In the Shadow of the Miracle: The Japanese Economy since the End of High-Speed Growth, and: Japanese Phoenix: The Long Road to Economic Revival (review)

In 1990, the Japanese economy sank into a long recession that continued even after the dawn of the new century. The Japanese economy was once hailed as "Number One," and the Japanese system was an example held up for developing countries to emulate. Now Japan is struggling against a large stock of nonperforming loans and aiming for nothing more than a sluggish recovery. Japan is one of the very few major countries that suffer from deflation. Accordingly, the Japanese "counter" example is an experience to be studied by other countries in order not to repeat the mistakes that brought on this lengthy recession. For instance, recent monetary policy enacted by the U.S. Federal Reserve Board seems to be motivated partly by the intention to guard the American economy against falling into the same deflationary trap that captured Japan.

Arthur Alexander carefully describes various aspects of the Japanese economy in his book, In the Shadow of the Miracle, after the sunny growth path that Japan enjoyed for many decades preceding the crash of the bubble around 1990. Alexander's book analyzes the economic mechanism by which the Japanese economy fell into recession and assesses the role of the Japanese government in its effort to cope with the difficulties during this dark season. On the other hand, Richard Katz's book, Japanese Phoenix, does not merely observe the details in the shadow but attempts to foresee the future beyond it. He asks if Japan can rise like a phoenix from the ashes, the aftermath of the burst of bubbles. He suggests, though cautiously, that the Japanese economy can resurrect itself if people keep a proper perspective and if the government enacts the right policies to dismantle its controls.

Alexander's book is a collection of research reports written for the Japan Economic Institute (JEI) of America in Washington. Because of the background of the JEI (which I explain below), he chooses important topics to advance the understanding of the Japanese economy and to convey the American sentiment on Japan. The book naturally reads like a research report from a think tank. It covers the topics extensively and objectively, if not excessively pedantically. It does not project strong messages. The whole collection is a balanced and informative overview of the issues in the Japanese economy and society.

On the other hand, Katz is strongly opinionated. Most important, not satisfied with analyzing Japan's past and present, Katz forecasts a fairly hopeful picture for the future of Japan. It is rewarding for me to review these two books together and compare their messages. The authors' styles of writing are completely different, but their main messages are similar. They point out common features that have prevented Japan from recovering. Accordingly, removal of these features will, it is hoped, bring recovery from this recession. Government regulations are the most serious obstacles to exploiting hidden resources. Alexander primarily analyzes the situations, while Katz attempts to project the future course of Japan's development.

Let us take a closer look at In the Shadow of the Miracle by Alexander. First, readers must be aware that the Japan Economic Institute of America, for which Alexander's collection of research reports was written, was, at least partly, supported by the Foreign Ministry of Japan. Funds from the Foreign Ministry and other sources were reduced in part due to the tight budget situation of the Japanese government, and JEI phased out its operations in June 2000. Arthur Alexander was president of JEI during the last 10 years of its operation and, as I understand, he made great efforts to make the institute active as well as independent of outside interventions...