As Japan limps further into a second decade of recession, optimists about its future economic prospects are thin on the ground. In this provocative and thoughtful study, Richard Katz boldly forecasts recovery beginning in 2010. He argues that improved corporate and state governance can resolve Japan's substantial problems and emphasizes that there is no way to avoid dealing with the massive bad debt problem.
The implosion of Japan's economy has brought the snake-oil salesmen out in force, touting their respective magic cure-alls for what ails the economy. Monetary fixes, fiscal remedies, inflation targeting, massive restructuring, exchange-rate manipulations, export-led growth, consumption-tax hikes -- all have their advocates in the robust public debate on how to revive a moribund and sclerotic Japan Inc.
Katz refers to these miracle cures as the "chimera du jour" and makes a strong case for cleaning up bad loans as the No. 1 priority. He suggests that a package of reforms including monetary and fiscal stimulus, promotion of productivity by truly opening Japan to global competition, abandonment of convoy capitalism, increased labor mobility and tax cuts are also essential elements in treating the patient. Applying this policy mix in the right doses and correct sequence is the big challenge.
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