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Japan Disease の記事はネット公開されています。 http://www.international-economy.com/TIE_Su17_JapanDiseaseSymp.pdf 6 The International Economy Summer 2017
Is the
World at Risk
of the
“Japan Disease”?
S
cholars and experts are wrestling to define the nature
of globalization in the twenty-first century. To what
extent can the global picture of 2017 be described in
one sentence: Significant parts of the world are at risk of becoming
more like Japan. In other words, the world’s public
and private debt today is approaching 300 percent of GDP.
Yet despite an extraordinary degree of monetary expansion
and relatively tight labor markets, a number of central
bankers are finding it tough to meet their inflation targets.
Meanwhile, wage growth remains modest. Productivity
growth gains are disappointing. As Japan has done in recent
years, some central bank authorities, including those
in China, are purchasing equities to stabilize stock markets.
Has the world been afflicted with a kind of “Japan disease”?
Or is the current global environment a temporary development?
Or is Japan doing better economically than advertised?
If a negative Japan-like scenario is a risk for significant
parts of the world, what policy steps would potentially
lead to the avoidance of such a scenario?
Twenty international observers
offer their thoughts.
A Sympo s ium of View s
Summer 2017 The International Economy 7
Yes, there are
significant risks
of Japan-like
outcomes—namely
stagnant growth
and deflation.
Stephen S. Roach
Senior Lecturer, Yale University, former Chairman,
Morgan Stanley Asia, and author, Unbalanced:
The Codependency of America and China (2014)
F
or the past seven years, I have taught a very popular
seminar at Yale, “The Lessons of Japan.” The first
half of the course is a deep dive into the rise and fall
of the modern Japanese economy, with an aim toward
distilling key lessons from a stunning collapse. The second
half of the seminar uses the tools of forensic macro
to ascertain the relevance of those lessons to other major
economies in the world—especially Europe, China, and
the United States.
The short answer to the question of whether the world
is at risk of the “Japan disease” and the major conclusion
of this seminar is that there are, indeed, significant risks of
Japan-like outcomes—namely stagnant growth and deflation—in
other major economies of the world.
The lessons of Japan are many—from a dysfunctional
mercantilist growth model and the toxic zaitech
of financial engineering to condoning asset bubbles and
productivity-inhibiting zombie corporates. But the most
salient lesson pertains to the insidious sequencing of policy
gambits that stem from what can be called the political
economy of false prosperity. Convinced that the (lifetime)
employment guarantees of what Chalmers Johnson
dubbed a “plan-rational development state” were all that
ultimately mattered, Japan, in effect, succumbed to the alchemy
of a failed growth experiment.
A similar temptation can certainly be detected elsewhere.
The political economy of growth imperatives is a
common thread that runs through the policy and regulatory
blunders that have given rise to Europe’s dysfunctional
currency union, China’s unbalanced state-directed
producer model, and America’s property- and creditdistorted
bubble economy that culminated in the Great
Financial Crisis.
In all of these cases, there is strong insistence in
policy circles that the lessons of Japan have been heeded
and that, as a result, similar outcomes are unlikely.
That’s especially the case in the United States, where Fed
Chairmen Alan Greenspan and Ben Bernanke argued that
a quick policy response was all that was needed to forestall
a Japan-like outcome.
It is also the case in China, where there continues
to be active debate over the possibility of the Japan syndrome;
the now famous “authoritative person” interview
featured in China’s People’s Daily in May 2016 is a particularly
prominent case in point, where a senior Chinese
official warned of the Japan-like perils of debt-intensive,
bubble-distorted economic growth. Having given several
presentations in China on the lessons of Japan, I can personally
attest to avid Chinese interest in this topic.
In the end, however, it’s not enough simply to recognize
the risks. It is delusional to think that the interplay
between real economies, asset markets, and financial
systems can be pushed to excess without severe and lasting
consequences.
Similarly, it is ludicrous to believe that the “big bazooka”
of massive monetary and fiscal policy responses
can successfully address post-bubble carnages. The persistence
of sharp growth slowdowns and below-target inflation
outcomes in most major economies in the world
today is prima facie evidence of lessons unlearned.
That gets to the toughest lesson of all—the misplaced
notion that a reactive policy function is a substitute for a
proactive growth sacrifice. Bubble-induced prosperity is a
recipe for systemic failure.
Yet political economy pressures have led to a succession
of misplaced growth gambits and the related contagion
of the Japanese disease. As Japan’s third lost decade
underscores, the cure remains as elusive as ever. And at
Yale there continues to be a long waiting list for my seminar
on the lessons of Japan.
The symptoms
of Japan disease
do appear to be
spreading around
the world.
Scott Bessent
CIO and Founder, Key Square Capital Management
T
he question of whether the world is at risk of the
“Japan disease” mirrors the difficulties that an infectious
disease specialist would have in identifying
8 The International Economy Summer 2017
a pathosis that should have devastated any other patient
years, if not decades, ago. Japan is what is known in medical
jargon as Patient Zero, the first case of a condition or
syndrome to be described in the medical literature. That
patient usually has the most basic, least mutated form of
the disease, which may either make them invaluable to
medical efforts or completely useless.
Indeed, if we continue the medical analogy, the
patient is extraordinarily healthy as measured by many
metrics. Recent OECD Economic Survey data show the
probability of becoming unemployed as a Japanese citizen
is the lowest in the developed world. Net household
wealth ranks among the world’s highest. Japan’s net
external financial position is the largest of any country.
Literacy and personal safety also score the highest, and
World Health Organization statistics show Japanese citizens
enjoying the longest life expectancy.
So what are the symptoms of the Japan disease
and why do we care about this malady emanating from
Tokyo? In a seminal 2016 paper, “Japanization: Is It
Endemic or Epidemic?” Columbia University Professor
Takatoshi Ito, an early critic of the Bank of Japan’s
policies and an advisor to the Abe government, defines
“Japanization” as a combination of the following four
economic conditions:
n The actual growth rate is lower than the potential
growth rate for an extended period;
n The natural real interest rate is below zero and also
below the actual real interest rate;
n The nominal policy rate is zero;
n The inflation rate is negative (that is, deflation).
Based on this rubric, some of the symptoms of the
Japan disease do appear to be spreading around the world.
The European Union and the United States have been
struggling with weak inflation, below-trend GDP growth,
and nominal policy rates that are only now starting to
move away from zero.
However, two factors unique to Japan made the duration,
depth, and durability of the Japan disease possible.
