Japan is the only Asian economic superpower and will retain that position for the foreseeable future, predicts John Gray in ‘False Dawn: The delusions of global capitalism’ (www.landmarkonthenet.com). As the first Asian country to industrialise and the world’s largest creditor Japan has advantages possessed by no other Asian economy, he reasons.
“Its high levels of education and enormous reserves of capital make it better equipped for the knowledge-based economy of the coming century than perhaps any western country.” The author, however, alerts one to the prospect of the world following Japan into deflation and depression, if these problems were not shaken off.
Problem with prescriptions
Gray takes stock of the prescriptions given by the western governments – such as that Japan cut taxes, expand public works, run large budget deficits, and dismantle the labour market that has assured full employment over the past fifty years. “If Japan accedes to these demands the result can only be to import the insoluble dilemmas of western societies without resolving any of the country’s problems,” he warns.
If income released by tax cuts in Japan is invested productively it is likely to be abroad, Gray reasons. “Nor will deficit financing have the desired effect on the economy. When capital is globally mobile there is no assurance that higher public borrowing will have the effect of stimulating domestic economic activity.”
The book postulates that the only way the Japanese government can stimulate spending is by engineering an inflation that makes saving unprofitable. What will be the response of the public? They would save more, foresees Gray, drawing insight from the way savers have responded to inflation in other countries.
“In any case the inevitable result of such a policy would be a collapse in the yen. Because it would provoke a tit-for-tat response from other Asian countries, notably China, this is an outcome feared more than virtually any other by western governments.”
New Gresham’s Law
You may know that Gresham’s Law is about how bad money drives out good. The new version of it, as an interesting chapter outlines, is that bad capitalism can drive out good! Gray cites environmental costs as an example to explain the new law.
“If, in one country, environmental costs are ‘internalised’ by a tax regime that forces them to be reflected in the costs of enterprises, but those enterprises are forced to compete in a global market with enterprises in other countries that do not carry such environmental costs, the countries that require businesses to be environmentally accountable will be at a systematic disadvantage.”
He explains that, over time, either the enterprises operating in environmentally accountable regimes will be driven out of business, or the regulatory frameworks of such regimes will drift down to a common denominator in which their competitive disadvantage is reduced.