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Bold policy vision need of these critical times

(China Daily)
Updated: 2009-01-06 07:40

What a gloomy start to the new year.

The financial earthquake that first rocked Wall Street, the glittering symbol of US prosperity, 100 days ago continues to shake the world. The effects of the financial crisis could be greater than even the Sept 11 terrorist attacks, which felled the twin towers of the World Trade Center in the same city in 2001.

With credit tightening in the global financial system, consumer spending, investment and trade are all shrinking around the world. The world economy is sinking at an unprecedented speed. Stock prices in most major countries have been sliced in half.

Anxiety about the future is crushing consumer and business confidence. The bottom is nowhere in sight, which makes the situation even more frightening. The world is now shuddering at what appears to be shaping up as a deflationary spiral.

Free markets that are supposed to make people wealthier can, at times, cause economic disasters. This risk inherent in the capitalist economic system exploded accidentally in the US market under the administration of outgoing President George W. Bush, who brought financial deregulation to extremes. The resultant crisis has quickly engulfed the globalized world. That's the long and short of this crisis.

This year marks the 20th anniversary of the fall of the Berlin Wall, which graphically symbolized the collapse of the world order during the Cold War era of East-West rivalry. Since that time, the world has been turned into a huge integrated market. A liberalized flow of capital and goods as well as information, which was accelerated by progress in information technology, has greatly increased wealth and convenience.

The United States has been the principal driving force of this globalization. Its economic creed has placed the highest importance on the interests of shareholders and investors. It views the ability to generate profits efficiently as more important than workers' well-being and corporate social responsibility.

The market-oriented system has been supported by neo-liberalism, which started in the 1970s and was the guiding principle for former US president Ronald Reagan's economic revolution in the 1980s. The system has now spread all over the world.

But this doctrine - the free market can act as an infallible guide for economic activity - created the excesses that have resulted in this catastrophe.

The dramatic economic downturn has caused tremendous numbers of Americans to lose their jobs or homes, widened the economic gap in society and devastated the country's key manufacturing industries, especially the auto industry, which was once the icon of America's economic might.

The situation in the United States is a natural consequence of an economic system that puts more importance on the profit-generating market itself than on individuals and social harmony.

What has happened in Japan in the meantime?

About 10 years ago, Japan started a sweeping deregulation campaign based on US-style market principles as part of efforts to pull the economy out of the prolonged slump following the collapse of speculative bubbles. The structural reform driven by former prime minister Junichiro Koizumi accelerated the process.

The reform enhanced the efficiency of the old Japanese-style economic structure to some extent, leading to the longest economic expansion in the postwar era and record corporate profits.

At the same time, the decade of reforms has produced some totally unexpected disastrous social effects. The gap between the rich and the poor has widened markedly amid the loud chorus of calls for self-responsibility. The ranks of the "working poor", or low-wage workers who can barely make a living, have grown rapidly.

Temporary, part-time and other nonregular workers now account for 30 percent of the nation's work force, a consequence of labor market deregulation. More than 10 million workers are earning less than 2 million yen ($21,740) a year.

The middle class that was once the backbone of stable society has all but disappeared.

Broad spending cuts made under the banner of fiscal rehabilitation have significantly weakened the social safety net, including such vital social security services as unemployment insurance benefits, health care and public financial aid.

People who become stuck in the trap of poverty cannot easily escape the hole. This grim reality has become a familiar part of life in Japan. The economic crisis has hit Japan just as it is struggling to deal with these problems.

Japanese people have to look squarely at the reality and no optimism is warranted under the current circumstances. However, excessive pessimism would cloud Japanese people's vision for the future.

Former US Federal Reserve Board Chairman Alan Greenspan described the current financial crisis as a "once-in-a-century credit tsunami". Many people now quote that phrase.

The situation now facing Japan is a multiple crisis caused by a mixture of the global-scale credit crunch and the stalling domestic economic and fiscal system, which is plagued with problems.

Overcoming the current crisis will be a formidable challenge, requiring huge efforts to drastically overhaul Japan. In addition, Japan must fulfill the task with its own wisdom and abilities, instead of caving in to outside pressure for the nation to introduce Western technologies and democracy in the two previous crises.

Japanese people long for a bold policy vision that transcends simple short-term measures to stimulate job creation and economic growth. They also want strong political leadership that will realize the vision.

The age when economic growth was the top priority has ended. Japan should be rebuilt in line with a drastic change to our sense of values.

Such a grand vision could focus on the environment, education or welfare. It should be designed to concentrate resources on crafting a decent future for the nation and job creation. Again, strong political leadership is essential to realize this grand vision.

The unipolar world dominated by the US is now being replaced by a multipolar world where countries like China and India are gaining increasing clout. Given the growing importance of international cooperation to overcome the crisis and protect the environment of the planet, political leadership has a crucial role to play.

American people have entrusted US President-elect Barack Obama with the task of correcting the imbalances created by market fundamentalism and financial bubbles. They are trying to ride out the crisis under a new leadership.

Will the upcoming Lower House election in Japan, which must be held this year, shape up as a similar sea change for Japan? The 20 years since the end of the Cold War have led Japan from the heyday of the bubble economy to this glum new year, a period of constant turmoil.

The Asahi Shimbun

(China Daily 01/06/2009 page9)