I was fortunate enough to attend an LDP function last night where Deputy PM and Minister of Finance Taro Aso spoke. The audience was largely retirees in their 60s-80s in the Yokohama area who in part likely came for the hotel buffet. I was the only foreigner to attend among 1,000 guests. Aso truthfully described the difference between Japan and the West. Talking of how many foreign politicians can’t understand how Japan can have so many vending machines because in their countries they’d be vandalized for their cash. Aso’s bigger point was made around deflation and how Japan is coping far better than most of the West, especially the EU. While there is a sense of celebrating an own goal, the biggest mistake made by the West in its analysis of the ‘lost two decades’ in Japan has been its unique society. Only in Japan could a population withstand two decades of hardship. Shared grief.
In the West, when it all goes to the dogs people will run as far away from the implosion as they can. Moral hazard is the order of the day. Make someone else pay. I recall the tale of a friend who had bought a condo in a ski resort in Yuzawa, Niigata Prefecture for around $20,000 off a family who had paid $800,000 for it during the bubble. They religiously paid off the loan as a form of moral obligation. In Japan, bankruptcy is seen as failure. A bankruptcy record is hung around one’s neck forever. In America, bankruptcy is seen as a badge of honor in some circles for someone pursuing the American Dream and in the next credit cycle, financial institutions will forgive the infraction, albeit at a slightly higher risk premium.
The point Aso was making was on the money. Japan is different. It is a society based on values. While the West may frown on the Japanese taking on a 250% debt: GDP ratio to allow the air to slowly leak out of a balloon, the society demands it. Despite all of the studies I’ve read on financial resurrection from deflation in the West I can safely say ‘society’ is the seemingly most overlooked yet most relevant part of the equation. As the game of convenient lies mount up from the mouths of politicians, a growing number of people are realizing that failure to act will lead to unpleasant truths. Economic cycles can only be toyed with to a point until trust leaves the system. The Japanese are indeed the most capable people on the planet to embrace change. It may take a tragedy, shock or disaster to force true action but one can be rest assured the people will unite in common purpose while the West go out of their way to look after themselves at the expense of all others.
Japan is not capitalism with warts but socialism with beauty spots. With the coming global financial train wreck approaching Japan is the best place to be.