High-water mark: police comb a beach near Fukushima for bodies, following the 2011 tsunami. Photo: Jeremy Sutton-Hibbert/Getty Images.
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Staying power: the seemingly exceptional economics of Japan

2013 was the year the world’s financial markets suddenly became interested in Japan again.

Bending Adversity: Japan and the Art of Survival
David Pilling
Allen Lane, 432pp, £20

Until December 2012, Japan was proverbial in the City as the graveyard of global investors. It seemed impossible to get right. How many false dawns on its stock market had the optimists endured over the two “lost decades”, since the collapse of its great bubble in 1990? Then again, how often had the pessimists – warning of imminent default, as Japan’s pile of government debt grew bigger and bigger – turned out to be crying wolf? A frustrated fund manager of my acquaintance summed up the way in which many financial types had come to think of Japan: “I don’t understand what is happening there and I never will: sometimes, I wish it just didn’t exist.”

Yet Japan continued to exist – and despite its lost decades was still the world’s largest creditor nation, its third biggest economy and the undisputed technological leader in a whole host of its most important industries. This apparent paradox has been troubling visitors for years. In the middle of David Pilling’s new book there is a photograph of Tokyo’s dazzlingly futuristic neon cityscape at night. “If this is a recession,” said a visiting politician who witnessed this sight with Pilling, “I want one.” Somehow, Japan has managed to remain both a byword for economic catastrophe and an object of economic emulation. No wonder my friend was so baffled.

The trouble is that Japan resists simplification, and the risk for any book about it is, therefore, that it resorts to caricature. That is a danger for a book about any country, of course. But it is a special risk in the case of Japan, with its confusing economic paradoxes – to say nothing of its white-gloved taxi drivers, its Tamagotchis and its musical loos.

Pilling – a Financial Times journalist who was the paper’s Tokyo bureau chief from 2002-08 – is not just alert to this danger. He turns it to his advantage.

To begin with, he confronts Japan’s supposed exceptionalism head on. It is a notion dear not just to orientalising westerners but, he explains, to many Japanese too. Pilling locks horns with some of the most obsessive proponents of nihonjinron – the study of Japaneseness – whose fanatical claims sound hollow next to his disarming irony. The real ingenuity in Pilling’s approach, however, is not to attempt the impossible task of capturing in a single, seamless portrait the essence of Japan but to assemble instead a highly readable collage of evocative vignettes, drawing on historical episodes and his own experience.

The core of the book consists of four sections. The first explains how Japan’s history before the Meiji restoration and in the early 20th century led to its isolation from the rest of Asia. The second covers the decades of Japan’s economic miracle after the Second World War. The third is an exploration of “Life After Growth” – a series of despatches from the Japan of the 2000s, whose economic and demographic stagnation at high levels of wealth and income have recently begun to haunt the west. The last concerns the important implications for Japan of China’s rise.

The overarching theme is that the puzzling combination of an alleged economic depression with exceptional economic success is just the beginning of Japan’s complexities. The Second World War, for example, left westerners convinced that the Japanese were innately totalitarian, and the seemingly inexorable advance of its monolithic zaibatsu (business conglomerates) confirmed them in this prejudice. Pilling quotes the Meiji-era reformer Yukichi Fukuzawa to remind us that, in reality, Japan had a liberal political tradition as venerable as that of many other countries, even if it could be expressed in apparently self-contradictory terms: “the feudal system is my father’s mortal enemy which I am honour-bound to destroy”.

Pilling might equally have plucked a line or two from the poignant letters written by young Japanese pilots to their families during the war in the Pacific. “I am very proud of being chosen as a kamikaze pilot,” wrote one, but “if I listened only to my reason . . . I would know that freedom is certain to triumph in the end. Perhaps I might be reproached with ‘liberalism’. But freedom is the very essence of human nature and cannot be annihilated.”

Yoshi Imagi, the young man who wrote those words in his last letter, before crash-diving his aeroplane on to an American warship in May 1945, knew that the Japanese are not innately different from anyone else. They just live under different institutions.

In the nationalist era those institutions were murderous. In the postwar period, Japan developed a new set of institutions that were equally unusual but much more benign – most famously, the unique corporate system that served as the basis of its economic miracle. Here, too, western prejudice was quick to chalk up Japanese success to racial difference or “Asian values”. But again the truth is that it was really down to the deliberate choice of different, and more efficient, practices – as their later adoption by western firms confirmed.

Yet there is one aspect of Japanese society that Pilling believes is unique. This is the quality of resilience to which the book’s title, Bending Adversity, alludes. To illustrate this point, the core of the book is bracketed by two sections that describe in compelling detail the catastrophic tsunami that devastated Japan on 11 March 2011, and the extraordinary achievements of the Japanese in overcoming its impact and aftermath.

The hardships that the Japanese endured were awful. Whole communities were wiped out in the north-east. The disaster at the Fukushima nuclear plant prompted the shutdown of Japan’s entire nuclear power industry almost overnight. Yet the country coped. There was no Hurricane Katrina-style breakdown of civil order in Tohoku. Japan’s ultra-modern metropolises instantly adapted to life without lifts and air-conditioning.

The stories have visceral power and are beautifully told. They also give a book that is deliberately fragmentary a satisfying narrative arc. If there is a key to Japan’s history, Pilling argues, it is in its phenomenal ability to turn calamity to advantage.

Pilling’s command of structure is enviable. His sense of timing isn’t bad either. The year 2013 was the year when the world’s financial markets suddenly became interested in Japan again. After 20 years of half measures, the Japanese elected a prime minister in December 2012 – Shinzo Abe – who promised to do things differently. A new governor at the Bank of Japan promptly embarked on the most aggressive programme of monetary easing the world has yet seen.

The Japanese stock market rocketed and the yen collapsed. The consequences for the rest of the world have yet to be fully parsed. But my friend the fund manager is already tearing his hair out at this latest surprise from Japan.

Now I know how to console him: I will give him a copy of David Pilling’s book.

Felix Martin writes the “Real Money” column for the NS. He is the author of “Money: the Unauthorised Biography”

Macroeconomist, bond trader and author of Money

This article first appeared in the 29 January 2014 issue of the New Statesman, The seven per cent problem

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump