Japan Redux

The World Looked So Different in 1980

From The Economist ("Land of the setting sun." Nov 12th 2009):

IT LEFT American executives quaking in their loafers and cheered a generation of Japanese salarymen. “The extent of Japanese superiority over the United States in industrial competitiveness is underpublicised,” trumpeted Ezra Vogel of Harvard University 30 years ago in “Japan as Number One” (see article), which became one of the most-discussed business books of its time.

The world’s second-largest economy had surpassed America in gross national product per person according to some measures, and looked on course to overtake it. “Vogel’s book helps explain why Japan is the most dynamic of all modern industrial nations,” gushed Foreign Affairs. America was mired in stagflation, with an unemployment rate nearing double digits. Japan seemed to be the better bet.

Yet things didn’t quite work out the way Professor Vogel expected. Japanese industrial production rose by 50% in the decade after 1980—a remarkable trajectory for a country crammed into an area the size of Montana. But growth was driven by financial leverage and overinvestment. Property and share prices bubbled, rising as much as sixfold.

The bubble’s collapse, beginning 20 years ago this December, led to almost two decades of economic doldrums. It took 15 years for industrial production to surpass the 1991 peak. In the current crisis it collapsed to levels last seen in the 1980s. In time America’s fearful “Japan bashing” gave way to sniggering, then indifference. Last month a poll of market professionals by Bloomberg, a news provider, put Tokyo last among several big cities as a financial capital. In the 1980s all of the world’s top ten banks measured by deposits were Japanese.

History never repeats... but it does have a habit of rhyming...