First, the structure of Japan’s bond market and the
country’s persistent current account surplus during the deflationary
decades has allowed the government to grow its
gross debt-to-GDP ratio nearly four times since the early
1990s. Historically, less than 10 percent of Japanese government
bonds are held by foreigners, giving the Ministry
of Finance a committed domestic pool for its issuance.
Second, the tradition of social cohesion in Japan has
not spurred the government to radical policies. Despite
stagnant wages, there has been little widespread labor
unrest or punitive policies aimed at Japanese corporates.
Contrast this with the rise of populist parties and politicians
in the United States and Europe.
Given these Japan-specific factors, what lessons can
other advanced economies learn from Patient Zero? First
and foremost, countries diagnosed with Japan disease
should pursue monetary easing in an aggressive and timely
manner. As Ito and Frederic Mishkin (2006) describe,
Japan’s inability to escape the most pernicious symptom,
deflation, was ultimately “a failure of monetary policy.”
As evidence of this failure, GDP growth in Japan
had been consistently lower than nominal JGB yields
from the bursting of the bubble in 1992 to the beginning
of Abenomics in 2013. With risk-free interest rates
higher than nominal growth, monetary policy had been
incentivizing the private sector to deleverage for two
decades. Naturally, this deleveraging led to weak inflation
outcomes and embedded deflationary expectations
among Japanese citizens.
Indeed, as Financial Times Japan noted in their
“Deflated Generation” piece last year, the current cohort
of Japanese twenty-year-olds is “the first to have lived its
entire life with the economy in a broad state of deflation.”
As Tokyo University Professor Hiroshi Ishida explains,
“economic factors have stripped away the incentives for
young Japanese to leave home, buy cars, marry, have children,
take risks, and generally grow up.”
Thankfully, the European Union and the United States
appear to have taken the lessons learned from Patient Zero
to heart. Since the financial crisis, monetary authorities
have been far more proactive than during Japan’s two lost
decades, with the European Central Bank and the U.S.
Federal Reserve intervening in bond markets via aggressive
quantitative easing.
Thus far, this has largely forestalled widespread deleveraging
and prevented deflationary expectations from
taking hold. This offers some hope that the United States
and the European Union can avoid Japan’s costly mistakes.
Finally, lost in the myriad of ex post working papers,
academic articles, and monetary and fiscal policy advice is
what economists, historians, and policymakers should properly
define as the real “Japan disease”—the negligent asset
bubble that was allowed to develop from 1986 to 1991.
Today as global central bankers continue to provide
substantial monetary stimulus to achieve arbitrary inflation
targets, they should be extremely wary of how the
virus of asset inflation enters a host country’s financial
membrane. It is unlikely that any country other than Japan
could have survived this type of financial excess with a
chance of a recovery, albeit at the expense of a lost generation.
Other potential host nations will likely find such a
virulent disease devastating and perhaps fatal.
John Zhou and Lindsey Raymond contributed to this
article. The views presented in this article are purely the
opinions of the author and are not intended to constitute
investment, tax, or legal advice of any nature and should
not be relied on for any purpose.
Summer 2017 The International Economy 9
No, the world is
not becoming like
Japan, but there
are lessons to
be learned.
Ewald Nowotny
Governor, Oesterreichische Nationalbank
L
et me give you a clear answer: No. The world is not
at risk of ending up in a situation akin to Japan’s.
However, both the world economy and the Japanese
economy do face substantial structural challenges. Thus,
the world can still learn from the Japanese experience.
Debt levels are elevated both around the world and
in Japan. However, the similarities end here. For Japan,
the problem of elevated debt is a domestic issue, which
certainly is a boon. Yet demographics create a very pressing
situation in Japan. The working-age population is
shrinking, and this weighs on the overall economy. Japan
therefore cannot hope that economic growth substantially
helps reduce its debt burden. So for Japan, deleveraging
needs are quite uncomfortably linked to demographic
developments.
For the world, foreign debt is far more problematic
than for Japan. Imbalances in debt and asset holdings
persist, which is the challenge here. Then again—from a
global perspective—demographic developments are much
more positive. Unlike in Japan, it is thus easier at the global
level to boost overall income just by putting more people
into work; and rising income, in turn, makes it easier
to pay back debt. This is not to say that deleveraging is not
a necessity, but demographics actually make a bigger debt
burden easier to cope with for the world than for Japan.
Labor markets, however, tell a somewhat different
story. Numbers of nonstandard employees have doubled
over the last two decades in Japan, with nonstandard employees
now accounting for far more than one-third of the
labor force. Not only do nonstandard employees have substantially
lower incomes that grow at a slower pace, they
also have only constrained access to on-the-job training
and qualification measures. Firms simply do not invest in
these people. This is not only a substantial drag on wage
growth, which adds to the deflationary environment, but
it also constrains productive capacity. The combination
of restrained productivity growth and the aforementioned
unfavorable demographics will be enormously demanding
for Japan.
Looking at the world at large, skill-biased technological
changes are likely to enhance the pool of nonstandard
employees significantly in the future. As in Japan, this
could not only affect wage growth but will also considerably
impact the productivity of nonstandard employees.
Growth potential will be lost. In the medium term, it will
therefore be crucial to implement sensible reforms that
help boost qualifications at the lower end of the labor market
and counteract the dequalification of large sections of
the workforce. This is a key lesson that we can draw from
the Japanese experience.
The problem is that
Japan’s saving
continues to exceed
public and private
investment by
a good margin.
Richard N. Cooper
Maurits C. Boas Professor of International Economics,
Harvard University
A
nalogies are usually fraught with misinterpretation,
and are often deeply misleading. Japan has a number
of distinctive characteristics, too many to be listed
here, but starting with its aged and aging society and the
declining number of young adults which, together with
cultural hostility to immigration, conduces to a relatively
stagnant economy in a world of rapid change. And despite
its relatively high public debt, Japan has ample overseas
assets to assure high consumption for years to come.
The entire world is aging, but at very different rates.
Many countries—the United States and India among
the major ones, mainly through immigration in the U.S.
case—will experience a rising number of educated young
adults in the coming years, which if well managed will
invigorate their economies.
There is one respect in which Japan provides a warning:
saving continues to exceed public and private investment
by a good margin. If this phenomenon were to
become general—and we see it strongly in other countries
such as Germany, the Netherlands, Sweden, and
Switzerland—it would lead to a period of secular stagnation
in the world economy.
But while not robust, economic growth seems now
to be adequate in the United States and Europe, not to
10 The International Economy Summer 2017
mention China and India, to avoid that possible outcome.
