Foldvary on The Japanese Economy
|February 12, 2003||Posted by Fred Foldvary under Archive, Progress Report, The Progress Report|
The Japanese Economy
by Fred E. Foldvary, Senior Editor
From World War II until 1990, the government of Japan had an industrial policy of attempting to steer the Japanese economy. Certain industries were favored with subsidies and protection, and the government was involved in managing the economy. Since the economy did so well, many people, including economists, thought that government direction or so-called “government-industry cooperation” was the way to go, and pointed to Japan as a model for the US to follow.
Today, nobody is heralding Japan as a model. The Japanese economy fell in 1990 and has not recovered. Land prices and the stock market collapsed. Unemployment increased. The currency, the yen, has fallen in value. The banks are failing and some are overdue to go bankrupt or merge. (See, for example, Japan’s Comatose Economy .)
Yet the basic economic system has not been reformed. The government, actually several governments and prime ministers, has continued to be a visible hand directing the Japanese economy. The Japanese national debt is over US $5 trillion, the largest per-capita debt of any industrialized country. High government spending has not worked. Low, near zero, interest rates have had little effect. All attempts to stimulate the economy have failed.
The Japanese slump has spilled over to other countries, especially in Asia. Japan is a major trading partner, and when Japanese imports fall, other economies suffer. Stock prices are down all over eastern Asia, although political troubles and conflicts, especially in Indonesia, are a large part of the problem as well. The US economy, in a growth slump, is no longer strong enough to pull the Asian economies up.
Is the lesson not clear? Government planning was not the cause of the Japanese boom. Under US occupation, Japan benefited from land reform and a relatively free-market economy. The recovery from World War II was swift because like Germany, Japan was previously industrialized and its workers were skilled and had a good work ethic. Japan also was freed from any military burden. Success came despite government direction.
But it was not government planning that ruined the Japanese economy. What brought down the Japanese economy was its land tenure and tax system. The post-war land reforms did not go far enough. What killed prosperity there is what has killed it everywhere: a land boom with ultra-high real-estate prices that choked off investment.
The remedy is the removal of the cause of the problem. The land market can be set straight by collecting most of the rent and using it for public revenue, at the same time that labor and investment is untaxed. It would also be beneficial to scrap the government-industry tie. Banking reforms requiring honest accounting would help also. The Japanese government also needs to eliminate subsidies to rice farming and other industries.
Shifting taxes out of wages and production and into land rent would immediately catapult the Japanese economy into a growth rocket. But it will not happen because of public ignorance and the entrenched political power of the landed interests.
Copyright 2001 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
What is your view on the Japanese economy? Tell your opinion to your fellow readers at The Progress Report!