Nuclear power and press freedom
The Japan Times
*****
The lessons I learned from my week with Japan's power-brokers
The new Bank of England governor should heed Japan's efforts in trying to emerge from its lost decade
Most of us, including many bankers, now agree that the last 25
years have been a dreadful mistake. Western consumers and businesses
have too much private debt, with Japan
serving as an awesome warning of how that can drag an economy down for
decades. There is a lot of hand-wringing over why regulation was so
light-touch and why bankers were allowed to get away with so much. But
those were the mistakes of a bygone world; the big question we face now
is what to do next.
Last week, the governor-designate of the Bank of England, Mark Carney, and a man who was once a rival for the job, Adair Turner, both argued with one eye on Japan, where I have just spent an intriguing week, that it is time to open a debate about inflation. At the very least, declared Carney, we need to be very flexible about how inflation targets are met, keeping a weather eye on what is happening to growth and employment.
In a formidable speech, Turner went even further. The unthinkable – printing money to finance government deficits – should no longer be unthinkable, he argued. It should be one available policy tool, a way of countering deflation. In many respects, Britain's situation is even worse than Japan's in 1990 when its lost decades began. Our stock of private debt is much higher proportionally; our banks are in much worse shape; our productivity is disastrously low and falling. What's more, our loss of share of world export markets is the worst in the G20. Incomes per head are set to stagnate for 10 years, the worst in modern times. Our government, unlike the Japanese, is mulishly opposed to increasing public debt to compensate for the private sector trying to reduce its debt.
All that has stood between Britain and a Japanese-scale debacle is that at least the Bank of England has been obliged to keep inflation up rather than watch prices fall and it has been moderately imaginative about how it has done so. Nonetheless, it is crystal clear that it could, and should, have done more.
In Japan, I was simultaneously aware of what a toll two decades of deflation had levied on Japanese society, but also of the compensatory force of Japan's underlying economic strength. But gloom and pessimism still suffuse the country. Hiromasa Yonekura, the president of the Keidanren, Japan's all-powerful employers' association, told me that this lack of confidence, in his view unjustified, had become hard-wired into Japan's culture by falling prices. It affected even the birth rate and was the chief cause of Japan's rapidly ageing society. Nor is the birth rate the only sign of a society in stress. Young women's role in Japanese society is being knocked back by the fashion for coquettishness and cartoon-style prettiness, complete with singsong voices and contrived ways of walking. It is a return to suffocating traditionalism masked as fashionable faddishness. A society worried about its future becomes socially regressive.
Yet Japan's capacity to resist the malign element of deflation is very much greater than our own. It is still the third biggest economy in the world, with some fabulous companies possessing frontier technology, and going global rapidly. Hiroaki Nakanishi, the president of Hitachi, having just bought Horizon Nuclear Power from the Germans and aiming to build nuclear power stations in Britain, was worried that Britain was retreating from our global vocation. Tell your prime minister, he said, that Hitachi would consider it a disaster if Britain withdrew from the EU. I promised him that if the opportunity arose I would.
But Hitachi's commitment to frontier engineering is only one example; others are rail company Japan Central's investment in the Maglev train, which travels at over 300mph, and textile expert Toray's commitment to new carbon materials that are many times stronger than anything known to man. Japan is engaging in investment and innovation across the board and on a scale Britain can only dream of.
Time after time, as I questioned company leaders about their capacity to do this, I was referred to Japan's "public interest" or "stakeholder" capitalism – committed long-term ownership, partnership with the state to drive research forward and corporate leaderships keen to find commercial responses to the giant economic and social problems of our time. It is a world foreign to our own of shareholder value maximisation and gigantic personal bonuses, where interest in social problems is seen as "anti-business". This dynamism refuses to be submerged by debt deflation; Yonekura pointed out that, while New York had built 20 skyscrapers in the last decade, Tokyo had built 50. But to unleash this dynamism, Japan has had to break out of its monetary and financial trap. The newly elected government has gone some of the way, proposing a huge Keynesian stimulus and lifting the inflation target to 2%. But, as Turner argued, Japan's stock of public debt is now even more suffocating than private debt. Japan must go further: turn it from onerous debt into free cash by in effect printing money. Done right, this would not create inflation but steady the economy. There is an intense private battle raging between the Ministry of Finance and the Bank of Japan. Either the bank starts monetising public debt, as Turner argues, or the Ministry of Finance will launch another unthinkable, unilateral reduction of Japan's public debt burden by demanding borrowers accept worse repayment terms. Plans are being laid for a managed default unless the Bank of Japan prints money.
This is what happens when societies face impossible demands. To sustain the social fabric, investment and innovation, governments have to do non-conservative things – reframe their capitalism and break conservative financial rules. Japan is now ready to do this, the Liberal Democrat party feeling that too much is at stake not to act.
