Lessons from bad old days may pull Japan out of recession

March 30th, 2009 - 10:16 am ICT by IANS  

Lehman Brothers By Chie Matsumoto
Tokyo, March 30 (DPA) The shock of the collapse of America’s Lehman Brothers’ investment bank last September sent waves across the world and helped to sink the lives of ordinary Japanese like Satoru Todo.

Along with thousands of others, the 24-year-old music enthusiast lost his job in Japan at a Nissan Diesel plant and, with it, his dream of becoming a professional songwriter.

“I was so hopeful of living a life as a full-time working man,” Todo said. “But the Lehman shock shattered it all.”

The wave turned Japan’s longest economic expansion since the Second World War into the deepest recession and left people in the country worrying about their future.

Nevertheless, at least initially, the nation’s top business leaders still hoped that the crisis would result in new opportunities, if they can only re-learn some lessons from the last economic crisis.

After all, many argued, the country had successfully emerged from a decade of stagnation during the 1990s. And remembering the bad old days is the key to recovery, according to economists.

Nonetheless, Japan will take part at summit of Group of 20 leading economies in London as a growing sense of deepening economic uncertainty takes root in the nation.

Indeed, a surging yen and waning consumer appetite have pummeled Japan’s key auto and electronic businesses, badly damaging the country’s export-driven economy.

The world’s top carmaker, Toyota Motor Corp expects to post its first net loss since 1963 this year, reversing the record profits it enjoyed only 12 months ago.

Underscoring the deepening crisis in the car sector, Japan’s big automakers have cut their production by more than 30 percent.

“Japan is falling off a cliff,” said one analyst.

The nation’s economy shrank at the fastest pace in 35 years in the final three months of last year, with exports dropping 46.3 percent year-on-year in January.

At the same time, new labour market rules intended to encourage professional mobility from lifelong employment to flexible temporary contracts ended up shattering the dreams of many young Japanese.

While more than 150,000 temporary workers are expected to lose their jobs in the six months through to March, hard-pressed companies have already started laying off full-time workers, with the electronics giant Sony leading the way in cutting its workforce by 8,000.

At the same time, IT group NEC Corp was expected to slash its workforce by more than 10,000 and carmaker Nissan Motor Co to dismiss 4,000 regular workers.

“This country has to organise a huge retraining programme and re-employment programme for displaced workers to give stability,” said Andrew DeWit, Rikkyo University professor.

“The circumstances facing displaced workers are increasingly dire,” DeWitt said. “They have suffered all kinds of knock-on negative effects from the economy.”

Japan needs to recall how it productively and wisely made use of the public sector in recovering from the economic downturn in the 1990s, analysts say. Only this time, they say Tokyo must shift its focus to the green revolution.

“Japan rebuilt its economy so successfully after the war,” DeWit said. And once again the nation will “have to re-engineer the direction of economy through the public sector and through the industrial policy.”

Other economists agree. “We need to draft a growth strategy by the end of March that will boost promising industries,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.

Leaders of world economies, including US President Barack Obama, have been advocating green technology investment to generate jobs.

“Things are not going to go back to where they were before. You either get in full-fledged in that race or you get left behind,” DeWit said. “Otherwise, the investment community here will be investing for high returns in the industrial revolution in the states.”

DeWit said Japan’s political leadership needs to draw on the advice of innovative sections of the private sector if it hopes to rework its economy.

But this will be hard, given the nation’s unstable political climate.

Prime Minister Taro Aso’s approval rating is down to single digits. However, the main opposition Democratic Party is having difficulty taking advantage of that lack of popularity as it has become ensnared in a scandal about members accepting illegal

donations.

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