Japanese Economy and Model from glory to crisis I Japanese Economy after WWII: the model • The Japanese economic Miracle • Possible explanations • The.
Download ReportTranscript Japanese Economy and Model from glory to crisis I Japanese Economy after WWII: the model • The Japanese economic Miracle • Possible explanations • The.
Slide 1
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 2
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 3
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 4
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 5
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 6
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 7
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 8
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 9
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 10
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 11
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 12
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 13
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 14
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 2
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 3
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 4
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 5
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 6
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 7
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 8
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 9
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 10
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 11
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 12
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 13
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
11
Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
12
Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
–
–
–
–
Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
13
どうも有難う
ございました
14
Slide 14
Japanese Economy and Model
from glory to crisis
I Japanese Economy after WWII: the model
• The Japanese economic Miracle
• Possible explanations
• The Japanese model and the East Asian miracle
II Japanese « Lost Decade »
• The bubble 1985-1990
• The economic crisis
• Lack of reactivity from the authorities
III Japanese Economy today: “back on track”?
1
Basic figures on the Japanese economic « miracle »
• Origins of Japan’s miracle date back to the Meiji restoration (1868) and the
understanding of the necessity for Japan to develop through foreign contacts
• Sustained economic growth (compared to other countries in the world)
Real Growth rate in $:
GDP growth (Yen):
1955-1975: 10%
• 1955-1975: 10% per annum
1975-1990: 10% (due to Yen appreciation)
• 1975-1990: 4.5% per annum
• Profound transformation: agrarian traditional society industrial society
•
•
•
•
Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only
1964 Tokyo Olympics showed the world Japanese advance
Share of world exports: Japan up from 3% in 1960 to 9% in 1992…
… but relatively small share of foreign trade (20% GDP, Germany
70%)
2
A very rich country … and a very egalitarian one too
GINI coefficient (1990’s)
GNP per capita (US$)
1950
1960
1970
1980
1990
Brazil
59.1
Japan
150
500
2,000
9,000
24,000
Mexico
54.6
US
2,000
3,000
5,000
12,000
22,000
Russia
48.7
UK
700
1,400
2,000
9,500
17,000
China
44.7
France
700
1,300
2,800
12,000
21,000
USA
40.8
Germany
450
1,300
3,000
13,000
24,000
India
37.8
Italy
300
750
1,900
7,000
19,000
UK
36.1
Greece
300
400
1,100
4,300
6,500
France
32.7
Mexico
180
350
700
2,700
2,700
Canada
31.5
Philippines
170
250
200
730
720
Germany
30.0
Japan
24.9
Denmark
24.7
3
The iron triangle
Zaibatsu: large industrial and banking holding dissolved after WWII
(Mitsui, Mitsubishi, Sumitomo, Yasuda)
Keiretsu: diverse set of companies with commercial bank, insurance company,
sogo shosha, manufacturers, suppliers, distributors…
Sogo shosha: large international trading (import-export) organizations
Big Business
Bureaucracy
gyosei shido (administrative guidance)
- MITI (industrial policy) government tells companies
what to make, who makes it, subsidizes loans…
controls foreign currency and technology approval
- MOF (financial policy)
LDP
Always in power since 1955,
apart 9 months in 1993
- Powerful elites
- Agricultural support (easing transition
from agrarian to industrial society)
4
- Business (Keidanren)
Some explanations for the Japanese miracle (1)
based on Yves Tiberghien’s work
• Role of the government (Allinson p.88-95)
– Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa:
Samurai turned into administrators; long history of Education system)
– Government interventions (Labor markets, Capital markets and issue of directed credit,
Industrial policy, FDI, Trade policy, Exchange rate policy)
• Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93)
–
–
–
–
–
“situational nationalism” in Japan
Developmental State targeting economic development with a strategic goal-oriented approach
Supported by an elite economic bureaucracy…
… and a pilot organization created to manage industrial policy, the MITI… gyosei shido
… with a twin industrial policy aiming at structural changes (increasing the share of heavy
industry) and economic rationalization (efficiency, higher technology).
