Download Japan in the 1990s

Japan in 1990s
Changes in political economy
Changes in political economy
• Challenges to stability of equilibrium
– domestic socioeconomic or political problems
– external economic or security problems
• Changes of different magnitude
– adjustments in public policy
– changes in socioeconomic basis
– changes in economic or political institutions
– major shifts in two or three spheres
Bubble burst (1990-01-01)
Bubble burst (1990-01-01)
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•
•
•
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Massive stock and land price collapse
annual GDP growth rate around 1%
manufacturing productivity decreased
corporate bankruptcies
unemployment rate
economic performance at bottom of
industrialized democracies
– opposite from 1960s
Japan slows down
GDP (constant 1995 US$)
1E+13
9E+12
8E+12
7E+12
6E+12
5E+12
4E+12
3E+12
2E+12
1E+12
Germany
France
Japan
UK
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
19
60
0
USA
GDP per capita (constant 1995 US$)
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
Germany
France
Japan
UK
USA
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
19
60
0
International competitiveness
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•
•
•
•
•
World Economic Forum ranking
Japan was No. 1 in 1990
14th in 1997
15th in 2001
10th in 2012
9th in 2013
Political earthquake of 1993-95
• Economic stagnation since late 1980s
• Major corruption scandals of LDP leaders
– 2.5 billion yen contribution from a company
– 1 billion yen income tax evasion
– media revelation of systematic corruption
• Businesses’ demand for political reform
– high cost of doing business
– political bribes and contributions
Industrial contributions
Party Realignment (‘90s)
Prime Ministers 1993-2001
• non-LDP Prime Ministers 1993 - 1996
• LDP coalition cabinets since 1996
New Electoral Rules (1996)
• 480 members in House of Representatives
– 300 elected from single-member districts
– 180 elected from 11 proportional
representation districts
• 252 members in House of Councillors
– 100 elected from proportional representation
district
– 152 elected from 47 prefecture constituencies
More shocks in 1990s
• Large and rising government deficit and
debt (~150% of GDP)
• Aging population
• Banking crises and non-performing loans
• Asian financial crisis (1997-8)
• “Hollowing out” of industry
• natural disasters and terrorist attacks
Economic transformation
• capital market and currency had become
deeply integrated into world markets
– investment abroad
• formal trade barriers and limits on foreign
direct investment largely eliminated
• Japanese-owned firms became
multinational
– overseas production, financing, R&D, and
technological alliance
Appreciation of yen
Changes in economic policies
• New reliance on
– consumption taxes
– borrowing
– debt service
• public debt more than twice its GDP
• move away from monetary restraint
• zero interest rate
Zero interest rate
Changes in economic policies
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•
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privatization of nationalized industries
official effort to support declining industries
protect the inefficient
promote the competitive
Inconsistent policies
• Lack of cohesiveness and singularity in
economic policy
– internal contradictions
• no longer a cohesive strategy directed at
structural improvement of economy
• eclectic mixture of ad hoc efforts to deal
with economic problems
Still an outlier
• Comparison with other industrialized
democracies
• markets for imports remained skewed
against high value-added manufacturing
goods
• imports from overseas subsidiaries of
Japanese-owned multinational
corporations
Still an outlier
• Comparison with other industrialized
democracies
• limited amount of foreign direct investment
in Japan
• FDI per capita in Japan is less than 10%
of that in Germany, less than 5% of that in
UK