Fortune flips, this Bush to call shots in Tokyo

TOKYO: When US President George Bush caught the flu and collapsed during a state dinner hosted by then-PM Miyazawa in January 1992, the episode seemed not only embarrassing, but symbolic—US staggering under twin trade and fiscal deficits, Capitol Hill fuming over Tokyo’s trade barriers and Japanese industry titans still thinking they had something to teach US firms about global competitiveness.

As Bush’s son and presidential heir arrives here, his visit rounds off a decade of stunning divergence in the two economies: stagnation and policy muddle for Japan, unprecedented growth and productivity for US. So President George W. Bush can probably be forgiven for offering some friendly advice based on US experience when he meets PM Koizumi on Monday for talks in which Japan’s deep-seated economic woes are high on agenda. Private economists say Koizumi would do well to listen.

“US messed around for a long time before it figured out that reallocating resources is the best way to handle a trade challenge from up-and-coming economies,” said Robert Feldman of Morgan Stanley in Tokyo. “Japan has messed around for a decade and hasn’t quite figured it out yet.” Japan’s frothy late-1980s economic ‘bubble’ of inflated land and share prices had burst two years and a bit before Bush pater came to town, but few Japanese business leaders or policy planners expected the slump to be so prolonged. Instead, Japan’s giant economy limped along, posting average annual growth of 1.3 per cent as US grew nearly 3 times as fast during the decade. To turn in that pale performance, Tokyo went on a spending spree leaving Japan with public debt in excess of 130 per cent of gross domestic product—highest among advanced nations and far worse than US peak of government indebtedness of 72 per cent hit in 1992.

In banking, US tidied up its early 1990s Savings and Loan crisis, that anyway affected only a small part of the financial system. Japanese banks staggered under a growing bad loan burden that regulators estimate at $278.7 billion last September.

Seen through one prism, Japan’s ‘lost decade’ resulted from an attempt to preserve its post-war ‘miracle’ of economic equality and social stability in the face of globalisation. Critics, however, argue the 10-year stagnation stemmed from the tight grip of vested interests over a political system that protected increasingly uncompetitive sectors at the expense of growth sectors.

Either way, experts say the risk has risen that Japan is headed for an economic crisis and worry that political leaders—despite Koizumi’s reformist rhetoric—are more inclined to prescribe policy placebos than painful but vital surgery. Still, America’s experience an perhaps offer hope—or so US Treasury Secretary Paul O’Neill suggested last month.

Will the US President who visits in 2012 find Japan has done the same? (Reuters)