Don't write off the Japanese - a response

Back at the dawn of blog time - that's March this year - Brian Micklethwait wrote an article entitled Don't write off the Japanese in which be mused on Japan's future.

Now, I would like to claim that having spent a week there I know everything but of course I don't. So, I'll confine myself to a few observations which may or may not lead to some... conclusions.

One of the big themes of Brian's piece was the idea that Japan might be about to lurch in the direction of free markets. The problem is that Japan is pretty much there already. Take taxation. As I understand it Japan's taxation rate is about the same as in the United States. It has regulation, plenty of it, but what major economy doesn't?

I have a personal interest here. In 1990 I started working for Phillip Oppenheim, then a Conservative Party MP. Shortly afterwards (nothing to do with me I'm afraid) he published a book called "The New Masters". In it he demolished many of the myths surrounding Japan's success. The Ministry of International Trade and Industry (MITI) was far weaker than usually supposed. Business could and did stand up to government. Taxation was low; regulation benign. Keynes didn't get a look in.

Another theme was the idea that the Japanese keep their rows to themselves. This is allied to the idea that the Japanese don't have opinions. Which is odd because I have not met a Japanese yet who didn't have stacks of opinions.

One of the most fascinating examples of this appears in the book/poem "Requiem for the Battleship Yamato" by Yoshida Mitsuru. He was a junior officer on the Yamato (the biggest battleship ever built) in 1945 when it was ordered out on a suicide mission. Everyone knew it was a suicide mission and the officers kept asking themselves "Why us?"

OK, maybe not a major league row but there has been a huge one in recent weeks. About a month ago the Bank of Japan attempted to auction off some debt - debt that was to be used to buy shares in Japan's bankrupt banks. The auction was undersubscribed. This is the first time this has ever happened.

The Bank of Japan then came up with the quite extraordinary claim that it did what it did in order to show how stupid the FSA (Financial Services Authority - another arm of government) was being. Anything but quiet. From my own specialist area I am aware that there are all sorts of rows about new roads and railway lines. And this is all rather genteel in comparison with the violent convlusions which presaged the Meiji Restoration or the rise of the military in the 1930s.

As I understand it the causes of Japan's current problems are fairly straightforward. In the early 1990s, the property market collapsed. A huge swathe of business effectively went bust under the weight of loans secured on property. But the banks wouldn't admit it so propped up the businesses. Then the banks went bust. But the government wouldn't admit it and has spent the last decade propping them up. And now the government is going bust.

It's going to be nasty when it happens but I believe Japan will sort itself out very quickly. Deep down Japan is in good shape. It has excellent infrastructure, a well-educated workforce, a low crime rate and a leading position in many high-tech industries.

People are quick to suggest that the Japanese only ever copy but already they are the main innovators in areas such as mobile phones. And anyway, this is a well-trodden path. The Americans, too, copied like crazy until one day, kaboom, and you had Woodrow Wilson telling Europeans how to run things. And where, exactly, did we get the printing press from all those centuries ago?

So to sum up (or should that be conclude?) although I think things are bleak and that there will be a crash and that Japan will recover I think it will be able to do so without any great cultural convulsion - all the elements are pretty well in place right now.