And the Chinese initiative of One Belt and One Road, if
carried out as promised, with mainly Chinese financing,
should assure reasonable growth also in many Asian and
African countries in the coming years.
I do not worry about large central bank liabilities.
When economic circumstances permit, they can be reduced
with relative ease, and in any case may well remain
permanently higher than the world was accustomed to before
2008.
The world’s
problems are
significant, but
we’re not becoming
like Japan.
Austan Goolsbee
Professor of Economics, University of Chicago Booth School
of Business, and former Chairman, Council of Economic
Advisers for President Obama
I
t’s an important question, but let’s not confuse what it
means to “become like Japan.” The lost-twenty-years era
in Japan was about a popping asset bubble followed by
an extended period of no growth. The other things that went
along with that slowdown, such as large accumulations of
public debt to pay for stimulus, infrastructure, and more, the
deflationary environment, and the complete breakdown of
inflation expectations, were the result of slow growth.
The troubling question about “becoming Japan” is
not about the symptoms. It is about whether the world is
in for twenty years of no growth.
As a statement about the world economy, though, it
seems very unlikely to me. The global economy has major
issues it will need to confront in the coming decades, but
they aren’t really the problem of Japan.
At a fundamental level, Japan’s labor force grew less
than 1 percent combined over more than a decade. That
has undermined the raw growth rate in Japan quite seriously.
As previously documented by authors in these very
pages, on a per capita basis, Japan’s growth was not actually
that bad over the period—faster than Germany and,
perhaps, even the United States. There were issues with
zombie banks and corporations that needed to be shuttered
sooner, but fundamentally it was a demographic story.
In the emerging markets, where they continue to have
population growth and robust domestic and international
investment, it’s not a demographic problem. The economic
issues they face such as accumulating debt, dealing
with large commodity price fluctuations, or reducing corruption
are more likely to end up as traditional emerging
market crises if things go badly awry than to turn them
into Japan.
Japan’s problem wasn’t primarily caused by excess
dollar-denominated debt, by excessive government spending,
or the like. Those were the symptoms of stagnation,
not the cause of Japan’s problems.
All of that said, many advanced economies will face
that demographic squeeze of Japan. Some already have.
For that part of the world economy, they may already be
Japan.
But in the United States (so long as there is not a radical
disruption to immigration), the Japanese experience of
taking twelve years before level of GDP returned to the
earlier peak just has not been repeated, and it seems quite
unlikely to be repeated going forward.
Yes, the issue of slowing productivity growth is a major
problem, as are the issues of stagnant median wages
and growing income inequality. We will face some tough
decisions regarding these in the coming years. But that’s
not really what it means to become Japan.
The world will be
very lucky if it ends
up as Japan is now.
Bernard Connolly
CEO, Connolly Insight, LP
J
apan set the template for the world thirty years ago
in the bubble economy, in which ex ante real rates
of interest were held far below the rate of return
anticipated, however unwisely, on investment. Despite
that example, U.S. Federal Reserve Chairman Alan
Greenspan followed a similar course in the second half
of the 1990s. In both cases, asset bubbles were the inevitable
consequence.
That malignant lunacy, the euro, and the constraints
faced by the Chinese authorities in coping with the
Summer 2017 The International Economy 11
globalization of a formerly Communist economy, further
distorted intertemporal price signals, not least for
emerging-market economies.
Whereas Bank of Japan Governor Yasushi Mieno
deliberately burst the bubble in Japan, Greenspan and
his successors reacted, when rate-of-return expectations
crashed, by pushing ex ante real rates of interest down, far
below any reasonable guess of the rate of household time
preference.
There is no benign end to this process—or to “whatever
it takes” in the euro area or to credit expansion in
China. If ex ante real long rates are below the rate of time
preference, the expected path of consumption relative
to income must be downwards, unless there is a credit
bubble—in which people ignore the No-Ponzi-Game constraint—or
an asset-price bubble—which, by deluding
people into thinking future consumption possibilities are
higher than they actually are, offsets what would otherwise
be a downward drag on current consumption.
But ignoring debt constraints and inflating asset
values produces the risk—and eventually the materialization—of
financial crisis. And, in conjunction with deteriorating
growth in productivity and real wages in the
Western world resulting from a combination of the distortion
of capitalism produced by false intertemporal price
signals, the distortion of society produced by replacing
education with Cultural Marxist indoctrination, and mass
immigration, they have effected a massive shift in both
the functional and the personal distribution of wealth
and have required “workers” to borrow more and more.
In fact, they have led to outcomes which are represented,
however inaccurately, as confirming Marxist predictions
about capitalism.
Getting intertemporal prices right is crucial, combined
with radical deregulation. But abandoning distortionary
monetary policy now would produce a market
crash—arguably a good thing from a sociopolitical perspective
but likely to create a deep recession unless offset
by a vast program of public-private infrastructure investment,
possibly financed by wealth taxes. And deregulation
might have to be accompanied, in advanced economies,
by restrictions on immigration.
One cannot espy any political group with quite
that combination of proposals. Perhaps U.S. President
Donald Trump comes closest to it in some, but unfortunately
not all, respects.
If Trump fails, which is far from unlikely, the risk
of sociopolitical chaos in the United States will be substantial,
and such chaos is inevitable in the euro area and
is a major risk for China and emerging markets. Worse,
the degradation of culture and society by political correctness
in the “education” system in the West may be
irreversible. The world will be very lucky if it ends up
as Japan is now.
Interesting question,
difficult to answer.
Jim O’Neill
Former Commercial Secretary to the Treasury, United
Kingdom, and former Chairman, Asset Management,
Goldman Sachs International
What an interesting question, which is so hard
to give a simple answer to. But if pressed, the
answer is no, for a few reasons. First, a large
part of Japan’s problem is due to their extremely weak
demographics, with a declining working population and
growing dependency ratio. While other major countries
have some signs of this demographic challenge, none are
yet in the same state as Japan, with the possible exception
of Italy within the G-7. I should add that unless birth
rates improve and/or more immigration is encouraged,
then others will have the same problem within the next
twenty years, including Italy, possibly Germany and
elsewhere, importantly, and maybe China and Russia. A
lot of Japan’s weak GDP growth and rising debt is due
to this, and not the lack of success of quantitative easing.
Indeed, so far this decade, Japan has grown on average
by 0.9 percent. This growth is in line with most sensible
estimates of their potential growth, and positive-adjusted
for the population, that is, GDP per capita has grown.
