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Sunday, May 16, 2010
Sense of complacency links Japan to Greek crisis
There's nothing like a good financial meltdown to straighten out your priorities. When it happened in Greece more than a month ago, the Japanese press went over to see whether or not the country's situation had anything to teach Japan. After all, Japan's public debt is much worse than Greece's. In fact, it's the worst in the world.
At first, all they found was bad behavior that seemed to indicate Japan wouldn't likely go through the same crisis, at least not in the same way. TV Asahi's "Super Morning" news show ran a report from Athens in the middle of April, before the rioting started in earnest. Its sub-headline was "The future of Japan is here." The reporter outlined the issues surrounding Greece's crisis: the development of hyper-inflation ("20 percent in just a short period"); the fact that since 2004 the government has hired 100,000 new civil servants; the startling fact that 20 percent of the population works in the public sector and earns an average of 70 percent more than those in the private sector; the fact that bribery, tax evasion and political corruption are rampant; the untaxed "underground" economy which represents 30 percent of Greece's total economy; and that, in any case, even the rich chronically under-report their income.
Dire stuff, but somehow reassuring to the commentators in the studio. "Japan is nothing like that," said the announcer, implying that Japanese are hard-working and pay their taxes, and that, in any case, Japan is suffering from deflation at the moment. The reporter elaborated on the differences between Greece's debt problem and Japan's, which was mainly caused by wasteful public works projects and the outlays necessary for the various government insurance programs.
There didn't seem to be much overlap, but then the reporter mentioned one. Greeks had no "sense of crisis" before the floor caved in, and neither do the Japanese at the moment; which isn't to say that the floor is about to drop here any time soon, only that public perception has some effect on these things. As Former Financial Services Minister Heizo Takenaka said last week on TV Asahi's "Sunday Project," Greece's problems are also political in nature. The country's leaders did not convince the people of the need for fiscal austerity — they didn't want to upset them — and he sees the same failure of will among Japan's current leaders.
What mainly bothers non-Greeks about the Greece crisis is the response of "the market." Leadership is needed, but politics, as Takenaka said, often tags along behind the market, especially in Japan where public officials treat macro-economic policy as if it were something gross and slimy. "Why are cabinet ministers traveling overseas to sell bullet-train technology?" he asked, pointing to recent trips by Democratic Party of Japan big shots to Vietnam and the United States. That's not the job of the government, he said. They have better things to do, like making long-term plans to reduce the budget deficit.
Takenaka's points deserve scrutiny, but as an advocate for smaller government, and former prime minister Junichiro Koizumi's hand-picked operative to carry out financial reform, he opposes the people currently in power.
The optimists' club has been best represented by the financial blogger nicknamed Gucci. In articles for the weekly Aera, he dismissed comparisons between Japan and Greece as being facile, pointing out that most Greek government bonds are held by non-Greeks and that during January and February more than 30 billion euro left the country. He says a country can be considered bankrupt when it can no longer sell bonds and its money supply has flown the coop.
In such a situation, savings accounts dwindle, but in Japan savings are actually increasing. Moreover, the banks are using this money to buy Japanese government bonds. If Gucci is an optimist, it's mainly because Japanese people are pessimists when it comes to investing. Mutual funds have never caught on in Japan, and despite the non-existent interest rates people still sock their money away in the bank and postal savings accounts. The stability of the yen is another reason why Japan won't follow Greece, according to Gucci, who insists that Japan is practically the only country in the world where you can't spend dollars: Japanese people are extremely confident in their currency. He asks those economists who fret over Japan's ability to stave off bankruptcy to "show me your bank accounts." He's sure they all keep their money in yen and in Japanese institutions. In addition, Japanese government bonds maintain good ratings because the firms that set the ratings know that Japan has a lot of room for tax increases — the consumption tax, after all, is still only 5 percent. In Greece it was just raised to 23 percent.
The point Gucci and his ilk are making is that Japan's "Galapagos" character, its almost perverse insularity, prevents it from going the way of Greece, which is, after all, dependent on Europe. Greece can't lower the value of its euro in order to improve trade because it's not the only country whose main currency is the euro. Japan, however, is the only country whose main currency is the yen.
Pessimists, on the other hand, argue the opposite, that this character amounts to complacency that can lead to a meltdown because no one is demanding the necessary changes. The government panel to cut wasteful bureaucratic spending receives a lot of press but has barely cut anything. Almost half the population believes an increase in the consumption tax is necessary, according to surveys, but the DPJ doesn't want to take any chances ahead of this summer's upper house elections.
Japan's "lost decade" of the '90s proved that if people feel relatively comfortable they will ignore the fact that their economy is falling apart. Even in Greece some people still don't see it. TV Asahi interviewed one Japanese expat living in Athens who seemed confused by the turmoil around her: "Does this mean I can't eat rice?"