Socialist Worker

Lessons of last Japanese slump

The impact of Japan’s economic crisis of the 1990s should offer a global warning

Issue No. 2150

Japan is currently in its worst economic slump for 35 years.

The Bank of Japan warned last week that “economic conditions in Japan have deteriorated significantly”. It forecast a 3.1 percent contraction in the country’s economy in the year to March 2010.

This is a big blow to an economy still recovering from the recession of the 1990s.

That slump devastated lives. For example, the male suicide rate doubled between 1990 and 2003.

It is a sign of the depth of capitalism’s current crisis that many commentators have been taking Japan’s 1990s recession as a best-case scenario for the world economy.

There are indeed many similarities between the present global crisis and Japan then.

Just as today, the Japanese recession followed a bubble in property prices. Property and share prices doubled between 1986 and 1989.

Corporations used low interest rates and increased share prices to indulge in further speculation through complicated financial techniques.

The economy grew at almost 5 percent a year, and capitalists increased their investment in new factories and machinery.

Then the Tokyo stock market crashed dramatically in 1990. Throughout the decade Japan’s economy grew by just 1 percent a year.

Many mainstream commentators argued that Japan’s problems resulted from financial manipulation and price increases in the property market, which were unrelated to the real economy.

But there were deeper reasons. Japan suffered from the global tendency for profit rates to decline after the early 1970s.

Even at the height of Japan’s boom of the late 1980s, manufacturing profitability was less than half that of 1965-70.

The economy was heavily geared towards exporting cars and other manufactured goods to the US.

This meant that the ruling class had to keep interest rates low in order to keep the yen-dollar exchange rate down.

These low interest rates encouraged the speculative borrowing behind the bubble but could not offset the decline in profit rates.

This problem showed up in the enormous hidden debts of Japan’s closely interlinked banks, its companies and local authorities.

The state took on such debts, just as Gordon Brown has bailed out the British banks. As a result the country now has a national debt of more than double its gross domestic product.

Japan’s rulers also tried policies similar to the now fashionable idea of “quantitative easing”.

The recession resulted in deflation. Ordinary people, fearful of job losses, would not buy enough to revive the economy.

Interest rates were set at effectively less than zero – you repaid less money on a debt than the amount you borrowed. But even this could not encourage recovery.

The reactions of policy-makers to this recession demonstrates the bankruptcy of mainstream economics.

When Japan was booming the country’s economic managers were praised as geniuses. After the bust they were seen as bumbling fools.

Now their failed policies from the time are being recommended across the developed world.

Some economists have suggested that Japan’s 1990s were not that bad after all, pointing out that unemployment was less than 6 percent throughout the decade.

This ignores the fact that the rate was around 1-2 percent for almost 40 years before the crash.

The ruling class response to the recession was to dismantle the system of secure employment and relative income equality built up in the post-war boom.

From being one of the most equal of the industrial countries Japan has become one of the more unequal.

Today, around 15.3 percent of the population live below the poverty line – a statistic that would once have been unthinkable.

Around one third of the workforce are on temporary contracts usually earning less than £500 a month.

This was the impact of recession on a society that still had some of the social protections of the post-war boom and which could hope to export its way out of trouble.

The effects of a deeper global crisis on societies that have already experienced the savage attacks of neoliberalism are likely to be much worse.

The lesson from Japan is that the bosses will “lose” a decade or more of our lives if we do not build successful working class resistance.

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Tue 5 May 2009, 18:31 BST
Issue No. 2150
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