Last, this growth has been faster—until recently—than
growth in the euro area.
Second, a number of other places have grown in
line with their potential, oddly including the very chaotic
United Kingdom, and of course, the likes of China
and India, the latter two which are by definition becoming
a bigger share of global GDP. As a result of these two
countries, world GDP growth has been around 3.4 percent
since 2011, which is actually the same as the average in
the 1980s and 1990s. So this casts doubt on the underlying
premise of the question, although it is clear that the
question has some validity to the United States, especially
in the euro area, and maybe some other places. And of
course, if we didn’t have such extraordinarily friendly
monetary policy, would growth be as strong as it is in the
few places where it is?
Third, and what makes the question especially intriguing,
is that recently some of the key places where the
12 The International Economy Summer 2017
Japan comparison is so tempting have shown evidence
that something is changing. In the euro area, economic
growth is probably close to 2 percent if not possibly
more, and this would of course would be very gratifying
if it were permanent. I should quickly add that inflation
does remain remarkably subdued. I would also add—and
this is very important for your editor, and your readers—
debt in the euro area has been improving, and deficits
in general actually notably improved. Of course, within
this, Germany is running fiscal surpluses and thus seeing
its government debt fall sharply. And despite many comparisons
to Japan, China has managed to pursue policies
that brought their brief period of reported deflation to a
close very quickly.
Still, many key places around the world continue to
have remarkably generous monetary policies, and it remains
a large unknown as to what would happen to growth
if policy were tightened sharply. I suspect we are not about
to run this risky experiment any time soon!
Governments must
act as both borrower
and spender
of last resort.
Richard C. Koo
Chief Economist, Nomura Research Institute, and author,
The Escape from Balance Sheet Recession and the QE Trap:
A Hazardous Road for the World Economy (2014)
My contribution in the previous issue of TIE argued
that the United States and Europe are suffering
from the same balance sheet recession that has afflicted
post-1990s Japan. With the private sectors in these
countries saving massively in order to repair damaged
post-bubble balance sheets, their governments must act as
both borrower and spender of last resort so as to avoid the
paradox of thrift resulting in depressing their economies.
Another challenge that the West and Japan are facing
together is that their domestic manufacturers have
found out that the returns on capital are much higher in
emerging countries than at home. This is the result of improved
educational standards, better infrastructure including
information technology, as well as lower wages in the
emerging economies.
As a result, businesses in developed countries have
been investing massively in manufacturing capacities
abroad. The entire east coast of China is now covered
with factories while there was not a single businessman
in 1979 when Deng Xiaoping opened China’s economy.
This shows the enormous amount of money that developed
countries have poured into the country since then.
As manufacturing is where large productivity gains
can be expected, its shift to emerging economies has left
developed countries largely with service industries where
productivity increases are typically slower. As a result,
domestic wages and productivity growth will remain stagnant.
Stagnant wages, in turn, will make consumers much
more careful about the value for the money, making it difficult
for businesses to raise prices.
With more businesses investing abroad, there is also
reduced demand for borrowing at home, even at very low
interest rates. This reduction in demand for funds diminishes
the already depressed demand for borrowing from
deleveraging households and businesses who are repairing
balance sheets.
Weak or non-existent demand for funds means the
money multiplier is very low or even negative at the
margin, making monetary policy largely ineffective. As
a result, central banks are unable to meet their inflation
targets.
At the same time, fiscal policy becomes more effective
with the reduced risk of the “crowding-out effect.”
Government bond yields have also fallen to unthinkably
low levels as the private sector continues to save and the
government is the sole borrower.
This means advanced countries are all facing an additional
paradox of thrift problem in that households continue
to save for an uncertain future but businesses are no
longer borrowing and investing at home. In order to counter
this problem, government must borrow those excess
private savings and invest them in public works projects
that can earn the social rate of return in excess of the low
government bond yields.
The projects need to be self-financing because this
is a long-term challenge and public debt is already very
large in many countries. The sad state of social infrastructure
in the United States and many developed countries
means there should be many renewal projects that
could be self-financing at the current low level of interest
rates.
The United States and Western Europe started losing
manufacturing when they faced competition from Japan
in the 1970s. All three then faced competition from the
Asian Tigers and China in the 1990s. It is time for advanced
countries to face up to this reality and set their best
and brightest to unearthing self-financing public works
projects until domestic investment opportunities present
themselves again.
Summer 2017 The International Economy 13
Stephen G. Cecchetti
Professor of International
Economics, Brandeis
International Business
School, and former Head of
the Monetary and Economic
Department, Bank for
International Settlements
Kermit L. Schoenholtz
Professor of Management
Practice and Director of
the Stern Center for Global
Economy and Business,
Stern School of Business,
New York University
Many advanced economies will face
a version of this disease.
I
f you ask most people, they would likely tell you that
Japan is doing poorly. Policymakers have failed in their
efforts to restore growth and to avoid deflation. This
is largely wrong. Since 2000, output per hour worked in
Japan has risen at an average annual rate of 1.36 percent—
well above the G-7 average. And prices today are roughly
what they were in 2000. On these key measures, Japan’s
economy is performing well, not badly.
Yet things could be better. The government could be
far more aggressive in implementing structural reforms
(the first arrow of Prime Minister Abe’s three). And inflation
could be closer to 2 percent, but we applaud the
aggressive policy of the Bank of Japan, with its large balance
sheet and long-term interest rate cap. While falling
short of its inflation target, the Bank of Japan has kept the
country from a severe deflation.
Japan does face big challenges. The “Japan disease,”
if that’s what you want to call it, is the combination of high
government debt and an aging population. At 240 percent
of GDP, gross government debt tops the global rankings.
And, at 84 years, so does Japan’s life expectancy at birth.
Combined with one of the lowest fertility rates and very
low immigration, this means that the Japan’s population
is aging and its labor force is shrinking. Today, more than
one-quarter of Japanese are over 65!
As the government financial demands grow, the overall
size of the economy is likely to shrink. That is, there will
be a shrinking pie, produced by fewer and fewer workers,
to be divided up among more and more people. Something
will have to give. But what? Japan will have to find a way to
increase taxes on those working and lower the real value of
its promises to bondholders, to the elderly, or to both.
Many advanced economies, especially those in
Western Europe, as well as China, will face a version of
this disease in the next decade or so. They too have high
government debt and aging populations.
These countries need to redesign pension and healthcare
systems to manage the wave of people that everyone
knows is coming. This will involve lengthening working
lives, increasing saving, encouraging female employment
and immigration in places where it is low, and possibly
reducing the generosity of planned benefits. Only then
can we maintain standards of living. Hopefully Japan will
show us the way.
