Bourgeois pigs worry about USA following in Japan's footsteps

Louis Proyect lnp3 at
Thu Mar 29 12:20:29 MST 2001

The International Economy, Jan.-Feb. 2001

Déjà Vu All Over Again: What Are The Chances That The United States Follows
Japan's Decade-Long Funk?

A Symposium of Views

Little more than a decade ago, Japan, like the United States today, was on
top of the world. Tokyo officials prided themselves on Japan's high
productivity growth and booming financial markets, which led to a sense of
cultural superiority. The world was scrambling to figure out how to adapt
to the Japanese model. Meanwhile, Japan's political system was weak with
little real division between parties, which were dominated financially by a
vast array of special interests. In this highly leveraged economy, most
felt the positive situation would last forever. Does the United States
today risk being similarly overconfident?

Peter Peterson Chairman, The Blackstone Group, L.P.

"Those (problems) that worry me the most are the melancholy combination of
our negative personal savings rate and gargantuan, unprecedented current
account deficits."

Japan's vaunted savings rate did not translate efficiently into
productivity enhancing investments. Why? For one thing, deregulation in
Japan and reform of its extraordinary special interest political system
moved at less than a snail's pace, leaving such vital sectors of the
economy as food, transportation, distribution, retailing, energy, and, of
course, banking at a significant competitive disadvantage. Meanwhile, at
the same time that America's labor-mobile economy was undertaking major
restructuring and downsizing in its old economy, lifetime employment was
leaving much of the Japanese economy stuck in the past. On these, and most
systemic issues, I believe America has a relative edge.

Let's start with demography, a subject I have written about extensively.
America's birth rate is at the highest levels of the industrial country
world. Even with its relatively high rates of fertility and immigration,
growth in the U.S. labor force is projected to come to a virtual standstill
within a decade or two. Labor force growth, along with productivity growth,
is, of course, a crucial factor in determining GDP growth. Japan, which did
not experience a baby boom, projects a decline of 25 percent in the number
of workers under the age of thirty by 2010. And most of Europe-with Italy
leading the way-has birth rates far below the so-called replacement rate
that keeps the population stationary.

Next, technology in general, and information technology in particular, are
other areas where America also excels. The Federal Reserve Bank of New York
has just completed an impressive study on the critical role of our vast
investment in information technology (some $400 billion last year) in
energizing the productivity boom in the United States. Also, no country
matches the U.S. venture capital market, either in size or fluidity.
Finally, America stands alone at the top of developed nations in terms of
deregulation, labor mobility, and openness of our markets to other
world-class products that provide a decisive competitive stimulus.

We have good reasons to believe these systemic forces will continue to be
decisive in this revolutionary, competitive world we are living in.
Obviously, not all the systemic forces are in America's favor. Those that
worry me the most are the melancholy combination of our negative personal
savings rate and gargantuan, unprecedented current account deficits. Given
the experience of the latter half of the 1980's, when projected account
deficits were at much lower levels, we know what happened to the dollar,
markets, and short and mid-term economic forecasts. Thus, in spite of the
conventional odds that favor the soft landing, I think the odds of a hard
landing are not insignificant. So, put me down as feeling the odds are
about 20 percent that the United States may also stumble in the next decade.

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Louis Proyect
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