The Bubble Economy
and the Lost Decade:
Learning from the Japanese
Economic Experience
William M. Tsutsui
University of Kansas
Plan for this Session
• Japan postwar “miracle” economy (1950s
to early 1970s)
• The “Bubble Economy” (late 1980s)
• The “Lost Decade” (1990 to early 2000s,
or still ongoing?)
• What did the Japanese do wrong?
• What can we learn from Japan’s
experience?
The immediate postwar economy
The beginnings of the “miracle”
The Elements of Growth
• Trade policy, human resources, the “free
ride”
• Open world trading system
• Entrepreneurship
• Consumption
• The bureaucracy, “industrial policy” and
the “developmental state” (Chalmers
Johnson)
Unique Structural Features
• Japanese Employment System: lifetime
employment, seniority system, company
unions
• Keiretsu
• Corporate finance and banking system
• The dual economy
Unique Structural Features
• Japanese-style management
• Japanese democracy: the Liberal
Democratic Party
• Social consensus on growth
An economic coming of age
The export economy
The big ’80s in Japan
How did it get so bad?
•
•
•
•
Inept public policy
Corruption
Greed
The belief that Japan was somehow
“different”
When the bubble burst
Nikkei Average (Tokyo Stock Exchange)
Source: http://brual.files.wordpress.com/2008/09/nikkei-average-historical-graph.png
Japanese Real Estate Prices
Source: http://m1.smartmoney.com/tradecraft/images/1107-graphic.gif
Japanese GDP Growth Rate
Source: http://www.treasury.gov.au/documents/817/images/05_article_4-18.gif
Japanese manufacturing
The government response
Source: http://www.heritage.org/Research/AsiaandthePacific/images/bg1530cht5.gif
Source: http://bilbo.economicoutlook.net/blog/wpcontent/uploads/2009/04/japan_interest_rates.jpg
The banking crisis
So what went wrong?
• Government incompetence
• Lack of decisive action?
• Political failures
Japanese Prime Ministers,
1989-2001
So what went wrong?
• Structural peculiarites of the Japanese
economic system
• What about the Japanese people? Should
they have spent more and demanded
more?
Social fallout of
the bubble economy
Aum Shinrikyo and the Kobe earthquake (1995)
• Enjo kosai “compensated dating”
• Hikikomori “acute social withdrawal”
• Tokokyohi “school refusal”
Source: http://www.japan-zone.com/features/pix/005/population_aging.gif
What lessons should we learn?
•
•
•
•
•
•
Greed is universal.
Hindsight is 20/20.
The market can’t solve everything.
The government can’t solve everything.
Quick fixes probably won’t fix it.
Watch out for the social fallout of
economic distress.
Not all stories have happy endings.