The world is
unlikely to drift into
a Japan disease.
Anne O. Krueger
Senior Research Professor of International Economics,
SAIS-Johns Hopkins, and former First Deputy Managing
Director, International Monetary Fund
J
apan’s economic malaise began when its huge asset
bubble burst. For years, the Japanese authorities believed
that growth would resume and enable a reduction
in the ratio of sovereign debt to GDP. In fact, as the
Abe government has recognized, structural reforms were
also needed both to offset the demographic downturn and
to permit large gains in productivity through liberalization
of much of the domestic economy. Until recently, however,
structural changes were minimal, and among those that
were made, some—especially the move toward a two-tier
labor market with “temporary jobs”—made things worse.
Japan’s large debt contributes to making the situation
more difficult, but the debt leads to slow growth just as the
slow growth leads to more debt.
The global financial crisis had its roots partly in the
financial bubble and buildup of bad credit in the housing
sector of the same type that had afflicted Japan. The situation
was not so dire, however. The bubble was not as large;
the initial debt burden was not as high; and although there
14 The International Economy Summer 2017
were structural issues in most other advanced economies,
they were generally far less severe than those in Japan.
Moreover, the response was much more rapid. The relatively
prompt cleanup of the banks, imposition of stress
tests, and fiscal stimulus greatly shortened the period before
growth resumed relative to Japan’s lost two decades.
There are some similarities, however. In the United
States, it seems clear that there are a number of spheres—
overkill with regulation, the swiss cheese nature and high
rate of corporate profits taxes among them—which slow
growth. In the face of problems such as these, plus the
slowdown in population growth and political uncertainty,
U.S. growth actually looks fairly healthy.
Some of the same forces have afflicted Europe. The
slowdown in population growth has been even more
abrupt; the crises in southern European countries were a
significant headwind; the financial system needed further
integration, and uncertainties associated with Brexit have
all been drags on growth.
In these cases and in the rest of the world, there are
identifiable problems that must be addressed to enable
growth to accelerate. But the fact that countries such as
Australia and Canada were far less vulnerable to the problems
enumerated above and able to maintain growth in the
face of the global slowdown is a strong piece of evidence
that the world is not heading for “Japanese disease.”
There has been a conjunction of events: the inevitable
Chinese growth slowdown, the demographic shift
and population aging, the southern crises in the European
Union, and the financial situations in the United States and
Europe. That all of these occurred at about the same time
is better thought of as a “perfect storm” than an inexorable
drift into Japanese disease.
Japan’s hardly a
horror story.
Dean Baker
Co-Director, Center for Economic and Policy Research
I
t is amazing that Japan is being held up as a model of
how things get really bad as public debt grows out of
control. With a ratio of public debt-to-GDP of more
than 250 percent, Japan should be the poster child of everything
bad that is supposed to happen with runaway
debt. However, none of the textbook stories fit Japan at
all. The problem is the deficit hawks just haven’t bothered
to notice.
For fans of logic and consistency, the debt story
is supposed to be one of excess demand. The textbook
story is that excessive government borrowing pushes the
economy beyond its limits. This most immediately leads
to higher interest rates. Higher interest rates crowd out
new investment, thereby slowing productivity growth.
They also lead to a rise in the value of the currency,
which leads to a large trade deficit. This means higher
foreign indebtedness.
Alternatively, the central bank can try to keep interest
rates from rising by printing money. This leads to higher
inflation, which if carried far enough leads to a Weimartype
situation with hyper-inflation leading to the collapse
of the currency.
None of this is happening in Japan. In fact, it is pretty
much the exact opposite of the textbook story. Interest
rates are incredibly low, with the interest rate on ten-year
government bonds hovering near zero. Inflation is also
extremely low. The central bank has been desperately
struggling to raise the inflation rate, which has occasionally
slipped into negative territory, to its 2 percent target.
It has largely failed to date, as the inflation rate remains
near zero. Instead of a trade deficit, Japan has a surplus
of more than 3 percent of GDP. And the country’s debt
service burden is nearly zero, which follows from its zero
or negative interest rates.
Japan’s unemployment rate is under 3 percent. Its employment
rate for prime-age workers (ages 25 to 54) has
risen rapidly in the last five years, especially for women.
We know that Japan has an incredibly high debt-toGDP
ratio, but what exactly about this situation are we
supposed to look at with horror? It’s true that its economy
is not growing rapidly, but fans of intro econ know that it
is per capita GDP that matters, not total GDP. In this category,
Japan is not doing especially poorly. Furthermore,
it is not clear how the debt is impeding growth.
For all practical purposes, Japan looks like an economy
that could benefit from more spending. It still has
excess supply, as indicated by weak wage growth and low
or non-existent inflation. This would send its debt even
higher, but why should anyone care? The debt is not posing
any of the problems that economic theory predicts; in
fact, in almost every case the story of Japan is the opposite.
In short, the story of Japan’s economy is one that directly
contradicts all the horror stories about large debts
and deficits. Incredibly, economists are choosing to ignore
the reality of Japan’s economy today and instead act like
the textbook story applies. It is economics that is in crisis,
not Japan’s economy.
Summer 2017 The International Economy 15
The global policy
response to the
Great Financial
Crisis broadly
followed the
Japanese model.
Thomas Mayer
Founding Director, Flossbach von Storch Research Institute,
and former Chief Economist, Deutsche Bank
T
he “Japan disease”—low growth and low inflation—
was caused by avoiding structural adjustment after
the burst of the “bubble” economy in the early 1990s.
Banks and companies in financial difficulties were propped
up by loose monetary and fiscal policies, and private
households were protected against adverse consequences.
Hence, although land values plunged and the Nikkei Stock
Index dropped by 55 percent between the end of 1989 and
1993, the Japanese economy did not fall into recession. At
the same time, however, adjustment was impeded and resources
locked into unproductive “zombie” companies and
banks. Productivity growth fell from more than 3 percent
per year on average in the 1980s to less than 1 percent in the
1990s. This induced a decline in wage growth as employers
and employees wanted to minimize job losses. As a result,
inflation fell. As adjustment was postponed to the indefinite
future, low productivity growth and low inflation became
entrenched. Easy monetary policy was not only a consequence
of the conditions it helped to create, but also helped
to perpetuate these conditions.
