The European crisis: perceptions from Japan in comparison with the "lost decade"
By Tetsuya Umehara, Plum Field Advisory
What has been described as the "lost decade" in Japan refers to the economic and social stagnation after the boom period at the end of the 80s to the beginning of the 90s. Since the collapse of the economic boom in 1991, the Japanese economy has experienced a series of years of zero, minor negative, or minor positive growth. During this period, quality of life, household income and unemployment remained at the same level without any serious critical decline or growth. Now, there is talk of the "lost decades", highlighting the fact that the Japanese economy has been on hold for the past 20 years.
Many financial pundits, economists, analysts, and academics have examined the causes of the "lost decades" from various aspects, pointing out facts such as the wave of speculation in the stock market, escalating asset prices and the failure of a series of economic and fiscal policies introduced by the central government.
What does this mean for the European sovereign debt crisis? There are many contributing factors to the current European crisis and many have been debated and discussed over and over again. However, although the causes may differ from the case of Japan, from a non-economic point of view, there are three socio-political aspects that Japan experienced, which are similar to the current European situation.
The first aspect is that, due to various political reasons, successive governments failed to come up with effective and decisive measures. Different interest groups and parties were seeking to safeguard their own interests. In democratic countries, we tend to criticize non-democratic measures taken with regard to policy-making, however, as Japan experienced, democratic decisions and the time required for these, along with political games, compromises and a lack of leadership and solidarity could only make the situation worse. We have not yet proven that democracy is always ultimately the best choice for a healthy economy, especially in times of crisis, when prompt measures are critical.
The aspect concerns the basic wealth of the population. After the Second World War, despite some protests and violence, in general, our life has been stable and the quality of life has improved in both developed and emerging economies. We have not experienced any major threats since the war and many of us are able to enjoy at least the basic necessities. This means that society has been less consciously on the alert for the last 60 years. Our memory tends to be short when it comes to crisis and tragedy, added to which, many of us have not experienced difficult times such as a world war in our lifetime.
The third aspect is the number of successful international corporations with strong core competencies, competitiveness, and economic power. And of course, those employed by these corporations enjoy better pay, a good lifestyle and a comfortable life, all of which results in more happiness and contentment.
What consequences did these situations have in Japan over the past 20 years? In addition to stalled economic development and policies, these situations have fundamentally affected the mindset of the younger generation. Any positive mindset of the nation's youth, who should be dreaming and working for a better life, studying to achieve goals and actively participating in globalization and promoting unity in the global population, has long since disappeared. Of course, there is a place for the minority which seeks a better life and is able to find employment with international corporations. Since this social environment has continued and the economy has been on hold for so long, those in their 20s have been living in a state of "suspended animation" for their entire lives, and an increasing number of young people have lost the desire and ambition for improvement and development. This social phenomenon is far more difficult to solve and/or to change than political, economic, and financial policies.
From the global perspective, if two of the four largest economies in the world - the USA, EU, Japan and China – are on hold, the same phenomenon might potentially be affecting the youth in many of these economies. Of course it goes without saying that economic systems, capital markets, financial regulations and currency systems are vastly different between economies, and comparing and analyzing two situations can never be treated in the same way, although this is useful to a certain degree.
Consequently, in light of these problems and with no sign of a "V-shaped" recovery or quick solutions, there is a need for a fundamental political and/or economic decision-making process to ensure speed as well as plans for to encourage more positive hopes and dreams in our youth, even at times of economic crisis, so that the children of our world do not experience the same difficulties and problems that Japan experienced for the past two decades.
Tetsuya Umehara, CEO
Plum Field Advisory, Tokyo, Japan
Plum Field Advisory is a Japan-based professional consulting firm specialized in Accounting, Finance, Compliance, Fraud Risk Management, Internal Audit and Forensic Investigations. Bilingual professionals including CPAs (Certified Public Accountants), CFEs (Certified Fraud Examiners), and tax accountants are able to provide services in emerging and developing countries. Plum Field Advisory serves some of the world's most prestigious multinational corporations.