The Sun Continues to Set on Japanese Economy

It was without a doubt one of the greatest success stories of 20th century. A country ravaged by war (admittedly they started it) and reeling by the only known nuclear attacks on any nation rose up from the ashes and became an economic power.

Yes, Japan had help but it was what they did with that help that made them great. They innovated, worked harder than anyone in the world and by the early 80's they were a world economic power.

The role the Japanese had in shaping the world economy cannot be understated (if you want to get a great example, watch Michael Moore's Roger and Me from 1985. It gives firsthand examples of how the Japanese competitiveness in the auto market exploited larded up American management and how that in turn sent the US auto industry reeling). What the Japanese did in the automotive, consumer electronics and real estate has been and will continue the subject of many stories and case studies for years to come.

But that domination is over and it has been over for 10 years. The problem is that no one in Japan seems to want to believe it. Not to oversimplify it but Japan simply got too much hubris. And with that hubris came bad business deal after bad business deal. In a country where banks are generally large shareholders in the companies they finance, the one group that could keep them honest had a serious conflict of interest.

For ten years Japan has been in an ongoing economic crisis that has seen bailout after bailout by the government, but never the rip the band-aid off approach that was desperately needed. The fact is that the crises going on in Japan right now (large corporations larded up with debt but dubbed too big to fail by the banks and government) are not new but just in their tenth year of existence.

The article attached covers the sad tale of long time Japanese retailer Daiei. Daiei was at one time a titan of Japanese retailing. But right now they are probably more akin to KMart (minus Eddie Lampert's shrewd real estate mind). They have been struggling to stay as a going concern for about 7 years and have continued to get bailout after bailout by the banks and government.

Hawk's View: What Japan needs is a big failure. A spectacular failure to shake up things. In 1999, South Korea got one when the government finally said you are on your own to two severly wounded Chaebol's (Daewoo and Hyundai). Both conglomerates went through a painful restructure but it was necessary. And it had a ripple effect. Today South Korea's major economic players (Samsung, LG, SK and even Hyundai) are making noise worldwide in everything from cars to consumer electronics and appliances. In the process they are cleaning Japan's clock.

Japan can still be great again, but in order to do so they must take a long hard look in the mirror...