The global policy response to the Great Financial
Crisis of 2007–2008 broadly followed the Japanese model
and hence has created a similar environment on a global
scale. Emergency liquidity assistance by central banks in
the wake of the collapse of Lehman Brothers averted a collapse
of the financial system. The operation was similar
to defilibration in case of cardiac arrest. But the persistent
injection of liquidity after the immediate emergency with
the intention of fortifying economic recovery and pushing
inflation to central banks’ target rates has been counterproductive.
It has prevented liquidation of unviable projects
and locked the economies of the affected countries into a
low-growth-cum-low-inflation state similar to that of Japan.
What is to be done? The answer seems to be clear:
End a policy that has failed! But this is easier said than
done. In Europe and Japan, a highly indebted public and
private sector have become dependent on readily available
funding at ultra-low interest rates. Should financing
conditions ever become tighter, bankruptcies on a large
scale would be the result. Priming the liquidity pump
therefore seems essential for survival. The supply of the
world with massive amounts of liquidity by the European
Central Bank and the Bank of Japan thwarts the efforts
of the U.S. Federal Reserve to exit from its own policy
of ultra-easy money. Money flows from Europe and Asia
keep U.S. Treasury yields low even though the Fed raises
its policy rate and is about to shrink its balance sheet.
How will it end? Central banks pursuing harmful
policies will lose credibility in the event and confidence
in our fiat money system will wane. Whether people will
then embrace “old money,” such as gold, or “new money”
in the form of privately issued crypto currencies such as
Bitcoin, remains to be seen.
Not much can be
done aside from
intensifying pressure
for labor market and
welfare reform.
Richard Jerram
Chief Economist, Bank of Singapore
A decade ago, explanations of Japan’s poor economic
performance typically pointed to avoidable policy
errors. Failure to fix distressed banks. Central
bank tolerance of deflation. Half-hearted fiscal stimulus.
Inadequate economic reform. We could debate the importance
of different factors, but the implication was that economic
stagnation was largely a self-inflicted wound. Back
then, I remember a Fed official telling me that they had
learned nothing from Japan’s lengthy stagnation, because
it was simply a function of bad policy decisions.
How far do we need to reassess this critique, based on
the experience of the past decade? Not very much, I would
argue. To its credit, the United States largely avoided repeating
Japan’s mistakes after the global financial crisis,
although the policy response of the eurozone was more
“Japanese” and it has paid the price. Policy failings were
mainly due to political constraints, not disagreement over
the appropriate course of action. This also raises the question
of whether the recent rise in populism will lead to
better or worse policy making. My guess would be the latter,
but docile Japan has nothing to teach us on this front.
16 The International Economy Summer 2017
Of course, demographics were there in the background,
but the sense was that this mattered in the longer
term, but not as a factor in recovery from recession
and financial crisis. The drag from demographics in Japan
has steadily become more intense and the impact might
have obscured an improvement in policy making in recent
years. This is becoming a global problem and Japan could
offer signals for other countries, but there is not too much
that can be done, aside from intensifying pressure for labor
market and welfare reform.
Yes, the same forces
affecting Japan
are spreading
to the world.
Joseph E. Gagnon
Senior Fellow, Peterson Institute for International Economics
S
ome of the forces that began to affect Japan about
twenty-five years ago are spreading to the rest of the
world. The details differ across countries, but there
are common elements from which to draw important lessons
for policy.
Most advanced economies and many emerging-market
economies are experiencing slower productivity growth,
slower labor-force growth, and a regulatory push toward
safer assets. These forces reduce business investment and
increase desired saving. The net effect has been a shortfall
of demand relative to supply, which has reduced inflation
almost everywhere. (But downward wage and price rigidities
have kept a floor under outright price declines.)
Economic theory implies, and empirical studies show,
that these forces have lowered the equilibrium real interest
rate. The challenge for central banks is to get ahead
of the curve and to lower the policy rate far enough and
fast enough to prevent inflation from undershooting its
target. Japan failed to do this and it suffered twenty years
of deflation and excess unemployment until the launch of
Abenomics. Given the difficulty in pushing nominal interest
rates much below zero, central banks should give serious
consideration to raising their inflation targets over the
longer run to create more room for countercyclical policy.
Japan tried to fight deflation with stop-and-start fiscal
expansions that built up government debt without lasting
success on inflation. A better approach would be raising
public worker salaries and jawboning private companies
to follow suit to jumpstart inflation expectations. The
Bank of Japan should fully accommodate higher inflation
by holding bond yields near zero for at least several more
years. Higher inflation would improve Japan’s fiscal position
and reduce the burden of its debt over time. Although
Japan may have allowed debt to rise too high, it bears noting
that borrowers can sustainably manage higher ratios of
debt to income when interest rates are low.
By maintaining moderately low but positive inflation,
central banks can ameliorate some of the harmful effects
of the Japan disease. The only true cure, however, requires
structural policies to first, raise labor force participation,
including of women and the elderly; second, increase
workforce education and training; third, open protected
industries to competition, typically in the service sector;
and last, build productivity-enhancing infrastructure.
Some governments have intervened excessively
to hold down their currencies in order to boost exports,
a classic beggar-thy-neighbor policy. Fred Bergsten and
I show in our new book, Currency Conflict and Trade
Policy: A New Strategy for the United States (Peterson
Institute, 2017), that officials in twenty countries engaged
in massive and excessive currency intervention from 2003
through 2013. This intervention worsened the Japan disease
for the rest of the world, especially the United States
and the euro area, the issuers of the main reserve currencies.
Currency manipulation has receded since 2014 but it
remains a tempting option for economies feeling the effects
of the Japan disease. We need stronger global rules
against harmful currency competition.
Risks of a Japanstyle
debt-deflation
spiral are real.
Jörg Asmussen
Managing Director, Lazard, and former Member of the
Executive Board, European Central Bank
Risks of a Japan-style debt-deflation spiral for most
advanced economies—and notably in the eurozone—
are real, even though reflationary forces are at play.
Summer 2017 The International Economy 17
The gradual global recovery will not prove sufficient to
grow advanced economies out of the current debt overhang.
Over the past decades, our growth model has been
extensively credit-intensive, exacerbating the risks of prolonged
balance sheet recessions. According to Bank for
International Settlements data, total debt (public and private
combined) has kept rising since 2007, reaching 266 percent
of GDP in advanced economies and 232 percent of GDP
globally. There are no signs that global deleveraging is happening.
The most vulnerable countries, beyond Japan (364
percent), are all located within the eurozone: Ireland (411
percent), Portugal (337 percent), Belgium (337 percent),
Netherlands (309 percent), and Greece (300 percent).
