Potential crises loom worldwide. Between Donald Trump’s trade war with China, North Korea, exploding debt, European populism and Russian intrigue, 2019 is chock-a-block with things that could go horribly wrong.
But the real setbacks ahead may be related to a less obsessed-over economy: Japan.
No, Asia’s No. 2 economic power isn’t about to crash. Recession, perhaps, as US President Trump’s tariffs upend export flows and Japan’s longest expansion since the 1980s grows tired. But in the short term, Japan’s highly-contained system is more a safe-haven than crisis candidate. Hence the upward pressure on the yen.
The issue is more about Japan-like lost decades, and the failure of a fast-growing number of nations to heed those lessons. Here are three:
China: Among the many mistakes Tokyo made after its 1980s bubble economy imploded, there are two that deserve particular attention. One: A stubborn belief in the durability of an economic model that just failed. Two: complacency.
Chinese President Xi Jinping president continues to cling to the idea that China’s illiberal democracy model is optimal. Granted, the “Washington consensus” of free speech, unfettered markets, financial openness and transparency lost credibility after the 2008 “Lehman shock.” Trump’s protectionism and autocratic tendencies have further tarnished Brand America.
But the “Beijing consensus” of authoritarian rule, quasi-open markets and extreme censorship seems unfit for a nation that claims to be seeking a future driven more by innovation, ideas and information flows than factories.
As China slows, Xi’s government is doubling down on massive stimulus, throttling back reform. By treating the symptoms of slowing growth with more debt and more overcapacity, not the underlying causes, China is going down the same route that led Japan to today’s deflation. Beijing, too, by means of its “Made in China 2025” gambit wants to recreate supply chains. That’s a recipe for isolation – a “Galapagos effect,” of the kind which Japan is still struggling to extricate itself.
Thailand: The military junta that grabbed power in 2014 is preparing for a long-delayed election (it may be held on March 24). But their 56 months in power will almost surely consign Southeast Asia’s No. 2 economy to a lost decade.
In his nearly five years at the helm, General-turned-Prime-Minister Prayut Chan-ocha focused more on stability than raising Thailand’s competitive game. Gimmicks, too. One of Prayut’s earliest initiatives was a Bhutan-like Gross National Happiness campaign. State agencies even concocted a “Happiness Index.”
If only Prayut and his men had been as enthusiastic about investing in education, leveling the innovation playing field and implementing upgrades to ensure more of Thailand’s 69 million people benefit from its 3.3% growth rate. Last month, Credit Suisse named Thailand the world’s most unequal economy. The richest 1%, the bank claims, holds 67% of national wealth.
Equally worrisome, the generals are reverting to the rank populism they said they grabbed power to eradicate. As the election approaches, they are employing cash handout schemes to win votes among rural Thais – just like Thaksin Shinawatra. Former prime minister Thaksin was removed in a 2006 coup, but his influence – and the durability of his policies – led to Prayut’s 2014 power grab. Thanks to policy drift and chronic complacency, Thailand may be fated to a Japan-like funk.
The United Kingdom: The ongoing Brexit mess would seem to have little in common with Japan’s precipitous fall from the heights it achieved in the 1980s. But it’s hard not to notice parallels between the hubristic insularity of political forces plaguing Theresa May’s London and Tokyo.
Obviously, it too is an island nation that once exercised vast power abroad. Yet “just like the Brexit faction of the UK does, Japan’s conservative Liberal Democratic Party government has been culturally stewing in the juices of clinging to the ill-fated assumption of its own supremacy,” argue Stephan Richter and Uwe Bott of Berlin-based Globalist Research Center. “And that, as Britons should note, has done nothing to revive the slow-growth fortunes of the Japanese economy.”
Six years into Prime Minister Shinzo Abe’s revival scheme, Japan is again on the cusp of recession, deflationary pressures persist and China’s dominance is only increasing. Tokyo’s relations with its most important economic neighbors – China and South Korea – remain too chilly for comfort as Tokyo looks to the US for growth. This may sound familiar to Britons.
“Because the economy hasn’t been reviving, despite pumping in money and all the like, [Abe] has had to open his country to – wouldn’t you know it? – more immigration,” Richter and Uwe Bott add. “There is a message in that for the UK.”
Of course, one could argue Japan hasn’t fully internalized its errors these last 30 years. Abe’s team has relied far more on old-school monetary and fiscal pump-priming than structural upgrades. Pledges to cut red tape, catalyze a startup boom and increase productivity took a backseat to a weak yen and public-works project strategies.
Still, as economists wonder where policymakers around the globe may go wrong in 2019, the biggest clues may run through Tokyo.