Japan’s Naoko Takahashi won the gold medal in the women’s marathon in the Sydney Olympics Sept. 24. In winning the tough race on a difficult, up-and-down course, she established an Olympic record and became the first Japanese woman to win an Olympic marathon gold medal. She also gave Japan its first gold in an Olympic track-and-field event in 64 years. When she finished, she said she enjoyed the race.
Takahashi, who took up marathoning three years ago, trained hard for the Games. She ran on a hilly, heartbreaking course on a 3,000-meter highland at the same speeds that she would run on a flat lowland course. Athletes can improve their performance by surviving extremely difficult conditions. This is also true for businesses and national economic management.
Spanish philosopher Jose Ortega y Gasset, the author of “The Revolt of the Masses,” wrote that people who discuss changing values in a logical manner in the daytime long for the old times and become sentimental at night. They are constantly troubled by self-contradictions, said Ortega y Gasset when he wrote of the mental conflicts affecting people who live in a period when value systems change dramatically.
Similar problems affected the Japanese during the turbulent times after the Meiji Restoration and after the end of World War II. They are now affecting Japanese business executives who are buffeted by waves of structural reforms. If the executives waste their time suffering from self-contradiction, however, they will only extend the “lost decade” that occurred after the collapse of the bubble economy.
The Japanese paid a high price for the economic dislocation suffered during the decade. They should draw a lesson from the missteps in national economic and private business management as they prepare for Japan’s economic revival in coming years. That is the only way Japan can survive global business competition. Japanese have suffered from a lack of information and foresight and from a tendency to follow others. Ill-considered strategies, procrastination and excessive dependence on the bureaucracy have worsened the problems. Regrettably, Japanese politicians and bureaucrats have not conducted thorough discussions on the lessons they should learn from the bitter experience.
Japan’s long-term interest rates are on an upward trend while the government moves to compile a large supplementary budget based on deficit financing. U.S. rating agencies have downgraded Japanese government bonds. Japan’s accumulated outstanding bond issues at the end of fiscal 2000 next March are estimated to exceed 360 trillion yen. Among the public, fears are mounting over a looming fiscal crisis. People are no longer interested in repeated economic-stimulus measures.
The ruling coalition has said that the government will be able to pay off its long-term debt once the economy recovers and tax revenues increase. Based on that expectation, the governing alliance has been pushing economic recovery instead of pursing the dual goals of economic revival and fiscal reform.
However, even when Japan’s economic growth rate hits the 2 percent level, it will take more than 10 years to remove the budget deficit, barring a hefty tax hike. Out of the 80 trillion yen budget, the government spends 20 trillion yen to pay interest on government bonds and to redeem matured bonds.
The long-term interest rates have remained in the 1-2 percent range because private financial institutions are making mass purchases of government bonds. However, they are running out of funds that can be used for such purposes. Furthermore, when the Bank for International Settlements revises its minimum-capital adequacy standards for all banks operating internationally (which requires a certain ratio of net worth to total assets), government bonds could be treated as risky assets. That would limit bank purchases of government bonds and would cause a rise in interest rates on such bonds.
Government leaders must formulate better economic-management strategies. The basic question is how to reform social security, public-works projects and local government finances. It would not be enough to merely discontinue long-pending public-works projects.
In most European countries, the ratio of tax revenues and the social-security burden to national income exceeds 50 percent. The comparable ratio in the United States, where the economy depends less on federal expenditures, is lower and is about the same as that in Japan. Japan, however, finances its European-style large expenditures with U.S.-style low revenues and must therefore depend heavily on government bond issues to cover deficits.
I have no objections to Prime Minister Yoshiro Mori’s plans to boost an information-technology revolution in Japan. But IT is only a means of using information. Mori is unclear about how to promote the IT revolution.
One economist predicts that Japan’s government-bond market will crash in the not-too-distant future and that long-term interest rates will go up to the 4-5 percent range. In his opinion, Japan should lower the ratio of public-works spending to the gross domestic product to the international level and expand the safety net for the unemployed. In addition, the government should implement drastic reforms, even at the risk of widespread confusion.
Most Western governments have succeeded in balancing the budget, but Japan has been accumulating a budget deficit. Ironically, Japan remains the world’s largest creditor nation. Should Japanese funds, which boost overseas economic demand, return to Japan suddenly, financial markets worldwide, especially in the U.S., would be thrown into turmoil. Most Japanese politicians are apparently unaware of the difficulty Japan faces in managing its economy. This is a terrifying thought.
By subscribing, you can help us get the story right.