Comments: Japan and the future of the world economy

David

Where do you stand? I can't get past the idea that capital allocation in which the rate of return is secondary is missallocated capital and a long term strategy to destroy wealth. Japan's economy creates capital through an agressive export driven model with the goal of large surpluses. It's citizens are savers with high incomes but live in a very high cost society. Without capital controls in Japan, can this country continue to count on it's citizen's to forgo the higher returns investments outside Japan would certainly offer as world financial markets and opportunities continue to grow.?

I don't think the Japanesse economy is sick. They have accumulated fantastic wealth and deserve high praise. But will this model create wealth in the future? Japanesse manufacturers being challenged around the world. Can the export surplus be maintained when high margin Toyotas, Hondas and Nissans are being built in the US of all places?

High incomes, high domestic prices, maintenance of monopolies, concentrated cross-held stock holdings (which lessen accountability) and capital allocation directed to low return investments may not be a recipe for future success or offer Japanesse individuals the best chance to accumulate wealth.

Posted by Gary Bezowsky at January 7, 2004 06:14 PM

This is an interesting revisionist piece on Japan. I interviewed Milton Friedman a few months ago and he was also upbeat on Japan. But this goes way too far. Japan has averaged 1% growth over the past decade, and badly needs to reform to adjust to the modern economic era. Its banking system is shot and its economy lacks dynamism. The model described here worked well in the 1960s, 1970s and 1980s but has struggled in a post-manufacturing era. Robert Locke is right to say we shouldn't write Japan off but his analysis of its recent performance and prospects is much too optimistic.

Posted by David Smith at January 8, 2004 08:55 PM