1. The Bubble Economy and the Lost Decade: Learning from the Japanese Economic Experience William M. Tsutsui University of Kansas

2. Plan for this Session Japan postwar “miracle” economy (1950s to early 1970s)Japan postwar “miracle” economy (1950s to early 1970s) The “Bubble Economy” (late 1980s)The “Bubble Economy” (late 1980s) The “Lost Decade” (1990 to early 2000s, or still ongoing?)The “Lost Decade” (1990 to early 2000s, or still ongoing?) What did the Japanese do wrong?What did the Japanese do wrong? What can we learn from Japan’s experience?What can we learn from Japan’s experience?

3. The immediate postwar economy

4. The beginnings of the “miracle”

5. The Elements of Growth Trade policy, human resources, the “free ride”Trade policy, human resources, the “free ride” Open world trading systemOpen world trading system EntrepreneurshipEntrepreneurship ConsumptionConsumption The bureaucracy, “industrial policy” and the “developmental state” (Chalmers Johnson)The bureaucracy, “industrial policy” and the “developmental state” (Chalmers Johnson)

6. Unique Structural Features Japanese Employment System: lifetime employment, seniority system, company unionsJapanese Employment System: lifetime employment, seniority system, company unions KeiretsuKeiretsu Corporate finance and banking systemCorporate finance and banking system The dual economyThe dual economy

7. Unique Structural Features Japanese-style managementJapanese-style management Japanese democracy: the Liberal Democratic PartyJapanese democracy: the Liberal Democratic Party Social consensus on growthSocial consensus on growth

8. An economic coming of age

9. The export economy

10. The big ’80s in Japan

13. How did it get so bad? Inept public policyInept public policy CorruptionCorruption GreedGreed The belief that Japan was somehow “different”The belief that Japan was somehow “different”

14. When the bubble burst

15. Nikkei Average (Tokyo Stock Exchange) Source: http://brual.files.wordpress.com/2008/09/nikkei-average-historical-graph.png

16. Japanese Real Estate Prices Source: http://m1.smartmoney.com/tradecraft/images/1107-graphic.gif

17. Japanese GDP Growth Rate Source: http://www.treasury.gov.au/documents/817/images/05_article_4-18.gif

18. Japanese manufacturing

19. The government response

20. Source: http://www.heritage.org/Research/AsiaandthePacific/images/bg1530cht5.gif

21. Source: http://bilbo.economicoutlook.net/blog/wp- content/uploads/2009/04/japan_interest_rates.jpg

22. The banking crisis

23. So what went wrong? Government incompetenceGovernment incompetence Lack of decisive action?Lack of decisive action? Political failuresPolitical failures

24. Japanese Prime Ministers, 1989-2001

25. So what went wrong? Structural peculiarites of the Japanese economic systemStructural peculiarites of the Japanese economic system What about the Japanese people? Should they have spent more and demanded more?What about the Japanese people? Should they have spent more and demanded more?

26. Social fallout of the bubble economy

27. Aum Shinrikyo and the Kobe earthquake (1995)

28. Enjo kosai “compensated dating”Enjo kosai “compensated dating” Hikikomori “acute social withdrawal”Hikikomori “acute social withdrawal” Tokokyohi “school refusal”Tokokyohi “school refusal”

29. Source: http://www.japan-zone.com/features/pix/005/population_aging.gif

30. What lessons should we learn? Greed is universal.Greed is universal. Hindsight is 20/20.Hindsight is 20/20. The market can’t solve everything.The market can’t solve everything. The government can’t solve everything.The government can’t solve everything. Quick fixes probably won’t fix it.Quick fixes probably won’t fix it. Watch out for the social fallout of economic distress.Watch out for the social fallout of economic distress.

31. Not all stories have happy endings.