Japan’s remarkable recovery from last year’s tragic earthquake leaves big lessons unlearned. The economy bounced back more quickly than expected after March’s earthquake, tsunami and the resulting nuclear leak. But, the government flunked a bigger test by failing to push through painful reforms. Now, Japan is a year older, deeper in debt and facing the same economic downward spiral it was in before the catastrophe.
The Japanese spirit of gaman — enduring the unendurable — enabled the country to cope with the disaster. Industrial production is on track to return, in March 2012, to where it was at the end of 2010, according to Merrill Lynch. That’s small triumph: GDP is likely to grow just 1.7 per cent in 2012 and slow thereafter, the International Monetary Fund projects. Japan’s trade balance fell into deficit last year for the first time in 31 years and it has net debt equivalent to 131 per cent of GDP.
The post-earthquake period was a chance to administer economic remedies. Civic-minded citizens were switching off appliances and taking stairs instead of elevators to help conserve power. But, squabbling politicians squandered the mood of public sacrifice. Rather than cut pensions or raise taxes to help ease the national debt, the government has only managed to pass 21 trillion yen ($253.6 billion) of emergency reconstruction packages. Winning opposition support for those cost former Prime Minister Naoto Kan his job.
Progress on more contentious reforms — such as doubling the five per cent consumption tax — has ground to a halt amid political in-fighting. Corporate crises, too, are allowed to drag on: Think of the accounting scandal at Olympus, or the prolonged insolvency of Tokyo Electric, the utility at the centre of last year’s nuclear scare. Japan still won’t tolerate more immigration to offset a declining birth rate that, by government estimates, will reduce Japan’s population by 30 per cent in 50 years.
For now, such gloomy demographics are keeping Japan from lurching into fiscal crisis: Its greying savers help finance its massive debt. When they start drawing down more than they save, it will be too late. Japan has managed to struggle back to where it was before the disaster, but it has wasted valuable time that could have been used to avert its own fiscal reckoning.
