Wednesday, August 19, 2009

Japan's problems are our problems!

Persons have asked me about my articles. They have foremost asked about my content and where I find the information. That's a trade secret, I always say. But, others have expressed concerns over the content, to the extent that say that it may not apply to their situation. I always say; yes it does!

As you can imagine, countries, companies and individuals all over the world, experience the same types of issues and national conundrums. Their solutions vary from entity to entity, but the issue remains that we can all glean from examples, strategies and best practices from other companies and countries that have gone through the same issues.

Take for example what's been happening in Japan. Japan is an extreme case of a government- or a cabal for that matter- that as been in power for too long, which has led to private sector under performance from the added standpoint that there is an understanding and obeisance to external commitments over national development priorities, on top of the added pressures of internationalized monopolies which are in lock step with the political directorate. In addition to this, on the other hand, Japan is also prone to the selective proliferation of good and rosy economic information, just prior to national elections-- this proliferation of all good news at the cusp of a general election, is endemic world wide. Being keen on what's truly good news, must be taken into account.

To the last point first, because it's easier and quicker; if there ever was a good enough time for the ruling Liberal Democratic Party (LDP) in Japan to deliver some good news, it's now. National elections are slated for August 30th and the LDP, a party that has held power for the greater part of the last century, are behind in the polls.

Preliminary data released on Monday, as reported by the Financial Times (FT), showed gross domestic product expanded to a seasonally adjusted 0.9 per cent quarter on quarter between April and June, its first rise since the first quarter of 2008 and the equivalent of 3.7 per cent growth on an annualised basis.

The data or the FT didn't report all of what were the drivers for this growth, but have attributed the stimulus package implemented by current Prime Minister Taro Aso, as a likely source as additional public spending has increased by 8 percent, in a attempt to spur consumption. The issues of whether or not the stimulus package worked with regard to real private sector investment, is another issue.

Riding the wave of obvious economic discontent in Japan is Yukio Hatoyama, the new leader in the forefront for the opposition Democratic Party (DP). The DP is slated to all out win or change the dynamics of the upper and lower chambers in Japan, where change the next time around- through a quick early election after August 30th or whenever- a change will happen.

Some attribute the fall from favour with the ruling party to the bad economy. Others claim it's time for a change from a party that has been in power for the last 40 years. It may be a mix of both.

Including Prime Minister Aso, there were three prime minister's that served post Junchiro Koizume in 2006. This has been seen by many as a lack of unity in the LDP and especially through the reluctance for anyone to take the helm and keep it, amidst the challenges Japan faced and still face.

Japan's problems didn't start three years ago. In fact, Japan, while it is one of the top five largest economies, have had economic challenges in the past and never really sorted out the discrepancies and inefficiencies in their much globalized economy. The least of which is the balance of power in Asia.

With the increase in diminishing returns on Japanese goods in electronics to China and Singapore, to now, cars in India- in addition to their traditionally strongest competitors in Taiwan and South Korea- there just isn't a large enough international market, let alone a regional market, to peddle their wares aside from the United States, their major trading partner by taste and preference since the post war reconstruction and more certainly since the "Lost decade" in Japan in the 1990's.

These issues have added to a major collapse in the 1990's and the structural deficiencies were never truly fixed, as it appears. Also, their major export good, automobiles, were hit with voluntary export restraints by the USA in the 1980's, which certainly increased price of automobiles, but also put a damper on productivity and innovation. This lead to a surge in regional competitors as well as an over-reliance on other aspects of their national economy, which were not as viable as the automobile industry compared to the competitors in the region they allowed standing market access into Japan.

At this point, Japan is facing the same crisis that led to the asset price collapse that erased the gains they made financially, before the early 90's.

Due to Japan's compulsion to promote nominal prices over that of real market value prices as a way to spur domestic consumption during this current downturn, as it similarly happened prior to and during the 1990's by another mode, also at this time as I have aserted, Japan has also made external commitments with regard to international market access rules and most favoured national principles, simultaneously, which were deepened with and by the General Agreement on Tariffs and Trade (GATT) 1994, which too is also leading to another round of decreasing value on the Japanese way of life, stocks and their economic engine.

This complex web of economic mis-alignment has most certainly exacerbated the displeasure in the populace with the current ruling party as well as with the prime ministerial musical chair's game.

Just to give a most stark and recent comparison, currently the USA has been compared now to the Japan of the 1990's during that lost decade, where asset prices are having the same effect. Regardless of super-star status, the economy is and will further drag on the popularity of President Obama-- with the health care debate and Middle East wars, considered.

But more to the point and from a parallax position in relation to the economic issues with Japan, asset prices in the USA were overvalued due to the reliance on false nominal valuations in the market in the attempt to increase then current gains. Unfortunately this bubble popped, spurring deflationary pressure with no solution, other than through natural economic adjustments, with or without Federal Reserve/government intervention.

While the market sophistication in the developing world no where compares to what we have in the developed, the overall issue is that we all want to develop our lot in life. The overwhelming evidence for a best practice case of the value and way of life in developed countries, from health care to social amenities and infrastructure, is evident. If this requires that developing countries mimic certain aspects of success, I am most certainly for it.

If this also means avoiding, by all intents and purposes, mistakes others have made in the past, whether it was with inflated bubbles in real estate or company stocks, a lack of synergies with banking and private sector or the infrastructure that protects capital markets, then by all means let's all work for better solutions.
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