Japan’s Economy

Dear Friends,

It seems to me that Japan has real economic problems. They rely far too much on large business. The model served them well in the age of behemoths but today Japan would be better served to open up the internal markets and help develop small entrepreneurial business.

The manufacturing model can be phased out with the lowering of the working population. The younger people, who are excellently educated, can move to management of the large industries their parents and grandparents built. Other more outside the box thinkers should be encouraged through harnessing a market for start up ventures. Deregulate startups and lower tax rates for startups. This would open the throttle to the Japanese economy.

Today Japan is mired in the policies that the US administration wants to take. Japan is ten years down the road. It doesn’t look good to me… Japan carries a debt load that sops up funds from the capital markets. Fortunately for Japan the Japanese people have always had an excellent savings rate. That has been a godsend to them today. It allows the Japanese government to borrow and borrow to try to prop up demand ala John Maynard Keynes.

Government demand always favors large well connected (politically) companies. As demand moves from private sector demand to “temporary” government demand, that never stops, industry moves to the paradigm that fits it’s customers needs. And that is large politically connected companies. Only these companies can fill out the necessary paperwork and spend the rescores to meet government criteria.

Japan is reaping the rewards of government keeping up demand. Supply has shaped demand. Large corporations dominate the Japanese economy. I would bet the ratio of the economy that makes up small business share to large business, is skewed to large business in Japan, against a world mean.

That coupled with government sopping up all available local capital. Diminishing capital markets of startup money is never a good means to an increasingly productive, vibrant economy. Helps keep Japan in the economic doldrums. Sleepy GDP growth year over year corrodes the Japanese standard of living.

I hope they will move into a better fitting paradigm. Like the one I have suggested. To do this however the government must put down the toys. Some Japanese government must have the guts to stop spending. Pay down it’s debt and reload the capital markets with money.

One of Confucius’s disciples asked him what must a kingdom have to be in order. Confucius replied, Adequate supplies of food, adequate supplies of munitions and the confidence of the people. Confucius was then asked, what if he had to go without one? Munitions was his answer. What about if he had to go without another? Food; For all through history death has come to all men (yet society survives). But people who have no confidence (in their rulers) are undone, was Confucius reply.

Government must have the confidence of the people. Ten years of stagnation is too much. Japan has shown Keynesian economics to have major flaws. Every time there is a recession people turn to government to “do something.” That always involves spending money. But as Japan shows, no matter how government spends money, it is not as effective as money spent by individuals.

Individuals buy from small business. That drives up demand for small business. That is exactly where Japan should go. To encouraging small business, moving from manufacturing to management, and funding entrepreneurs. The next Google or Microsoft could be from Japan… Or Moldova. It is only a matter of government policies not getting in the way. No matter how well intentioned.