Sunday, March 13, 2011

In a strange way, the Tsunami was good for Japan....

At this grave hour, a title like the one above may sound insensitive......even facetious. Japan is struggling with a natural crisis not seen by the world in many years and I am talking of how the Tsunami will help Japan. Read on and find what history has shown us in the past.

But first, a position audit of the Japanese economy. The Japanese economy has been caught in a morass of inefficiency and complacency for the last 20 years if not more. In today’s dollar terms, the GDP of Japan in 1995 was $5.3 trillion.....actually higher than what it was in 2009....$5.07 trillion. After 15 years, the economy is actually smaller in size? This decline was a pattern seen only in Japan. In comparison, the US doubled from $7.4 trillion to $14.1 trillion, Germany grew from $2.5 trillion to $3.3, France from $1.6 to $2.7 and the UK from $1.2 to $2.2 trillion. The faster growing economy of China grew from $728 billion to $5 trillion and even India from $356 billion to $1.3 trillion in 2009. The Japanese industry has remained sluggish for long and nothing has managed to shake this sluggishness off. In the meantime, as typically happen, Japanese governments have kept toppling like dominoes as people have continued to express their dissatisfaction with the performances of their governments. Just this year, Japan lost its #2 position in global GDP rankings to China.....15 years back in 1995, Japan was 7 times bigger than China. The last 15-20 years have been downright humiliating for Japan.

Something dramatic has to happen to wake up a sleeping nation. The world needed the Great depression of the 1930s to shake off the complacency that followed the boom period after WW1. The great depression lasted more than 5 years in the US.....but its jolt was so strong that the US came back powerfully. In fact, it continued to grow smartly through the period of WW2 and beyond. Likewise, it was the “balance of payments” (having no forex reserves to import even essential items) in India in 1990 that led India to finally shake off its somnolence and open up its economy. Much of the economic growth that we see today in India happened out of a crisis in 1990. In a lighter vein, the loss of the last 9 wickets for just 29 runs in an unimportant league match with South Africa in the ongoing WC is actually going to prove good for India.....till now we were thinking that our batting is the best in the world!

The Tsunami could provide that jolt to Japan. Today, a rich nation has been reduced to shambles by the fury of nature. Today, it has no options but to seek help and swallow its pride. Today, it has to wake up.....else it will be gone in a wink. A national tragedy always acts as a strong binding force for the people. When the Kargil war happened, Indians came together like never before; forgetting their divisions on a hundred different issues. Today, nature has provided Japan that unique opportunity to come together and forget its differences. It’s already lost a lot; it cannot afford to lose more.

What must Japan do now? It must keep its head low and mentally resolve to get back to work. There has been too much political instability in Japan in the last 4 years......there have been 5 governments there in this period. It’s time for the people to demand that the government of the day hold fort for the next five years. They must demand action on the ground; not arguments in Parliament. They must go back to as hard as people in India and China work. They need to re-invent their mojo.....they grew on the back of design innovation (some called in plain plagiarism!)....and its time they re-invented themselves. Surely, it cannot help Japanese pride that Sony Corp now trails Samsung in the global durables sweepstakes. It’s a strong resolve to succeed that they must now demonstrate. They need a committed leader who can lead from the front.....not someone like Zardari in Pakistan who converted the opportunity provided by the floods there into a personal one! Japan today needs a Winston Churchill....a Margaret Thatcher....or even a Manmohan Singh maybe to take it to a new high.

The real truth is that Japan need the Tsunami. It had become lazy and complacent. The Tsunami should provide Japan a new vigor.  It can never recover its 2nd position simply because China and Japan wont allow that to happen. Japan should forget comparisons and should just aim to start growing again. Even if it grows at only a few % points a year. Say 2-4% per annum for a few will then recover. It’s like in cricket....once you lose a few top order batsmen, you need a partnership built on taking singles and doubles!  The Japanese need to take these singles now. Hopefully they will do that.


  1. Prashant, although very insensitive but seems this is how human beings come out of the comfort zones. Absolutely bang-on with cricket match vs SA. Apart from the issues listed above, Japan is going thru a major crises of ageing. The younger generation %age is declining by the day and its having its grave repercussions. They genetically are fighters, like they did post nuclear bombing, hope they will come out of this also in a much stronger fashion.

  2. Excerpts from an article from The Econimist - 03/21
    Japan is on the brink of cataclysm. Not that they have not been in the past. There are four circumstances in history where the Japs have proven to be phoenix.
    1. 1855 – Major earthquake where the Tokyo metropolis is situated
    2. 1923 – Kanto earthquake, destroyed over 37% of Japan’s GDP.
    3. WW2 - !
    4. 1995 – Kobe earthquake

    What holds them back (unlike ever in the past)
    1. Ageing population – Silver democracy
    2. Govt inconsistency – 5 govts in 6 years
    3. Discrimination to immigrant population & women – integrating them can give upto 15% GDP boost