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Learning from Japan’s ‘Lost Decade’

Marketplace Staff Oct 9, 2008

Learning from Japan’s ‘Lost Decade’

Marketplace Staff Oct 9, 2008


Kai Ryssdal: It’s easy to get bogged down in the nitty-gritty of the credit crunch, if you’re not careful. But of course there’s lots more going on out there than Henry Paulson investing in banks or those banks not really buying into the rate cut. The currency markets have been hopping. As we’ve said, the dollar’s been on a tear against the Euro. The Japanese yen’s outdoing them both. But if you’re wondering how bad the our financial condition could get, Japan’s a good place to look. The recession that started in there back in the early ’90s is called the Lost Decade. Although by many accounts, that recession is now well into its second decade.

Marketplace’s Scott Tong went to Tokyo to see if there are any lessons for the United States today.

Scott Tong: At first blush, economic stagnation is hard to see in Tokyo. Store owners with bullhorns hawk mobile phones and laptops, and folks in suits buy them. And skyscrapers here stand taller and shinier than ever. But this is normal Japan compared to the outrageous 1980s.

Jeff Kingston teaches at Temple University in Tokyo. He wrote a book about the bubble days.

Jeff Kingston:
There were reports about people eating Japanese noodles in soup, which they would sprinkle gold flakes into. At ritzy establishments, they would serve sushi on top of a naked woman.

Japanese investors blew economic bubbles chewing the same gum Americans did.

Low interest rates propped up unsafe loans, which propped up unrealistic housing prices.

When the Japanese crash came, Kingston says the politicians did nothing but sit, sit, sit, sit.

There is a Japanese proverb: if it stinks put a lid on it. That pretty much fits the banking sector of Japan in the 1990s. The bad loans stank a real lot and they had to put a lid on it.

The government waited seven years before bailing out the banks.

And by then it was too late– the disease had spread.

Things are still bleak today; investors spend less, business hire less and, for many, lifelong employment is no more.

So many Japanese shop at places like this, a discount store selling bargain TVs.

And more pawn shops and 100 yen stores — the dollar stores here– pop up all over town.

On the edge of Tokyo lies the blue-collar suburb of Ota. The economic pain here is obvious.

This place once hummed with family workshops, now every other one stands shuttered.

Maruko Denki still operates a small electronic parts business. But his customer base is shrinking every year.

Maruko Denki:
I used to have dreams. I played golf and spent money on my car. Now I can’t afford those. The only thing I do for my mental health is take a vacation to the hot springs every year, and recharge.

One word keeps popping up here.

Bubble. Namayo Kotani runs a five-and-dime store, where a year’s worth of black dust covers many items on the shelf.

Namayo Kotani:

Since the bubble burst, about half the small and medium companies have gone under. So fewer people work here, which hurts my business.

Those still working take the train into Tokyo every day.

But social critic Masaru Tamamoto says they walk more slowly now. In the 1980s, they walked with purpose.

Masaru Tamamoto:
The assumption was tomorrow is going to be a better day. The Japanese economy will forever grow. After the bubble burst then that whole thing blew up.

So, will Americans experience their own Lost Decade?

Jeff Kingston at Temple University says a key lesson from Japan is when the government sits on its hands, the crisis deepens.

He credits Washington for quick action — the congressional bailout and the Fed interest rate cuts.

Still, they may have a long way to go.

If Japan is any basis to judge the current crisis in the United States, it’s clear there is going be a lot more bad news coming out. So, I think Americans need to brace themselves for that.

This from someone who’s seen this movie before and is hoping for an alternative ending.

In Tokyo, I’m Scott Tong for Marketplace.

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