Carney and Turner are pointing the way in Britain. But there is a limit to what a central bank can do by itself. What is becoming clearer by the month is that every Tory maxim – leaving the EU, belief in smaller government, a hands-off approach to capitalism, junking the welfare state – is 100% wrong. Britain needs to learn from Japan. We don't need just a radicalisation of monetary policy – we need to recast, from top to bottom, how our companies are owned, financed and managed. Otherwise, we face an economic and social calamity. The final shredding of Toryism before brutal economic truths will signal the rebirth of the British economy.
Last week, the governor-designate of the Bank of England, Mark Carney, and a man who was once a rival for the job, Adair Turner, both argued with one eye on Japan, where I have just spent an intriguing week, that it is time to open a debate about inflation. At the very least, declared Carney, we need to be very flexible about how inflation targets are met, keeping a weather eye on what is happening to growth and employment.
In a formidable speech, Turner went even further. The unthinkable – printing money to finance government deficits – should no longer be unthinkable, he argued. It should be one available policy tool, a way of countering deflation. In many respects, Britain's situation is even worse than Japan's in 1990 when its lost decades began. Our stock of private debt is much higher proportionally; our banks are in much worse shape; our productivity is disastrously low and falling. What's more, our loss of share of world export markets is the worst in the G20. Incomes per head are set to stagnate for 10 years, the worst in modern times. Our government, unlike the Japanese, is mulishly opposed to increasing public debt to compensate for the private sector trying to reduce its debt.
All that has stood between Britain and a Japanese-scale debacle is that at least the Bank of England has been obliged to keep inflation up rather than watch prices fall and it has been moderately imaginative about how it has done so. Nonetheless, it is crystal clear that it could, and should, have done more.
In Japan, I was simultaneously aware of what a toll two decades of deflation had levied on Japanese society, but also of the compensatory force of Japan's underlying economic strength. But gloom and pessimism still suffuse the country. Hiromasa Yonekura, the president of the Keidanren, Japan's all-powerful employers' association, told me that this lack of confidence, in his view unjustified, had become hard-wired into Japan's culture by falling prices. It affected even the birth rate and was the chief cause of Japan's rapidly ageing society. Nor is the birth rate the only sign of a society in stress. Young women's role in Japanese society is being knocked back by the fashion for coquettishness and cartoon-style prettiness, complete with singsong voices and contrived ways of walking. It is a return to suffocating traditionalism masked as fashionable faddishness. A society worried about its future becomes socially regressive.
Yet Japan's capacity to resist the malign element of deflation is very much greater than our own. It is still the third biggest economy in the world, with some fabulous companies possessing frontier technology, and going global rapidly. Hiroaki Nakanishi, the president of Hitachi, having just bought Horizon Nuclear Power from the Germans and aiming to build nuclear power stations in Britain, was worried that Britain was retreating from our global vocation. Tell your prime minister, he said, that Hitachi would consider it a disaster if Britain withdrew from the EU. I promised him that if the opportunity arose I would.
But Hitachi's commitment to frontier engineering is only one example; others are rail company Japan Central's investment in the Maglev train, which travels at over 300mph, and textile expert Toray's commitment to new carbon materials that are many times stronger than anything known to man. Japan is engaging in investment and innovation across the board and on a scale Britain can only dream of.
Time after time, as I questioned company leaders about their capacity to do this, I was referred to Japan's "public interest" or "stakeholder" capitalism – committed long-term ownership, partnership with the state to drive research forward and corporate leaderships keen to find commercial responses to the giant economic and social problems of our time. It is a world foreign to our own of shareholder value maximisation and gigantic personal bonuses, where interest in social problems is seen as "anti-business". This dynamism refuses to be submerged by debt deflation; Yonekura pointed out that, while New York had built 20 skyscrapers in the last decade, Tokyo had built 50. But to unleash this dynamism, Japan has had to break out of its monetary and financial trap. The newly elected government has gone some of the way, proposing a huge Keynesian stimulus and lifting the inflation target to 2%. But, as Turner argued, Japan's stock of public debt is now even more suffocating than private debt. Japan must go further: turn it from onerous debt into free cash by in effect printing money. Done right, this would not create inflation but steady the economy. There is an intense private battle raging between the Ministry of Finance and the Bank of Japan. Either the bank starts monetising public debt, as Turner argues, or the Ministry of Finance will launch another unthinkable, unilateral reduction of Japan's public debt burden by demanding borrowers accept worse repayment terms. Plans are being laid for a managed default unless the Bank of Japan prints money.
This is what happens when societies face impossible demands. To sustain the social fabric, investment and innovation, governments have to do non-conservative things – reframe their capitalism and break conservative financial rules. Japan is now ready to do this, the Liberal Democrat party feeling that too much is at stake not to act.
Carney and Turner are pointing the way in Britain. But there is a limit to what a central bank can do by itself. What is becoming clearer by the month is that every Tory maxim – leaving the EU, belief in smaller government, a hands-off approach to capitalism, junking the welfare state – is 100% wrong. Britain needs to learn from Japan. We don't need just a radicalisation of monetary policy – we need to recast, from top to bottom, how our companies are owned, financed and managed. Otherwise, we face an economic and social calamity. The final shredding of Toryism before brutal economic truths will signal the rebirth of the British economy.
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