaucrats and companies collude to maintain the status quo.
Muddling Along
It also exposes how Tokyo is systematically destroying Japan's environment and, perhaps, its very culture by sticking with policies and ideas that are generations out of date. Most compelling of all, though, is Kerr's contention that true reform in Japan is many, many years off. Tokyo, he argues, can and will muddle along -- and do so quite comfortably.
One can't hope but wish Kerr were wrong about all this. Eighteen months ago, when Prime Minister Junichiro Koizumi came to power, a palpable sense of optimism circulated through Japan. The self-described reformer's talk of ``reform without sacred cows'' resonated with the nation's voters. Many who'd grown disillusioned with Tokyo's political gridlock wondered if Japan at long last had found its savior.
Koizumi talked differently, acted differently and seemed to represent a new generation of Japanese leadership. Early on, he told reporters he fancied himself a modern day Gary Cooper, who starred in the 1952 western movie ``High Noon.'' Cooper's character was a feisty and heroic marshal who stood alone against formidable foes. It seemed an apt metaphor for Koizumi's challenge.
Darker Reality
Many Japanese fancied him Japan's answer to John F. Kennedy - - a leader with that ever so rare mix of charisma and vigor. He also seemed to borrow a page from JFK's ``Ask not what your country can do for you; ask what you can do for your country'' mantra. Koizumi, in a sense, was challenging voters to ``Ask not what your government can do for you, ask what you can do to force it to change.''
A much darker reality set in with each passing month as Koizumi bowed to Liberal Democratic Party bigwigs and shelved his reforms. On Sept. 30, however, the Koizumi of old seemed to reappear. He shocked the political establishment by naming Heizo Takenaka, an academic with few political connections, to fix Japan's banking mess. Suddenly, Koizumi the reformer was back.
Yet Koizumi seems to have grown timid once again. When Takenaka said no company was ``too big to fail,'' he was called in for a talking to. And this week, when party powerbrokers looked askance on his plan to fix the banking system, Takenaka was forced to delay its release. His ideas, dubbed ``radical,'' are just that -- ideas. Even new thinking, it seems, is being suppressed.
Revolving Door
To Kerr, recent events bolster his view that reform in Japan is like Lucy and the football. Time and time again, Lucy convinces Charlie Brown that she won't yank away the ball as he runs to kick it. Each time, Charlie Brown ends up in the mud as she does just that.
In the case of Japan, Koizumi is Lucy and investors and analysts are cast as Charlie Brown. Koizumi -- like the revolving door of prime ministers before him -- convinces everyone he's serious about ending Japan's malaise. Each time, his efforts are mired in backroom dealmaking and compromise. Today, Japan's economy is in far worse shape than when Koizumi's supposed revolution began.
``I think Takenaka is doomed,'' Kerr said. ``Japan is not yet ready to take the pain.''
Anyone who walks the streets of Tokyo these days understands the point. Swanky shopping districts are still abuzz. Glitzy stores are packed with people plopping down hundreds of dollars for names like Gucci, Hermes, Louis Vuitton and Prada. Whiskey bars are full of office workers dropping $20 for a shot of single- malt scotch.
Little Urgency
If you want to find Japan's crisis, you certainly can. In Osaka, companies are scrambling to move to China, laying off loads of workers. The rapidly growing ranks of Japan's homeless in big cities also demonstrate the point. Elsewhere, say up north in Hokkaido, entire regions are supported by public works projects. Still, one senses little urgency in the halls of Japanese power.
Tokyo's mostly unchecked and unaccountable bureaucracy ``continues on autopilot for one simple reason: the funds are still flowing,'' Kerr explains. Households have plenty of money -- roughly $11 trillion of financial assets -- and so does the Bank of Japan, whose interest rates are zero percent. And don't forget the vast capital raised with government debt sales: Have money, will fight change.
``Foreign economic experts insist that Japan `must' rein in overspending on construction, but why must it?'' Kerr asks. ``The country is eating into its savings -- of this there is no doubt. But for the time being there are still trillions of dollars of assets in savings, much of it deposited in the postal-savings system, one giant piggy bank for bureaucrats to play with.''
Where does that leave Japan? Plodding along with negligible growth rates. Hopes for Japan's future remain balanced between economic revolution -- something Koizumi seems to hope for -- and stagnation. Unfortunately, barring a national crisis, stagnation seems the more likely outcome. |
