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It’s
fitting that Japan chose the Windsor Hotel Toya to stage
last week’s Group of Eight (G-8) summit.
The
resort on the northern island of Hokkaido opened in 1993
under the name Hotel Apex Toya. It was an inauspicious
start amid the deflationary funk that followed the
bursting of the bubble economy. Its fortunes became
emblematic of Japan’s “lost decade” and revival today.
Hokkaido Takushoku Bank, the hotel’s main creditor,
went bankrupt in November 1997, and the hotel suspended
operations early the next year. It reopened as the
Windsor Hotel Toya in 2002—the same year, as fate would
have it, that Japan’s longest post-World War II recovery
began.
And so,
leaders such as George W. Bush of the US and Angela
Merkel of Germany converged in a building that’s as good
a symbol of 10 years of squandered growth as any. It was
a fitting locale as economists debate what lessons Japan
holds for the G-8.
Count
Hong Kong real-estate mogul Ronnie Chan firmly among
those who think Japan’s 1990s experience is highly
instructive. The reason: Lost decades may become the
rule, not the exception.
“What if
the lost decade in Japan becomes the global norm?” Chan,
chairman of Hang Lung Properties Ltd., said at the Asia
Innovation Initiative conference in Fukuoka, Japan, on
July 8. “Can you imagine that? Perhaps we should.
Perhaps people should get used to slower growth, or no
growth.”
Different picture
It’s not
that Chan, who runs Hong Kong’s fourth-largest
real-estate development company by market value, is a
pessimist. Property developers don’t often relish 10
years of lost growth here and 10 years of declining
asset values there. Chan sees a rare confluence of
economic and demographic trends that bode poorly for a
global rebound.
No one
should be surprised by the rapid pace of economic
expansion after World War II, Chan says in an interview
over lunch. It began from a low base, following the
devastation of economies in Europe and parts of Asia.
Next came rapid population growth and a boom in
innovation. Then there were new social and institutional
paradigms as democracy spread and organizations such as
the United Nations and the World Bank offered support.
Today,
the picture looks vastly different. As everyone tries to
stabilize growth, things are hardly at a low base.
Population growth is fueling demand for commodities,
driving up inflation and increasing poverty rates.
Innovation may slow as investment dries up. And
institutions such as the International Monetary Fund
hardly seem up to today’s challenges.
Democracy’s flaws
Oddly,
one of Asia’s potential failures is democracy, Chan
says. It simply isn’t proving to be the panacea that
leaders in the United States and Europe promised.
Poverty rates remain stubbornly high in many Asian
democracies, and so does corruption. The former is often
a result of the latter.
It’s
certainly not that democracy is bad. Yet, there’s
something to be said about what Chan calls “premature
democratization” in Asia.
Elections matter only when nations build strong
institutions such as independent courts, ministries, a
free press, credible central banks and ample systems of
checks and balances. Their absence means many
governments don’t operate as transparently or
successfully as expected.
All this
may be a problem for the region as it tries to avoid the
worst of the credit-market crisis. Chan wonders if the
type of prosperity during the decade before the 1997
Asian crisis will be more unusual in the future.
Golden
years
“Those
10 golden years of rapid growth and high returns may
well have been an aberration,” Chan says.
The
combination of surging energy and food prices will
challenge economies with political rifts, such as
Thailand and Malaysia. Nor does it bode well for
high-poverty ones such as Indonesia and the Philippines,
or those trying to compete amid China’s boom—South
Korea, Singapore and Taiwan, for example.
Slower
growth is absolutely necessary, of course. Economists,
including Kenneth Rogoff of Harvard University, argue
that accelerating inflation is a clear sign the global
economy needs to cool to let commodity supplies and fuel
alternatives catch up. Yet a sharp slowdown in Asia may
be devastating.
Take
China, which needs to expand about 10 percent annually
to raise the living standards of 1.3 billion people.
Slowing growth will place dangerous pressure on Asia’s
second-biggest economy. For a nation at China’s level of
development, 5-percent growth is essentially a
recession.
Careful
balance
A
balance needs to be found. The world may require a bit
less John Maynard Keynes and a bit more Milton Friedman.
Keynesian stimulus will only delay a necessary slowdown
and lead to even more of the monetary-fueled inflation
of which Friedman warned.
Policymakers are merely putting off the inevitable and
treating the symptoms of what ails the global economy.
If they aren’t careful, Japan’s experience during the
1990s will become a familiar one.
“It’s
not a scenario many expect for the West or for Asia,”
Chan says. “But I’m not sure it can be ruled out.” |
