TOKYOCould the future be here? Japan's decade of snail's pace economic growth is
usually seen by the outside world as a phenomenon caused by national
peculiarities. The Japanese often accept this assessment because they like to
see their country's situation, for good or ill, as the product of a singular
culture. But it is just as likely that Japan is in the vanguard of the developed
world, that a similar fate awaits Europe and North America.
If that is the case the developing world,
in particular, needs to take a much less fatalistic view of its own future and
stop relying on the increasingly outdated assumption that it can only prosper if
the old world continues to grow rapidly.
Everywhere old economies are weak. The
World Bank last week cut its global growth forecast to just 2.2 percent, with
the United States down to 1.2 percent, Japan to 0.9 percent and Europe at 2.5
percent. International agencies have to look on the bright side, so the bank
predicts, with an evident lack of conviction, a big rebound, especially for the
United States in 2002.
Is it realistic, however, to expect the
core group, of Organization of Economic Cooperation and Development countries,
to grow at more than 2 percent over the next decade? Japan will probably pick up
a little but the outlook for Europe and the United States is worse. As they age
it is likely that increasing proportions of household incomes in all these
societies will be devoted to domestic services, at the expense of goods, many of
which are imported.
As the West's monotheistic missionary
economists never cease preaching, there have been some specifically local causes
of Japan's malaise. Tardiness in facing up to the bubble era's bad debts and
failure to introduce more competition into the domestic service sector are the
obvious ones. But how do Europe and the United States compare on fundamentals?
Europe's demographics, the single most
important determinant of long-term prospects, are barely any better than
Japan's, and its track record of technological innovation is worse. America has
better (but still deteriorating) demographics and a real but exaggerated
technological prowess. Its domestic and foreign debts are, in the medium term, a
bigger obstacle to continued expansion than was Japan's financial bubble. They
still grow as the Federal Reserve accommodates Wall Street's demands for ever
increasing credit to bail it out of its excesses.
Meanwhile the world is facing the
consequences of overinvestment in manufacturing, which began in Japan in the
late '80s, shifted to the rest of East Asia in the mid-'90s and has since moved
to America. Credit-induced overinvestment continued in Asia well after the
crisis because international investment banks could make huge profits from loan
arranging while passing the risk to naive Western pension and mutual funds. The
profits "ice age" is now spreading from Asia to the West.
Almost every economy outside the United
States needs a consumer demand boost but the places from which it can most
easily come must cope with a monetary system dominated by the three currencies
of the old rich. While no one can complain that there is a shortage of global
liquidity - quite the opposite - there is a reluctance on the part of smaller
countries to stimulate their economies if that involves taking on additional
Lack of imagination on the part of
governments and international institutions has largely precluded international
issues of domestic currency debt even though currencies such as the Thai baht,
the Korean won and the Malaysian ringgit have at least as good 30-year track
records as sterling or the Australian dollar. Meanwhile the U.S. dollar's role
in cross-border investment has grown even as governments in Asia have shifted to
more flexible currency policies.
Asia's obsessions with investment and
exports at the expense of domestic consumption are a further negative factor. So
is the widespread belief that developed country markets are all that matters
while potentially faster growing non-OECD markets are seen as of marginal
Europe and the United States should
acknowledge that they have scant scope to outperform even an aging Japan over
the next decade. Younger economies should be stimulating consumption at home and
taking trade and financial sector initiatives abroad to offset the sclerosis of
old economies and imbalances in capital markets.