High levels of total debt and bad demographics (including
negative migration flows and low female labor
participation) are some of the key factors underlying the
debt-deflation spiral that Japan has experienced since
the 1990s. Many eurozone countries—Germany, Italy,
Portugal, Greece, Spain, and Netherlands—have low
fertility rates, along with Japan (eight to ten births per
thousand inhabitants). They are at the frontline of other
potential cases of “Japan disease,” though Germany is in
a slightly different situation with a relatively low level of
total debt (184 percent).
Limiting the risks of a debt-deflation spiral requires
accelerating the deleveraging trend in most advanced
economies and notably in the eurozone. To reach this goal,
it is necessary to deal with the main factors at the root of
low growth (the so-called “secular stagnation”) but also
high credit intensity: an overleveraged financial sector, fueled
by the predominance of real estate in banks’ credit
allocation (a phenomenon that started in the 1970s) and
rising inequality, as lower and middle classes are tempted
to go into debt to maintain adequate standards on living.
Solutions are not simple and require a well-balanced
policy reaction. In the short term, we need to rebalance
monetary and fiscal policies back to less expansionary
modes in order to gain freedom to act in forthcoming
cyclical downturns. This is important to avoid fiscal
dominance over monetary policy. However, that will not
be enough. We need to reallocate public spending toward
investment in the longer run and implement structural reforms,
notably labor market reforms, to generate productivity
gains. We need to allow skilled migrations, integrate
migrants, and support female labor force participation to
fight demographic decline. We need to fight inequality in
incomes and opportunities, especially for the lowest 20
percent of the population, with more targeted redistribution
and effective minimum wage policies. We also need
to reflect on how we could reform financial regulation to
avoid excessive credit creation in the banking system.
Efforts to accelerate deleveraging are ahead of us. If
we fail, probably debt restructuring will come back as an
alternative policy more often.
The key is whether
China follows in
Japan’s footsteps.
Chi Lo
Senior Economist, BNP Paribas Asset Management,
and author, Demystifying China’s Mega Trends:
The Driving Forces That Will Shake Up China and
the World (Emerald Publishing, 2017)
Given the size of the Chinese economy, its rapid rise
in global influence, and the similarities that it shares
with Japan’s economic development, a clue to assessing
whether the world is at risk of the “Japanese disease” is
to understand whether China is contracting the “disease.”
My assessment at this point is no, because China does not
necessarily have to follow the Japanese footsteps into prolonged
stagnation as some analysts worry will happen.
Let’s not forget the big differences between the two
economic giants. First and foremost, China’s current
economic development stage is only equivalent to where
Japan was in the early 1970s. Its potential growth is presumably
higher than many observers expect. It is possible
that a combination of structural reform, debt reduction,
corporate balance-sheet repairing, and economic growth
will still enable China to skirt the debt-deflation spiral that
has plagued Japan since the early 1990s.
Furthermore, the proximate cause of China’s economic
woes is, arguably, less damaging than Japan’s.
By the late 1980s, Japan suffered an extremely large and
prolonged asset bubble which valued the land under the
Imperial Palace in Tokyo at more than the total land value
of the state of California in the United States. The bursting
of this giant property bubble set off prolonged asset
price deflation with both land and equity prices falling by
three-quarters in the following few years. And this drastic
wealth destruction led to a balance sheet recession that
forced Japan into a debt-deflation spiral.
China is not there yet. While Japan’s property bubble
was systemic, China’s bubble risk is local, with bubbly
conditions seen in the first-tier (large) cities only while the
rest of the country’s property market is stuck with recessionary
conditions. China’s main problem is capital misallocation
leading to excess capacity being concentrated
in a few state industries, notably steel, cement, glass,
shipbuilding, and others, whose fortunes are tied closely
18 The International Economy Summer 2017
to the construction industry. But China has not suffered a
balance-sheet recession, and structural reforms are meant
to correct the capital misallocation and excess capacity
problems and prevent the country from falling into a debtdeflation
trap. China has so far shown a much stronger
reform resolve than Japan.
Last but not least, China is a far bigger and more
independent country than Japan, which relies heavily on
the United States for military and strategic support. This
means that China has in store more potential domestic
demand and entrepreneurship than Japan for boosting
growth if and when its structural reform program unfolds
to deliver results. The Chinese leadership’s strategic ambitions
of rejuvenating China’s international and economic
influence suggest that it would be very unlikely to follow
the Japanese path of sinking into a stagnant growth paradigm
and relying on American military support. Its desire
to wield more global influence may even become a force
for sustaining economic reforms.
Without the destabilizing force from China, the risk
of the world contracting the “Japan disease” is low in the
medium term.
What disease?
Japan’s successes
are underreported.
Andrew DeWit
Professor, School of Economic Policy Studies,
Rikkyo University
J
apan is more than a basket-case of negative lessons.
The Japanese are doing more with less, through extensive
and inclusive policy integration. They maintain
an enviable sociopolitical stability, and a responsive
democracy, even as their population shrinks and ages
more rapidly than anywhere else.
The glass seems at least half-full on Abenomics. In
June, the International Monetary Fund declared it “successful
in easing financial conditions, increasing corporate
profits, and boosting employment and female labor force
participation.”
Other indicators include a 9 percent growth in Japan’s
nominal GDP, between 2012 and 2016. Jobs increased by
1.85 million over the same period, with a striking reversal
of eight years of declines in non-contractual, “regular”
employment. These latter grew by 290,000 in 2015 and
500,000 in 2016. Japan also posted a 15 percent increase
in capital investment, returning it to levels preceding the
Lehman shock.
Japanese workers’ incomes also finally appear to be
rising, after a protracted fall of 12.5 percent between 1997
and 2012. In their July 7 analysis of Japan’s May 2017
“Monthly Labor Survey,” Japan Macro Advisors argue
that the 0.9 percent increase in the basic wage is the highest
in just under twenty years.
Lessons to learn from Japan include smart structural
reform, which has generally been overlooked by the spotlight
on tax cuts and deregulation. Decades of adversity,
and the sobering reality of demographic, disaster, and
energy vulnerabilities, have driven policy coordination
and strategic planning. One important focus is bolstering
the sociopolitical and infrastructural resilience of local
communities.
For example, over one-third of Japan’s 1,718 local
governments have set up new citizen- and NPO-led organizations
to help manage a range of local challenges.
These organizations nearly doubled between 2014 and
2016, from 1,656 to 3,071, and will likely increase further
as 89 percent of local governments deem these necessary.
