Economic anemia vs. Japan’s industrial muscle

Is Japan digging itself out of the economic hole?

Mostly–yes. But problems remain evident.

Industrial production made some leaps, at least as the latest quarter reported (July-September) is concerned. That quarter logged the single biggest percentage increase vs. the prior quarter in 23 years. Industry, then, certainly hasn’t withered and died, and it’s making some headwork.

The stock market has been rising.

The yen remains strong, which means that international confidence in the currency–and the economy underlying it–isn’t in the tank.

Which isn’t too surprising, given that nobody has questioned the raw muscle power of Japan, Inc.

What remains in question, though, is if Japan has sufficiently cleaned up its act in the capital markets. The government continues to throw money–flush it away, really–in efforts to stimulate economic activity. Too many crusty bureaucrats don’t seem to understand the virtue of leaving well enough alone…but why should they care? They are largely insulated from the direct results of their folly.

No surprise, then, that efforts to meddle in financing and provide loan guarantees for small businesses have hit with a resounding “thud.” It was just this kind of pervasive government meddling in investment activity that lead Japan into the economic mire in the first place. Interest rates in Japan are already very low by international standards, which should give viable businesses an opportunity to rope in investment funds for deals that have even low returns.

Capitalism without reasonably free capital markets results in back room deals, crooked old-boy networks, cooked books, and money being diverted from its most productive uses to inefficient uses. Japan sure isn’t the only economic sinner on that note; the U.S. certainly has committed some sins. And as for the CNMI, well, you can judge for yourself on that count.

And, furthermore, as far as much of Asia goes, the lesson has yet to be learned. From the looks of things, it probably never will be.

In short, Japan’s muscle remains strong, but the blood flow–read that money, and if you’ve ever dealt with bankers you know that blood and money are the same thing–of capital isn’t flowing to the healthiest organs. Financial Viagra isn’t the answer…and I’ll spare you the flood tide of semi-witty remarks that arise with this analogy.

Will Japan spare itself from yet more witless economic mismanagement? To do so would mean digging out a lot of witless, entrenched bureaucrats who earn their livings by being meddlesome when a healthy dose of “hand off” is what’s needed. This is, to some degree of course, the entire world’s situation in a nutshell–an appropriate receptacle.

Look around you, though, and the strength of Japan’s industry is clearly visible–where was your car manufactured, or your stereo, your TV, your wristwatch, your gadgets? Japan, Inc., in most cases.

It is more likely than not that Japan will see an accelerating economic recovery. As for us in the Commonwealth, besides the endless blather about tourism and such, the underlying lesson is worth listening to. Providing a level playing field for businesses is a wiser bet in the long run than letting too many bureaucrats decide how capital–economic blood–is allocated.