- The Washington Times - Sunday, February 17, 2002

As President Bush visits Tokyo, one cannot help but be overwhelmed by how much the political economy of the world has changed. What a difference a decade makes.
In January 1992, when the president's father, George H.W. Bush, visited Japan, the United States, despite its recently acquired status as the world's only military superpower, was viewed in Japan as a hapless economic rival destined for second-class status. Meanwhile, stateside, American pop economists like Lester Thurow of MIT and Robert Reich of Harvard were genuflecting at the altar of Japan's Keiretsu system of business organization. Smugly echoing their Japanese counterparts, they said American businesses were no match for Japan's seemingly omnipotent interlocking conglomerates that combined the world's largest banks, world-class manufacturing companies and octopus-like trading firms, all of which were guided by the strategic superiority of the omniscient Japanese government bureaucrats who, like Messrs. Thurow and Reich, were especially adept at picking "winners and losers."
A best-selling book "The Japan That Can Say No," written by a Japanese nationalist politician and the chairman of Sony Corp. described a geostrategic situation that was gaining increasing acceptance in Japan. "No matter how much the Americans expand their military," the book argued, "they have to come to the point that they could do nothing if Japan were one day to say, 'We will no longer sell you [computer] chips.' "
Well, that was then. In the early 1990s, Japan's stock market and property market bubbles burst. Since then, the once-vaunted Keiretsu system has been completely discredited, and the Japanese banking system is on the verge of collapse. For the past decade, Japan's economy has stagnated, punctuated by four recessions, including the current one.
How bad has it been? Consider two recent market developments. Japan's major stock index, the Nikkei-225, which peaked at nearly 39,000 in 1989, when the U.S. Dow Jones Industrial Average hovered around 2,500, recently declined to 9,800, falling below the Dow for the first time. Last week, Moody's, an international credit-rating agency, announced that it soon may downgrade Japan's government debt to a category of risk below that of Botswana. "The threat," the Financial Times somberly observed, "would place the world's second-largest economy one notch below a poor African nation where a third of the population is affected by HIV/AIDS."
Since at least 1994, by which time Japan knew that its economic troubles were not transitory and that a complete market-oriented reform was required, the Japanese leadership has utterly failed to address the mounting challenges. The promise of reform that accompanied Japanese Prime Minister Junichiro Koizumi, has resulted in nothing but rhetoric. In Texas parlance, Mr. Koizumi is "all hat, no cattle."
Most regrettably, there appears to be nobody on the horizon in Japanese politics who is willing and able to engage in the colossal reform process that Japan must undergo. It appears that Japan's long-running economic stagnation will have to get much worse before its political class will be willing to respond. It won't be pretty. What a difference a decade makes.

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