The Death of Japanese Industrial Policy.

In the London Review of Books, economic journalist Murray Sayle (who has lived in Japan since 1975) recounts the collapse of Japan's government/corporate business partnership--which a decade ago U.S. liberals were insisting would dash American-style laissez-faire economics. A condensation:

It is nearly ten years since Japan was about to take over the known world. Then it showed ominous signs of faltering. Japan came third to last in the OECD's table of industrialized nations' growth for 1999, ahead of Turkey and the Czech Republic. The OECD predicts that when the final figures for 2000 are in, Japan will be at the bottom of the table with 1.9 percent, well behind Britain (3 percent), and the U.S. (5.2 percent).

Japan's "lost decade" has just seen the greatest Keynesian pump-priming operation in history produce only a disheartening dribble. Living entirely on performance-enhancing drugs, the Japanese economy still only manages to limp in last. The Japanese Finance Ministry estimates that in the financial year to March 2001, central and local government debt will exceed 140 per cent of GDP. The world's second largest economy will, in other words, have laid out almost a year and a half's income. On what? Not on housing, urban transport, parks, schools, and libraries, in all of which Japan trails behind most OECD members.

The government's colossal borrowings have gone to bail out banks, to build barely used tunnels, bridges that go nowhere, duplicate lines for the bullet train, and dams that serve no discernible purpose. The gleaming 512-foot monster that towers over our local trout stream, for instance, barely generates enough electricity to run its own lavish PR show, much less to light the mountain village where I live, or earn anything to repay the four billion dollars it has cost. Sixty-five per cent of the government's revenue is required to service debt. Just to stabilise Japan's ballooning national debt at 150 per cent of GDP by 2005 would involve raising taxes or cutting spending by 11 per cent of GDP--or half a trillion dollars--thus instantly plunging Japan and probably the world into depression. No major economy has ever run up such an extraordinary peace-time debt, or had so few ideas about how to ease its burden.

The Nikkei Index lost a quarter of its value in 2000. Household spending was down 2 percent for the year, and Tokyo prices down an unheard-of 1 per cent, as shopkeepers competed for shrinking business. Unemployment touched 4.8 per cent at the end of the year, a whisker below the record 4.9 per cent posted in March--a hiccup by European standards, but ominous in a Confucian society in which work is the purpose of life, and those without jobs are resentful nonpersons. The cardboard shelters of the Tokyo homeless are well out of sight, and open begging is unknown in Japan, but the old and not-so-old unemployed practice the respectable equivalent: hawking neatly folded newspapers and magazines retrieved from rubbish bins. Meanwhile, Japanese households collectively possess the biggest pool of idle capital in the world, the equivalent of $13.7 trillion, much of which is deposited in savings accounts at local post offices, paying a measly 0.8 percent interest.

Tokyo property prices, meanwhile, are edging down--which, together with the plummeting ...