This expanded local democratization is one element
of an unprecedented collaboration among central agencies,
subnational governments, business, academia, and
other stakeholders. Cooperation extends across all policy
fronts, linking urban, demographic, industrial, and other
planning. Extensive and inclusive vertical and horizontal
collaboration not only keeps the streets clean and safe; it
also facilitates finding and implementing a consensus on
long-range goals.
Moreover, this broadly participatory approach helps
concentrate productivity-enhancing information and communication
technology investment on urgent priorities,
particularly disaster resilience. We see this in Japan’s
“Dam Revival Vision,” adopted June 27, 2017. Supported
by a cross-party alliance, the Vision aims at more than
doubling hydro output from existing dam assets, while
diffusing artificial intelligence, drone, and other technologies
to cope with climate and other risks as well as build
international competitiveness in smart hydro systems.
Ironically, even as Abenomics began to bear real fruit,
Japanese Prime Minister Shinzo Abe grew more interested
in his controversial constitutional reform and historical
revisionism. But recent electoral shocks and a stunning 13
percent drop in the opinion polls in early July suggest he
either puts his nose back to the grindstone of economic
policy or finds himself deposed. So while hardly hale,
Japan is clearly robust enough to deliver a swift kick when
and where it counts.
Summer 2017 The International Economy 19
Here’s how to avoid
the “Japan disease.”
George R. Hoguet
Chief Executive Officer, Chesham Investments, LLC
T
he International Monetary Fund forecasts that world
economic growth will accelerate over the next several
years, but risks to global economic activity remain to
the downside given the bad debts in the Chinese financial
system and the enduring legacy of the global financial crisis,
including a sharp increase in sovereign debt levels, the
possibility of trade wars, and ongoing vulnerabilities in the
global financial system. However, the pace of technological
change is so rapid, and the impact of disruptive technologies
so profound, that we should be cautious in asserting that the
current global productivity slowdown is permanent and that
the world economy is slipping into the “Japan disease.”
Several factors have contributed to Japan’s “Lost
Decade(s)”: monetary policy mistakes; failure to rapidly
restructure failing enterprises; and a cumbersome business
environment for small- and medium-scale enterprises, to
name a few. Japan’s demographic dynamic has also contributed
to slow growth. Twenty-seven percent of Japan’s
population is over sixty-five (versus 15 percent in the
United States). Japan’s population has fallen by roughly
one million over the last five years, and Japan has entered
a period of slow but inexorable population decline.
According to the United Nation’s latest “World
Population Prospects,” over the past ten years world population
growth has fallen from 1.24 percent annually to 1.10
percent. While there are many imponderables, this declining
trend is expected to continue, with a 27 percent chance
that the world’s population could stabilize or even begin
to fall before 2100. The Pew Research Center projects that
by 2050 Germany’s population will fall by 13 percent;
Russia’s by 16 percent; and Japan’s by 15 percent.
While the level of output per capita is the most relevant
metric, rapidly aging societies, particularly in advanced
economies, will limit potential growth and place
large strains on public finances and private pension plans.
Some promises will be broken.
To avoid the “Japan disease,” carefully considered
and prudently implemented structural, fiscal, and monetary
policies are required. Structural policies to enhance
long-run potential growth are key. This means an ongoing
commitment to pro-competition policies, flexible product,
labor and capital markets, and the promotion of an open
and expanding world trade and investment regime characterized
by equitable burden sharing and market access.
Policy should also focus intensively on family-friendly
measures and human capital development, building effective
and credible retraining efforts, and offering to individuals
incentives to delay retirement and to firms to retain
qualified older workers.
Prompt focus on longer-term fiscal imbalances
should accompany structural measures. Part of the solution
could entail a coordinated global crackdown on tax
evasion. And the world can ill afford another major financial
crisis. Accordingly, policymakers should continue to
research carefully crafted, market-sensitive macro and micro
prudential regulations, with a particular focus on the
non-bank sector.
Finally, emerging markets’ share of global output
will continue to grow; the fate of the world economy is
increasingly influenced by developments in China. Policy
should continue to focus on constructively engaging with
China, providing incentives for it to further integrate into
international norms.
No, watch instead
for an India fever
that envelopes
the world!
Kishore Mahbubani
Dean, Lee Kuan Yew School of Public Policy,
National University of Singapore, and author, The Great
Convergence: Asia, the West and the Logic of One World
(PublicAffairs, 2013)
No! The world is not in danger of contracting Japan
disease. Instead, it will be infected by an India fever.
It is a fundamental mistake to view the world
through a Japanese lens. Japan has seen its heyday. The
Japanese people will continue to enjoy a wonderful quality
of life, the envy of many. But Japan represents the past.
India represents the future. At least three forces will
continue to propel India forward. The first is the removal of
obvious bureaucratic inefficiencies which blocked growth.
20 The International Economy Summer 2017
With a single electronic ID (the Aadhaar), a billion Indians
can now access all kinds of services. The demonetization
exercise slowed Indian growth in the short term, but also
gave a massive boost to mobile payments. With a billion
cell phones, India is leapfrogging over conventional banking
systems. The massive introduction of harmonized GST
rates will also cause short-term disruptions and promote
long-term growth. Indian planners were known for caution,
not boldness. Now their courage will become infectious.
Second, India is at an inflexion point in the growth
of its middle classes, from 5.4 million in 1990 to 50 million
in 2013. The number is expected to reach 475 million
by 2030. This is part of a larger explosion of the Asian
middle-class population, which will grow four-fold in a
decade, from 500 million in 2010 to two billion in 2020.
These new Asian consuming classes don’t understand
contemporary Western pessimism on globalization. They
want more of it, not less.
Third, all this optimism is triggering a vital psychological
change in Asian societies that has gone largely
unnoticed in the West: a revival of the strong animal
spirits of many Asian societies. While Japan may not be
experiencing this, most of the rest of Asia is. There are
risks. All these power shifts could lead to new geopolitical
competition in Asia. But not all geopolitical competition
is zero-sum. Some of it will be positive-sum.
China could win the race to build new infrastructure in
Southeast Asia, while Japan could win in India. This explosion
of infrastructure spending will provide another
positive boost to the virtuous circle of development which
many Asian societies are already experiencing. Incomes
will rise sharply. Between 1980 and 2014, India’s per
capita income in PPP terms jumped 10.3 times, while
China’s jumped an astonishing 42 times. What China accomplished
yesterday, India will accomplish tomorrow.
And an India fever will envelop the world. u
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