Source Ian Murray
Date 03/03/04/02:26

The International Herald Tribune |

Japan's paradox: prosperity amid decline
Howard W. French/NYT
Tuesday, March 4, 2003

12 years of economic failure seem to produce little more than a dull ache

TOKYO It is a paradox that looms for every arriving visitor. The streets here
are immaculate. People are fashionably dressed, and chic restaurants overflow
with guests throughout the week. How can Japan possibly be a country in
financial crisis?

Numbers, though, paint a very different picture. Japan may still have the
world's second-largest economy, but for 12 years - ever since what is
universally known here as the bubble period - there has been barely any
sustained growth. Nine governments have come and gone during this time, some
hoping to wait out the crisis, others hoping to spend their way out of it.

Prime Minister Junichiro Koizumi came to office two years ago promising a
sweeping overhaul of a stagnant system, but few measures have been enacted and
his decision last week to name the safest choice to run Japan's monetary policy
suggests that little will probably change soon. All the while, regional
competitors like China, South Korea and others have made giant strides.

Over the last half-century, Japan has grown so accustomed to success that what
comes easiest now is denial of the need for urgent measures. This pattern can be
seen in those who govern, in corporate boardrooms and among an electorate that
has continued to return the Liberal Democratic Party to power since 1955, with
only one brief interlude.

Japan's situation defies facile solutions, of course, just as it evades easy
description. Often, it seems more like 100 subtly interrelated mini-crises, none
of them terribly serious by itself, but that together portend monumental

By seeking to spend their way back to growth, successive cabinets here have
turned Japan into the industrialized world's most indebted country. The biggest
chunk of this spending has gone into public works projects that briefly create
the illusion of growth but generate little new production. While other countries
have rules that force even mainstays of their industries to restructure or
disappear when they can no longer compete, Japan expends huge public resources
preventing its corporate zombies - from supermarket chains to its largest
banks - from going to their graves.

Money spent on dead weight is money not invested productively, and the economic
cost is gradually making itself felt in social terms. The jobless rate, 5.5
percent, is at a historic high.

Women are flooding the job market, yet still face severe limits on career
options. And they are postponing marriage. Japan's fertility rate, already the
lowest among the world's advanced economies, is plummeting.

As fewer children are born, the malaise spreads. A shrinking population means a
crumbling tax base and may portend a fiscal emergency as pension and health
bills come due for its aging generation. All the while, younger Japanese are
showing less of the legendary spirit of self-discipline. Instead of devotion to
the company, this era is becoming famous for "parasite singles," young adults
who flit from one part-time job to another, living with their parents rather
than making it on their own.

Indeed, most Japanese still feel their country's problems more as a dull ache.
Violent crime and homelessness are rare. Travel abroad is near record levels. If
fancy restaurants are full, it is because many people can still afford them.

"People don't take drastic measures until they feel like they have exhausted
every other option," said Richard Katz, an economist and author of "Japanese
Phoenix: The Long Road to Economic Revival."

"With all of the savings people in Japan have accumulated, most people still
don't feel desperate. They are preservationists, clinging to the status quo."

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