I am amazed that 7 pc decline in GDP and lakhs of jobless and homeless people in the economy do not bother you; while since the Bubble burst of the late 80s, the Japanese economy has been in shambles, and several stimulus packages have been tried with very little improvement in the health of the economy;

In my judgment, one has to look at the basic causes of the continuing malaise for the last 20 years and that in a country aspiring to be world no one in trade, finance ;

I am dead sure that basic reason for the recession for years is that the govt bureaucrats, contractors and bankers – all are hand in glove to olot the economy and NPLs of more than 30pc still looming and tell a lot about the poor ethics in money and banking also; ; my layman observations also follow for your joy–

While recession continues in the Economy even in ’09, moot question now is whether the Japanese model is facing extinction ; this depends on how it is defined. The macro-level model concerns governance of the economy, as Johnston’s ‘developmental state’ version (1982) assigned a key role to MITI bureaucrats general headquarters staff of Japanese capitalism. IN recent studies, the focus has been on Japanese financial institutions, the role of the MOF and policy-based finance.

Japan has already frittered away a decade and half, but should the new one be any different? Only now the recent events have persuaded the Japanese people that without reforms, the situation can only get worse This new awareness was the force behind PM Koizumi’s election in 01 . Really the problem is that the institutions and practices forged to create the Japanese miracle still rule Japan.

Of course several institutional changes are now essential. For persistence of each of these features of the Japanese model, various explanations have been offered and Aoki emphasized the inter-connections between various key features.-the rank hierarchy characteristics of several parts of the model reinforce each other and create a system in which ‘instead of facing perfectly competitive markets for factors of production, the firm is related to other agents- the worker, the investor and the supplier-through long-term relational contracting and agents on both sides of various relationships reciprocate economic benefits on a long-term basis.

Recently observers like Horiuchi (2000) have criticized the role of financial structure and role of banks in encouraging over-borrowing and excess investment due to lax corporate governance and interconnected lending . The case here rests on a very rapid growth of investment in the bubble years of the late 1980s that brought the ratios of gross capital formation to GDP to very high levels indeed .

Moreover there is little doubt that the measured rates of growth of capital productivity during the 1990s as also for several years since 2000 as well, were very low indeed. As OECD recently argued, there is a serious problem of excess capital for Japan and the capital-output ratios have only just reached the levels of most of the European counties.

In spite of the alarming size of bad loans at the depth of the banking crisis, it is hard to find unambiguous evidence that the system was predisposed to encouraging excessive capital-stock build-up in aggregate. For most of the 1990s as also in early new century , the size of bad loans at the depth of banking crisis was no wore than in other countries which had experienced banking crisis. My hunch is that the nature of bank-firm relationships allowed a poor choice of projects in several industries. It is obvious, regulatory changes led to widespread changes in corporate financing patterns for some classes of firms( Hoshi and Kashyap,1999).

As Gibson recently argued, forcefully, that the corporate governance system is directly responsible for low returns to shareholders’ wealth and the Big Bang reforms do not address the specific governance features responsible for this state of affairs. The catch really is that obstacles to growth also pillars of the political system Collusion, regulation and bank loans to the uncreditworthy, all serve as covert safety nets in a nation where only half the workforce is covered by unemployment insurance. All these unfair practices shore up moribund firms and industries, sustaining millions of unnecessary jobs( Katz,19998).

I hold that the Japanese model( the micro-level variant) has been condemned to oblivion for as long as it has been recognized. Japans crisis is thus a crisis of governance in both government and business; a revival will require a fundamental overhaul of several institutions( even reformers are disagree among themselves as to what constitutes reform .)

The outlook for Japan even in 09 is not very encouraging; some foresee neither reform nor muddling through; but slow meltdown.. IN the spring of 2002, many observers warned of bank runs again when government lifted full guarantees on all time deposits at the banks; it never happened..
Even now it is difficult to judge the extent to which capital stock and balance sheet adjustments are taking place, but they also seem very modest.

While the no of coys making restructuring announcements rose sharply in 1999, most of these contained very few concrete details and may never be fully implemented.(OECD,1999). Powerful vested interests are standing in the way of change, as observed recently by Noguchi(1996 and Ed Lincoln (19998). The slow pace of reforms in Japan for years has shown a reluctance to abandon past successful formulae. Hence Japanese savings will be at least partially bottled up at home, almost certainly condemning the country to a lower level of income than what it could otherwise have been achieved.

Even now it is unlikely that the new PM will get the chance to pursue the five or ten-year program of reforms; ( he has now suggested wide circulation of comics to cheer up the masses; what a Joke indeed.

Now Japan’s budget needs to shift to debt reduction by some 10 percent of GDP and this in an economy in recession for two decades indeed. As per Government estimates, the NPLs now total $ 500 billion or more than 10 percent of GDP but keen observes maintain that the real number is closer to 20 percent. Recent estimates suggest a 2-3 percent extra dip in growth rate, with no certainty that higher growth will ever follow. Moreover banks also need a new capital injection, this time with more stringent conditions than the failed efforts of 1999.

Japan is in fact witnessing the most restructuring where it is least urgent and the fewest reforms where it is most urgent. Japan cannot gain greater competitiveness without more competition.

Today Japan is like a patient that has abused the antibiotics so much that they no longer pack their punch .Tokyo is applying more fiscal and monetary stimulus than ever , yet getting fewer benefits then ever. Japan will never solve its chronic deficiency of demand until it shifts a greater share of national income to the consumers in the economy.