[FORUM] Here's a lost decade, there's a lost decade?

[rfmcdonald]

Writing in The Globe and Mail today, Marcus Gree wonders in his article "Is Japan's 'lost decade' a window to the future?" whether developed countries like the United States (and Canada) will share in the slow economic growth that has marked Japan since its asset price bubble burst in 1991.

Japan's crisis seemed to hit like a lightning bolt from a clear blue sky. In the late 1980s, Japan was on top of the world. Its "miracle economy" had grown by an average of 10 per cent in the 1960s, 5 per cent in the 1970s and 4 per cent in the 1980s, putting its Western rivals to shame. Companies such as Honda, Canon and Sony were flooding the globe with Japanese-made cars, cameras and television sets. Japanese companies bought prized overseas assets like New York's Rockefeller Center and California's Pebble Beach golf course. In books such as Ezra Vogel's Japan as Number One, analysts predicted that Japan's tight-knit social fabric, disciplined business culture, hard-work habit and government-directed growth strategy gave it an irreversible edge over the tired economies of the West.

But trouble was brewing. Officials deregulated the financial markets and lowered interest rates, the same combination that would lead to the credit fiasco in the United States. With money easy to borrow, companies invested heavily in property and stocks, sending prices soaring. The Nikkei stock-market index more than tripled from 1985 to 1989. A square foot of land in Tokyo's Ginza shopping district was going for $139,000 (U.S.). It was said that the property around the sprawling Imperial Palace was worth more than the whole state of California.

When the bubble finally burst, it was a wipeout. The Nikkei dropped by two-thirds over the next two years. Commercial land values in the big cities fell by 80 per cent between 1991 and 2000. They never returned to their bubble levels. Neither did stocks. Today, the Nikkei stands at one-fifth of its 1989 peak. If the Toronto stock exchange were to perform as badly, the index would stand at 3,000 in 2027, compared with about 8,000 today.

As stock and land values fell, companies that had borrowed to buy them found that they could not repay their banks. By 1997, the banking sector was in crisis, and the government had to rush in to bail it out by injecting funds into the system. Meanwhile, the economy languished. Between 1990 and 2005, real growth averaged just 1.3 per cent a year, a national embarrassment in a period when the United States was enjoying its longest postwar boom and China's pell-mell growth was the wonder of the world. The unemployment level nearly tripled, from 2 per cent to about 5.5 per cent.

At present, Gee suggests, Japan still hasn't fully recovered.

What say you?