Zen and the Japanese Economy

No analysis of the global credit crisis and its aftermath can be complete without some reference to Japan. Some folks say the U.S. economy is headed for a Japan-style “Lost Decade”. Others point to Japanese stocks and their failure to come anywhere close to their late 1980s bubble era highs as a stern warning that the U.S. market may never recover its previous highs. Both are wrong.

It’s safe to ignore these theories or any others that hinge on comparisons to Japan. Why? Because Japan is different. Why is it different? Because it is. If you’ve lived there, you know exactly what I mean. If you haven’t, ask someone who has.

If this sounds confusing or Zen-like, so be it. Although my blog Borderless Investor was founded on the belief that the world is increasingly global and that investors need to spend more time exploring international investing, Japan still belongs in its own separate bucket for analytical purposes.

When you make comparisons to Japan, it’s never really apples-to-apples. It might not even be apples-to-oranges. In a lot of cases, it’s more like comparing apples to, say, antique furniture.

Part of the reason is that you need to unpack the economic rationale of why something is happening in Japan and separate it from all the other political and social stuff that drives decision-making. This is not easy to do. And the “soft” political/social part of the analysis can be WAY more important than the “hard” numbers.

My former colleague Willie Pesek at Bloomberg Tokyo uses a great baseball metaphor in his latest column to drive home how Japan just does things very differently than the rest of the world.

It’s a microcosm of the difficulty Japan is having revamping its recession-prone economy. It shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending.

The global recession gets most of the blame. The forces of old Japan, both in the government and private sectors, also explain why the economy isn’t holding up better.

Banks, for example, avoided the toxic debt that infected peers in the U.S. and Europe. That didn’t stop them from loading up on stocks via cross-shareholdings in friendly companies. The prevalence of takeover defenses and poison pills also is limiting foreign investment at a time when Japan needs it.

Japanese baseball can seem overly formulaic and rule-bound to foreigners. Then again, so can Japanese business. It’s often more about bunting than swinging away.

Comments

[Alan Young:]

Having actually studied Zen, I would suggest that this article is not particularly zen-like.
It is more bunt-like, maybe.

May 26 01:58 PM

[neutrino23:]

I lived in Japan for nine years and pretty much agree. It is not that Japan is irrational or anything like that. It is just organized so differently that our shortcuts, our rules of thumb, that we use to help us understand something as complex as an economy don't apply.

I've heard they have passed a milestone recently in that 50% of those of a certain age (forgot the number) let's say 35 are unmarried. Big change for Japan.

Another tidbit is that there is a "back to the land" movement going on. Because of unemployment in the big cities young people are moving back to the family farm and becoming farmers. It may not make much money but they can eat and they have a roof over their heads. And now with broadband internet reach more places they can keep in touch with the larger world. For those without family farm to return to small towns are encouraging young people to take over unused farms for little or no money.

May 26 04:23 PM