• Bigger Political Argument (Allinson p.88-97)
–
–
–
–
National Stability
One-party dominated Diet: stability, consistency
Weak Legislature, Weak Opposition, Weak grassroots political organization
Stable labor relations
5
Some explanations for the Japanese miracle (2)
based on Yves Tiberghien’s work
• Cultural explanation (Allinson p.83-86)
– Confucian affection for harmony and consensus
– Filial Piety Loyalty + lifetime employment
– Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation…
• Geopolitical explanation
– US-Japan Alliance (and Cold War) capital and military protection,
usually the highest expense of a government, in Japan less than 1% of GDP
– US aid, technology transfers, market
• Economic explanation (Allinson p.97-105)
– Zaibatsu, Keiretsu
– Sogo shosha
– Financial practices: postal savings and commercial banks kept cost of capital low and
enabled Japanese companies to pursue long-term development goals (investment 20% GDP)
– International environment: low cost raw materials; currency exchange rate stability (IMF);
open world markets (GATT); booming international demand for manufactured products
6
The East-Asian Miracle
Time to double per capita income at the beginning of industrial transformation
•
•
•
•
•
UK: 58 years
1780-1838
US: 47 years
1839-1886
Japan: 34 years
1885-1919
South Korea: 11 years
1966-1977
China: 8 years
1985-1993
Gerschenkron effect
•
The Flying Geese Pattern (Akamatsu 1962)
Development
1. Japan
2. Dragons: Hong Kong, S Korea, Singapore, Taiwan
3. Baby Tigers: Indonesia, Thailand, Malaysia, Philippines
•
1.
2.
3.
Time
Geopolitical consequences:
Rise of Japan from 1960s to 1980s late 1980s, seen as main rival or enemy for the US
Rise of Asia in global economy (1984) and global relations shift in balance of power
Rise of China in 1990s “panda huggers” or “dragon slayers” reactions
7
8
The bubble 1985-1990
• Enormous bank lending speculative rise of both stocks and real estate (X4)
Caused by an interaction of 3 kinds of factors:
- availability of cheap money (interest rates, endaka)- wrong monetary policy
- financial deregulation
- antequated government regulation of finance
1. US concerns with trade deficit and Endaka (rise of the Yen) Plaza Accord of 1985
2. Louvres Accord of 1987: Japan as world economy’s growth Lowering of Interest Rates from 5% to 2.5%
3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984) Bank innovation
4. Large corporations: reliance on direct financing instead of bank financing
• Why didn’t Japan do anything to stop it? Some common explanations at that time
1.
2.
3.
4.
Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus)
Japan has no inflation (no need to raise interest rates)
Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it
Land prices are safe loan collaterals, they never fell in Japanese history.
9
FIGURE 3: ENDAKA (the Rise of the YEN) in the 1980s and 1990s:
Yen-Dollar Exchange Rate (monthly averages, source: IMF Financial data, personal estimates for Jul-Oct 98)
0
50
100
150
200
250
Plaza Accord
Sept 1985
300
350
400
1960
JAN
1962
JAN
1964
JAN
1966
JAN
1968
JAN
1970
JAN
1972
JAN
1974
JAN
1976
JAN
1978
JAN
1980
JAN
1982
JAN
1984
JAN
1986
JAN
1988
JAN
1990
JAN
1992
JAN
1994
JAN
1996
JAN
1998
JAN
450
•
•
•
•
1989: Japan’s stock market = 42% of the world’s stock capitalization
1989: Japan’s total land value = 4 times the total US land value
Tokyo land value alone = total US property value
10
Imperial Palace alone = total value of Canada
but then….
• Overzealous New Governor of Bank of Japan Yasushi Mieno wants to
stop the bubble and abruptly raises interest rates from 2,25% to 6%
• 1990 - 1992: financial crisis
The bubble exploded (Nikkei lost a 1/3 in 1990)
banking crisis
bad loans (up to 1/4 of GDP)
Collapse of Bank Lending
• 1992 - 1998: crisis expands in real economy
• 1998 - 2002: recession and deflation
The length of the crisis brings about the question of the place and role of the State in
Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?
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Why such a lack of reactivity from authorities?
• Banking problem when you have a whole you put money in banks…
it took Japan 8 years, and only partial measures
• Keynesian policies (public works, subventions…) public debt 160% GDP
Dramatic economic handling of the crisis
But social damages extraordinary limited:
– Unemployment: 80’s 2% 2002 5.6% 2005: 4.2%
– Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York)
And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is
responsible of the crisis and has always been criticized for its way of (badly) handling it
Japan didn’t treat this crisis as an economic crisis but as a model crisis
Japanese favored progressive social and political reforms, and always
maintained political and social peace to allow reforms to progress
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Japanese Economy today
• Restructuring of Japanese companies
– Too many people 2 million industrial jobs lost
– Too many firms 350,000 bankruptcies (Daiei)
– Production costs too expensive delocalization to China
• Better banking situation (bad loans <4%)
• More and more integration with China ($160 billion 2004)
2,6% growth in 2004 (best year since 1998)
• but also more inequalities (4 million freeters…)
• A more opened economy?
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Carlos Ghosn revived Nissan in 1999
Sir Stinger heads Sony
1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV)
Japanese legislation on M&A and poison pills
• The privatization of Japan Post
« The biggest reform since Meiji era » world biggest financial institution
Yen 350 trillion, more than $3 trillion public works, low rates
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どうも有難う
ございました
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