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Franz Waldenberger, Hans-Werner Sinn and Yuji Osawa
2nd Summit Lecture
“Managing Financial Crises: Lessons from Japan’s Two Lost Decades”
February 23, 2010, Munich
Is it really appropriate to speak of a “lost decade” when looking back at the 1990s in Japan? Rejecting this perspective as a “gross simplification,” Yuji Osawa, Chief Representative of the Bank of Japan in Germany, pointed out that, even at the worst of the crisis, the growth rate had been “only” minus 1.5 percent and that, anyway, it had been structurally necessary to reduce overcapacities. In his talk, he wanted to use the example of Japan to show the difficult-to-remedy consequences for a country’s economy of excessive debt as well as overcapacities in production and on the labor market.
The second speaker, Franz Waldenberger, professor of Japanese economics at the University of Munich, also called for a more appropriate assessment of the Japanese crisis. He juxtaposed Japan’s flat growth curve during the years of the crisis (between minus and plus 1 to 1.5 percent) with the much larger disruptions of today’s crisis, characterized by a short, steep increase and equally steep decline of the growth curve up to minus 6 percent. In Waldenberger’s view, the key difference between Japan’s crisis and the current global economic and financial crisis is the speed with which governments have responded. In the current crisis, the governments of most industrial countries have taken immediate fiscal measures of unprecedented scope to prevent a meltdown of the system. In Japan, in contrast, it took seven years just to create transparency and talk openly about the crisis.
The subsequent discussion focused on the lessons learned from the Japanese experience. These include the necessary nationalization of at least parts of the banking sector – which was implemented almost completely in Japan because of the country’s instability –, and the insight that bank capital resources of 1 to 2 percent are too low and have to be increased.
An important and helpful experience was the rapid implementation of big tax-funded finance programs to stimulate the economy. Comparing the high public deficit of Japan (approx. 200 percent of GDP), which was one of the consequences of this policy, to the Greek deficit (approx. 130 percent of GDP), the discussion referred to an important difference in favor of Japan: While the Greek debts are generally foreign debts, 95 percent of Japan’s deficit was financed from domestic sources.
According to the experts, the fact that Japan today can again build on a 4-plus percent growth rate has less to do with comprehensive stimulus packages or successful structural adjustments; the main reason for its economic growth is the recovery in exports to China.
