Financial Panic Signifies A New Chaotic World

Now is the time to discuss nation-building on the foundation of human dignity.

In this column last year (15 January 2008) I wrote that America’s subprime loans (housing loans for individuals with unreliable credit) would cause huge disaster and panic. I thought that I might have been over-exaggerating, but, sadly enough, with the severe worldwide slump triggered by the bankruptcy of Lehman Brothers last September, my predictions were correct.

And, with the uneasy atmosphere growing, the Mainichi Newspaper rushed the publication of its business book "The Economics of Surviving The Financial Crisis" (November 2008). In its preface, I wrote, “I’m sure many people are thinking, ‘Serves you right, America! I told you, don’t push it too far!’”

Investment banks going bankrupt, the U.S. government being forced to put public money into commercial banks and insurance companies-these were the results of the American style of financial capitalism. Through subprime loans and securitization, America had been earning a profit from lending to unreliable people. And yet this financial crisis did not stay confined to its shores. At almost the same time, it spread to the rest of the world. And so we made our business journal’s (Weekly Economist) 2009 New Year title, “Breaking Into Panic.”

Though some people have said, “Serves you right, America!” Japan, too, has been hit hard. The speed in which the recession spread even surprised business people who had experienced the previous boom and bust cycles. “A severe decline in business,” declared a top executive of a chemical company. Another top executive from a major maritime transportation company said, “Both production and consumption are shrinking. It’s an abnormal decline.” The severe downturn in the automobile industry has spread to intermediate steel and chemical suppliers as well. The recession seems to be spreading to all industries, and will certainly become more severe this year.

A country that has long left behind its manufacturing history and immersed itself into the money game, America has become the epicenter of panic. A severe recession and a deeply shaken faith in the dollar is the reality we face. In other words, you can say that it is a time for an unsteady world to grope for a new framework. Just like after World War I, when world hegemony passed from Great Britain to America.

Well then, who will be in charge of the new order, Europe or China? Or is it the dollar? Russia and India cannot be ignored, either. There continues to be confusion in the world.

How about Japan? From the false peaks of the bubble economy, the collapse due to the Heisei recession, the Koizumi reforms, and now to the midst of the present day crisis, Japan is petrified at a crossroads. The America that it had followed for so long has disappeared, and now Japan is forced to choose its own path.

From an economic perspective, even though America has blundered, should Japan imitate its style of financial capitalism, or should it aim for a manufacturing capitalism, with the manufacturing industry as a foundation for nation-building? It is true that the necessity of finance is not going to disappear, but an economic system that values life and purpose, rather than just making money, is also a choice. Under these values, growth in fields like health care and environment will be encouraged.

Whether to accept a society of “equality of opportunity, but unequal results” is another question. Here, the class disparity would be very likely to increase even more. The other alternative would be a society of “equal results,” which would once again strengthen the old socialist mentality of “all Japanese are middle class” and “everyone join hands.”

From a political perspective, the choice is either a “big government” that is involved in many matters or a “small government” that does only the essential, bare minimum.

President Obama’s inaugural speech had this passage:

"The question we ask today is not whether our government is too big or too small, but whether it works -- whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified."

That’s right, no matter what path we choose, we should strive to build a country where people can live in dignity. It should never be run by the money game. In a kind of financial crisis that occurs once in a hundred years, just hoping that it will somehow all work out will not be enough. It is vital to talk not about an immediate fix, but about what long-term path we should take. If we do not, Japan may well get buried in this chaos.

I cannot help, but think that we are having the lower house general election this year to address these issues.