Alike the north of Great Britain or the American rust belt, there are any number of stagnant towns in northern Japan whose difficulties have been magnified by the tsunami's wake. And, just as the UK and the US are mired in a prolonged funk despite having had zero interest rate policies (ZIRP) for some time now, Japan has been there for decades on end it seems.
What to do? Returning to criticisms that many of these economic rescue programmes mounted by many governments are not geared towards helping small- and medium-sized enterprises, The pioneering Nobel Prize winner Muhammad Yunus believes that a way to kick-start Japan's economy is to offer microfinance instead of cheap loans to large, export-oriented firms who have in the past been the beneficiaries of Japanese industrial policy. Of course, Japan has a lot of other pressing and interrelated problems of debt, depopulation, deflation and a strong currency, but here's something that's potentially overlooked that may play a role in reviving its economic fortunes:
That visit to the devastated northeast Tohoku region was on March 11, the one-year anniversary of the nation’s worst earthquake and tsunami on record. Like many, Yunus came away haunted by an economic question: How can the Tohoku region not only rebuild, but reinvent itself and thrive in a time of austerity? Yunus returned recently with an answer that may cause its own tremors: Japan needs a microfinance industry...You may be sceptical about Japan's need for it--Japan sends Bangladesh quite a lot of foreign aid and not the other way around for some reason as Bill Pesek of Bloomberg notes--but Yunus suggests otherwise:
What does any of this have to do with Japan? It is near the top of national per-capita income tables, has one of the highest savings rates, and Tokyo and Osaka are routinely in the running for world’s most expensive city. Japan gives impoverished Bangladesh billions of dollars in aid each year. “It’s needed everywhere -- it doesn’t matter where you are,” Yunus said in Tokyo on July 26. “When you come to a disaster area like Tohoku, it’s all the more important. You have to rebuild everything all over again. There’s no house, there’s nothing.”To paraphrase a certain author, the problem is that Japan is seeing like a state when it comes to developing solutions for continuing economic malaise. Worse still, the solutions it comes up with (when it manages to do so) may no longer be applicable in a changed global political economy. In particular, it has never really resolved the "dual economy" problem of a dynamic export sector coupled with a stagnant domestic sector. Now more than ever, the latter needs to become a boost rather than a drag on its economic fortunes:
That hope has since been dashed by paralysis in Tokyo and a return to the petty infighting that passes for political leadership. That is prompting local officials to take matters into their own hands. Rikuzentakata is working to create a small, self-sufficient city that creates new jobs in renewable energy to replace those lost to the decline of agriculture and fisheries.
Microfinance on a grander scale might enable the northeast’s community leaders to steer around the paralysis in Tokyo, where bureaucrats are impervious to their demands and clueless about their needs. It would help local credit systems gain traction in ways the Bank of Japan’s zero-interest-rate policies can’t. Japanese need alternatives to banks, which aren’t lending or offering creative financial products. Micro- lending could help businesses and households steer around the credit logjam.Good stuff from Bill Pesek, and his op-eds on Asia remain well worth reading.
Japan’s government should provide some startup cash to supplement local savings. Given the huge sums of money it doles out for infrastructure projects in Hokkaido and Kyushu in the far north and south of the country respectively, the cost of setting up a kind of Grameen Japan would be minuscule and the risks limited. Is that likely to happen? The odds aren’t great given how averse Tokyo’s bureaucrats are to anything that smacks of originality or setting a precedent. Yet Yunus showed it was possible for poor people in Bangladesh to get the credit they deserve. There’s no good reason to think the same can’t happen in Japan.