WCA January 2009

Statue of Liberty Image from BigStockPhoto.com Photographer: Marty

have served the US better in 2008 than the prompt sounding of alarms, setting off panic in Wall Street. “Economists still fault the regulators in Japan for their slow reaction,” wrote Mr Faiola. “In some instances, government officials colluded with financial institutions to hide the extent of the problems. Yet in light of how quickly the US financial crisis has exploded, there is new debate about whether there may have been some method to Japanese madness.” One of the outgoing president’s men uses a forbidden word in public: recession Speaking from California in an interview broadcast 19 th October, the chairman of the White House Council of Economic Advisers used a word that, to that point, had been studiously avoided by White House attachés. On CNN’s “Late Edition,” Ed Lazear, one of President George W Bush’s top aides, said, “We are seeing what I think anyone would characterise as a recession in certain parts of the country.” Mr Lazear made particular reference to California, where unemployment rates are somewhat higher than elsewhere across the US. To the broader, national economy he was applying, in advance, the technical definition of a recession: two consecutive quarters of economic contraction. Many analysts expect the American economy to show contraction over the final three months of 2008 and the first three months of 2009. Mr Bush’s economic adviser was otherwise more upbeat, suggesting that a significant impact from a $700 billion rescue package cobbled together by the White House and Congress would be felt in “a few months.” The intention is to recharge the economy by injecting cash and confidence into the shattered American lending industry. Some of what Mr Lazear said was distinctly representative of the Republican administration he served, notably his suggestion that some projects under consideration for funding, such as road and bridge construction, are too slow and too centred on one industry to give the economy a measurable boost. Of course these comments came before the presidential election, held 4 th November. The decisive Democratic victory will mean that such undertakings are seen through a different prism. An earlier Democratic president, Franklin Delano Roosevelt, brought the US out of the Great Depression of the 1930s by spending heavily on just such projects. Many of them – although the worse for wear – are still in service. Northeast Ohio provides an example of an area that ❖ ❖ would stand to benefit from significant outlays on public infrastructure. According to a recent Cleveland State University study, lifting the economy of the region will take at least a decade, given its low ranking in vital growth measures. As reported in the Cleveland Plain Dealer (2 nd October), the study from CSU’s Center for Economic Development ranks the metropolitan areas of Cleveland, Akron, Canton, and Youngstown in the lower half of metros across the US on measures of growth in employment, per capita income, productivity, and gross metropolitan product.

The US economy in crisis

What does the Japanese experience of the 1990s augur for the United States today?

“Japan saw repeated years of low or negative growth, but the final tally was something short of a decade-long recession, with the ten years leading up to 2000 averaging out at almost 1% growth. Companies like Toyota would prosper in adverse times, forced to sharpen their competitive edge. Emerging in the 2000s as the leader in hybrid cars, Toyota found itself on stronger footing than its US counterparts.” This excerpt from Washington Post staff writer Anthony Faiola’s recapitulation of Japan’s ‘lost decade’ of economic growth is a reminder that fiscal crises can have happy endings. Mr Faiola noted that – some 18 years after the stock market meltdown that began in September 1990, when the Nikkei stock index dropped almost 20% in a month – leading experts agree that the impact was not as severe as originally thought. Moreover, today the Japanese economy remains the world’s second largest. (“Studying Japan’s dark decade to see how US might fare,” 11 th October) This long view in hindsight has the support of Adam Posen, deputy director of the Washington-based Peterson Institute for International Economics, a nonpartisan think tank established in 1981. “We are all spooked out of our minds because of the last three weeks,” Mr Posen told the Post. “But just as we’ve seen in Japan, this doesn’t have to be that tough.” Americans, however, live at the epicentre of a crisis that has policymakers worldwide struggling to restore confidence in financial institutions and markets. They are not much disposed to look on the bright side; and Mr Faiola’s Japanese retrospective includes plenty of material for pessimists. These are among the factors economists see as arguing against a US recovery on the Japanese model: In contrast to the debt-burdened Americans of today, ❖ ❖ the Japanese – despite steep losses in their housing and stock markets – maintained one of the highest savings rates in the world. Throughout the crisis this was also true on a national basis Unlike the United States, export-driven Japan enjoyed a ❖ ❖ huge trade surplus Of greatest importance, the crisis was largely confined to ❖ ❖ Japan, which could rely on global demand for Japanese goods. This demand came chiefly from the US but also from a fast-growing China, and kept Japan’s economy afloat. The crisis now is global, with Europe and Japan joining the US in slipping toward recession Japan’s advantages did not save its people from what one Post respondent called “the long, dull economic pain – as opposed to the sharp pinch in the United States.” It will never be known whether a faster response on the part of the government of Japan would have abbreviated the period of pain, or whether a little Japanese reticence might

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Wire & Cable ASIA – January/February 2009