Japanese Economic Malaise: What should Shinzo Abe do?

A Personal View – April 2014

Six decades ago Japan surrendered after an atomic bomb obliterated Nagasaki. It convinced Emperor Hirohito that fighting to the last man, woman & child would be calamitous for the Japanese.

A new war commenced; economic growth with industrialists such as Marita Akio of Sony at the forefront. Her economy was export driven with vehicle manufacturers such as Toyota together with the electronics producers comprising the battering ram.

This formula was so successful that by the seventies the United States experienced a severe bout of economic angst that Japan would engulf the American icons such as General Motors & Ford. All the rage was the new Japanese manufacturing buzz-words which were de rigeur at any dinner table. The purchase of a Hollywood Studio made even the actors’ guild apoplectic and head for their Zoloft tablets.

Congress was under pressure. Protectionism became fashionable again after a hiatus of 40 years. How could America compete against little yellow men who never slept and worked for a pittance? American workers revolted. With inspired foresight, the Japanese motor manufacturers established assembly plants in the US.

Instead of bewailing the fact that the Japanese quality was ineluctable, American manufacturers actually had to compete. They raised their standards.

But then two decades ago, something unexpected occurred; the Japanese economy stopped growing. Economic stagnation & deflation beset the economy. No longer were imported Japanese goods cheaper than American made products.

What had happened to the Japanese economic power house? All the afflictions which had remained submersed in the good times, surfaced. The Japanese had over-invested on a large scale. The investment had not only been in productive goods but in infrastructure like the bridge that led to nowhere, in inefficient & unproductive infrastructure.

Instead of following the tried-and-tested economic dictum of a good dose of recession to cull the unproductive investment incisively, the LDP, the ruling party, tried the Keynesian route of pump priming which was wholly inappropriate under the circumstances. The economy overheated & stalled. This was akin to the old-fashioned carburettors which when over-stimulated, created the same repercussions – a stalled engine.

What was solution? Replace the Prime Minister & let a new one try the same trick. No wonder nothing happened. With a revolving door policy on Prime Ministers, clueless little grey men each as un-noteworthy as the predecessor, they would smile for the camera, make a platitudinous promise and would shortly be swept from office.

Finally after 50 years in power, the LDP lost an election. Better was expected. The DPJ would be given its chance to rectify Japan and keep it on an ascendant trajectory.

It was not to be. Riven by internally conflict, it faltered; the Japanese electorate saw the error of their ways & voted the equally clueless LDP back into power again.

Japanese morale reached a nadir but worse was to come. 2011 was her annus horribilis with three devastating events: an earthquake, a tsunami & a nuclear disaster claiming 16,000 lives. Could it get any worse but more importantly who could be its saviour?

After an unspectacular period as Prime Minister in 2007, Shinzo Abe was summonsed to hold the reins of power once more.

Unease gripped Asia. Abe’s prescription for resurgence & lifting morale rested on three pillars, some unspoken:

  • Keynesian economics
  • Japanese nationalism
  • Militarism

Let us consider all three for amongst the chaff there was some wheat. Firstly the lack-lustre economy. Due to the deflationary environment, some pump priming was required. Eventually to bear the appellation Abenomics, it comprised a fiscal stimulus & monetary easing. But what Abe decided was an overdose. Would that inflict mortal damage to an already overstressed economy? Abe reasoned that a severe jolt was what was required to revive an economy beset with rigor mortis.

What Abe ignored was another urgent prerequisite; structural reform. Hidden beneath the success so assiduously won by the export industries was a sclerotic services sector. This state of affairs had been tolerated to buttress employment rather than wind it down in good years. Now it had to be done in uncertain times. Abe did not have the nerve to tackle this affliction simultaneously with the easy solution of money printing.

Japanese Nationalism and militarism were slaughtered along with the dropping of the atomic bomb in 1945. America would henceforth provide the security umbrella under which the Japanese economy could prosper.

Shinzo Abe is an old-style nationalist whose ambitions had previously been thwarted by the reluctance of his co-members of the LDP. Now was his second chance.

Abe started playing realpolitik with a nationalistic visage; the Japanese government forced the owners of some inconsequential islands off the Chinese coast called Senkaku to the Japanese & Diaoyu to the Chinese to transfer ownership to themselves. The Chinese bristled & huffed. The Chinese President, Xi Jinping, himself a nationalist, reciprocated by military posturing.

Finally Shinzo Abe has declared that the constitution must be changed. The initial post war constitution restricted Japan to a Self-Defence force and not a military with offensive capability. From an American perspective this would relieve them of their obligation to defend Japan against aggression. America also feels in need of assistance militarily as that part of Asia is a tough neighbour with a distinct lack of camaraderie & brotherly love with an asinine North Korea & resurgent nationalistic China.

Abe has plucked the low-hanging fruit but now needs to grasp the nettle of structural reform of the services sector. Furthermore any self-respecting country needs to be able to protect themselves militarily but where Abe is blindsided is by his nationalistic urges like his adventure with some nondescript islands in the South China Sea.

Like a Curate’s Egg, Shinzo Abe is good in parts.

While he is making changes he should also genuflect in penitence for Japan’s atrocities during WW2.

That fact might not build the economy or bolster Japan’s self-worth – which is lacking at the moment – but it will relieve never-ending tensions.

Shinzo, so far you have been the longest serving Premier in years, so use your longevity and implement the structural reforms – the toughest task of all – before 2016.


  1. Japan needs to accept its WW2 guilt…and stop the denial, teach the truth to its people…until then Japan will remain a small irelavant country…


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