Japanese Phoenix
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I have been in Japan for almost ten years now - the better part of Japan's "lost decade" and often it is hard not to be overly pessimistic about Japan's future. The economy is doing nothing and everything politicians try just seems to make matters worse. Book after book details how horribly screwed up Japan is. No matter that these book are well-researched and well-written,they are still focused on the negative.
Personally, I was so convinced of Japan's hopeless future that I decided to read Katz's book just to see if he could possibly find a reason for hope. I am glad I did - Katz does an excellent job of describing what is wrong with the Japanese economy, why many of the measures the government has taken so far have failed, but also how and why the Japanese economy could improve in the next ten years or so.
"Japanese Phoenix" is full of charts, graphs, and statistics. It is not light reading. Neither is it all sugar and light - Katz details what is wrong with the Japanese economy in order to show what sorts of reforms are necessary to improve Japan's economic outlook. His analysis is neither simplistic nor dogmatic. He does not claim that Japan's economy will improve just that it could if the government undertakes the right reforms.
Yes, I know, that is a Jupiter-sized "if" but Katz points out quite realisticly that reform will happen as soon as the cost of not reforming is higher than the cost of reforming. This simple observation is missing from many of the "Japan is finished" type books, whose authors assume that the current unwillingness of Japanese politicians to reform will continue forever.
Another observation Katz makes that I do not recall seeing elsewhere is that the convervatives who are against reform are by no means unified. They are not capable of uniting against reform mostly because too often what helps one group hurts another group. Import protection that benefits one manufacturer might mean higher prices and fewer sales for another manufacturer. Thus, reformers have some room for manuver.
Unfortunately these do not automagically make a persuasive argument. It seems reasonable to think that politicians and bureaucrats will not change until they are forced to, in order to maintain their power. It is not so clear that the changes they might make will necessarily be in the best interests of the country or the national economy. After all, the current situation is hardly in the nation's best interests but those in power show little interest in changing things.
Further, even assuming that the politicians and bureaucrats had the good of the country at heart, economic policy is hardly an exact science. However, on this point, Katz's book is on firmer ground. Parts of the Japanese economy are so backward, inefficient, and protected that fixing the situation is more a case of getting the government out of the way - less regulation and less government interference and then let the market do what it does best.
Here is how Katz describes the fundamental problem with Japan's economy (from page three):
Japan's dilemma is that the obstacles to growth are woven into the very fabric of its political economy. Years of corporate collusion and protective regulations have steadily eaten away at productivity growth, making it impossible for an unreformed Japan to grow faster than 1.25 to 1.5 a year, even at full capacity.
There are two different Japanese economies. One is comprised of the widely known and internationally competitive companies like Honda and Sony. They are not the problem. The other economy is composed of domestic firms that are mostly protected from real competition and are horribly inefficient. They are a big part of the problem. Japan's dual economy has been widely commented on, but Katz's point is that because the industries in the protected economy are so inefficient, there is a lot of room for growth - if they are opened up to competition and bring their efficiency up to world standards.
The rest of the problem is the government. There are too many regulations that encourage inefficient or anti-competitive behavoir. Thus, for the economy to recover, reform programs and financial incentives must work together to be effective. Either one alone is not only ineffective, but often harmful.
A few of his supporting points:
Of course inefficient industries are just one aspect of Japan's continuing economic malaise. There is much much more in this book. For example, toward the end, Katz explains why America is not Japan and why the American bubble that burst in 2000-2001 is not at all similar to the Japanese bubble a decade earlier.
Yes, the Japanese economy is currently in bad shape. No, there are no quick fixes. Katz does not pretend there are. When he says Japan can recover, he does not mean this year or next. He is talking about Japan returning to economic health ten or twenty years from now. Not a joyous prognoses, but a realistic one, in my opinion.
I heartily recommend this book if you are interested in what is holding the Japanese economy down and how it might get back on it's feet.
Chris Spackman
Kanazawa, Japan
March 2004
This review is Copyright ©2004 by the author
This page is Copyright © 2004 Mark Groenewold
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