Quick to Rebuke U.S., Rest of World had Part in Crisis too
Cycle of excessive American consumption had help; Japan must step up, take advantage of own available resources to pull out of slump
Masahiko ISHIZUKA (Councilor, Foreign Press Center Japan, and Lecturer, Waseda University)
One scene I witnessed in a village in southern China years ago remains vivid in my memory. At a farm fair, a merchant was putting feed in a tube of rolled paper and blowing it to cram the feed into the throat of a duck. The forced feeding was meant to fatten up the bird quickly for use as Pekin duck, prized by gourmets.
The collapse of the American economic bubble reminded me of what had happened to that duck.
It is said that behind the U.S., subprime debacle and the financial meltdown it triggered was an economy bloated by overconsumption. Oiled by money made available in the form of credit backed by soaring home prices, consumers went on spending sprees that were beyond their means. The asset price bubble collapsed, sweeping away their financial foundation and leaving the financial system - and the entire economy - badly shaken in the U.S., and beyond.
In a delusion of unlimited and unending prosperity, consumers took advantage of the bubble or were exploited as agents fueling the bubble. With the party being over, it is fashionable to criticize Americans for their financial irrationalism, both at the industrial and institutional levels. In retrospect, regulators are being held responsible for their failure to detect signs of the bubble and act sooner to correct it. And investment banks and other financial institutions are being denounced for their alleged greed and unethical behavior in pursuit of profits.
What made all this possible was the creation of a cycle in which Americans bought products from other countries like China and Japan, using money that exporters had earned and recycled into the U.S. by purchasing U.S. government bonds or investing in American businesses.
In it together
Thanks to this, the economies of China and Japan prospered. They - and a host of other countries - depended on, and took advantage of, the American bubble, which they fed by selling and lending to the country. And the engine of U.S. economic growth, even though it was a bubble, was American consumers' seemingly insatiable appetite for spending.
It is easy now to blame American consumers for behaving in such a manner. But where is the responsibility of exporting countries, which benefitted from, and even encouraged, the American consumption orgy? If American consumers were irresponsible, undisciplined and overly euphoric, does not the rest of the world share the responsibility for keeping them that way?
This brings me back to the duck I saw in the Chinese village, brutally crammed with feed to get fat - though it might not be entirely appropriate to liken the U.S., the world's strongest country, to that bird. But if we are to take a sobering look at where the U.S. has gone wrong, we should take an equally sobering look at ourselves for depending on such a U.S.
Everyone should have taken a second look at the unrealistic practice of relentlessly forcing Americans to consume beyond their means, fattening themselves up for the rest of the world.
With President Barack Obama sworn in, the whole world is focused on what he will do to restore the shattered U.S. economy. It looks as if the fate of the entire world depends on the U.S. - a situation seemingly unchanged from the pre-subprime order, where the U.S. was the commanding global presence.
What is more, the rest of the world is again expecting Americans to spend, as the Obama administration appears intent on doing to the government's limit. Someone likened this to giving Scotch to a drunkard suffering from a heavy hangover. But there seems to be no alternative for saving the U.S. and global economies.
Prime Minister Taro Aso has diagnosed the Japanese economy with a disease he says will take three years to cure. He also declared he would work to make Japan the first country in the world to emerge from recession.
Despite his stimulus packages, however, most economists and policy-makers are viewing Japan's recovery as crucially dependent on an American recovery. They are casting a doubtful eye on the seriousness of the Aso government about generating domestic demand to lift the country from the slump on its own.
As the media and a range of experts are arguing, Aso's stimulus packages are short of long-term programs to make the domestic economy structurally stronger so that more domestic demand can be generated. Instead, the much-touted emergency programs are of a dubious nature, like the fixed-sum benefits. Some programs can be laden with pork.
Japan is not without resources. It has ¥1.5 quadrillion ($16.6 trillion) in personal financial assets - though they have been partially eroded by the financial crisis - as well as industrial technologies in several fields. A majority of analysts and commentators point to the poverty of politics, failing to show a direction for the nation to make good use of the resources still available.
One thing keeping people with cash from spending it is mounting anxiety over the future. This is evidenced by, for example, the malfunctioning social security system including pensions, nursing care and healthcare. Concern about job security adds to the problem. But if the government can relieve these worries, it will make people rest easier and be more inclined to spend.
Even if the U.S. succeeds in restoring its economy, it will not return to an economy supported by overconsumption. How is Japan preparing itself for this change?
The deep worry people are feeling about the prime minister stems from the absence of a clear message from his government on this crucial point, not to mention the intellectual capacity to back it. But Japan is not lacking in wisdom in this field, either. And it is time to harness the resources and capacity that are left in the tank.
Doing so would be the best thing Japan can do to help the U.S. - its most important, long-time ally - in its unprecedented difficulties.
Thomas Schieffer, the U.S. ambassador to Japan over the past four years, said in his recent parting press conference in Tokyo that "Japan needs to shape the new world order" emerging from the current crisis, not just react to it. He said that Japan's first response to the Obama administration - which came into being on Obama's mantra of "Yes, we can" - must not be "We can't."
Japanese should feel ashamed that they have to be given such a lecture.
(Originally appeared in the January 26, 2009 issue of The
Nikkei Weekly, reproduced here with permission.)