Lessons from Japan: High-income countries have common problems

Lessons from Japan: High-income countries have common problems

There was just one lost decade of low growth and low inflation — when policy turned round so did the economy

Japan really had only one lost decade. There are widely applicable lessons to be learnt from the country’s economic evolution since its bubble burst in 1992. But the lessons from recent years are those of economic policies to emulate, as opposed to the lessons from before 2003 of which to avoid.

Japanification should be used as shorthand for failure to respond adequately to financial fragility, and being too timid with macroeconomic stimulus. The term certainly fits the Japan of the 1990s, and for that matter, the eurozone of 2010s. As early as 2003, I feared the eurozone would fall into this kind of policy inaction, as to some degree it did. But the current common problems of high-income countries, aptly characterised by Lawrence Summers as secular stagnation, are just that: common problems, not a catching of some Japanese syndrome and not the result of easily rectifiable policy errors.

When policy turned around, so did the Japanese economy. The result is that between 1990 and 2002, Japan had the lowest average per capita gross domestic product growth rate in the G7, and from 2003 through 2019, it has had the third highest and the second highest productivity growth rate.

The relevant lessons for the rest of the world come from after 2012.