Strange how he could link population to economic stagnation and
use Japan as an example. 
More fear politics. If you don't vote PAP in, your wives and
daughters will become maids in another country.
Researchers
Daniel I. Okimoto (Principal
Investigator)
Why has Japan's economy, once the envy of the world, fallen on
such hard times, and why has recovery taken so long? The nine
scholars analyzing Japan's economic crisis from 1985 through 2000
have identified six underlying causes:
Surplus in Savings: Japan has traditionally
enjoyed an unusually high savings rate and a comparatively low
consumption rate. During the decades of recovery and high-speed
growth, this "savings surplus" supplied sorely needed capital to
private industry in the form of bank loans. This money was used to
build and expand Japan's industrial infrastructure and to achieve
the rank of a world-class manufacturing power. However, during the
1990s, the "savings surplus", once the indispensable fuel for
high-speed growth, became a serious, structural impediment, leading
to a severe slump in demand and causing a heavy drag on Japan's
economic recovery.
Liberal Democratic Party (LDP) and Vested Interest
Groups: LDP support from interest groups representing
protected, inefficient sectors of the Japanese economy has
contributed to Japan's economic malaise but has also made it
difficult for the Japanese state to implement the reforms necessary
to get back on track. Focused on staying in power, the LDP has been
reluctant to implement far-reaching reforms or tackle the tough
issues, such as the ominous overhang of nonperforming loans (NPLs).
The LDP's coalition of interest group supporters, which supplies
money and votes, has lobbied hard to sandbag or dilute reform
measures. The unprecedented length of Japan's asset deflation and
liquidity trap is largely due to the absence of effective,
far-sighted political leadership. Whether Prime Minister Koizumi,
who has a clear-cut electoral mandate to reform an outmoded
economic system, can push through necessary but politically painful
changes remains to be seen.
Policy Mismanagement: The lack of political
will and effective leadership are reflected in serious policy
mistakes. These include: the consumption tax hike in 1997, which
stifled nascent signs of recovery; the unparalleled slowness in
disposing of NPLs; and the heavy-handed reliance on interest rate
cuts from 1985Ð1987 to deal with the deflationary impact of sharp
yen appreciation following the Plaza Accord. While it would be
unfair to blame the bubble, asset deflation, and the liquidity trap
solely on Japan's politicians and policymakers, it is accurate to
say that policy mismanagement has aggravated the problems and
prolonged the processes of recovery.
Structural Impediments: The complex structure
of Japan's political economy - particularly the close, symbiotic
ties between the economic bureaucracies, like the Ministry of
Finance (MOF), and the corporations under their regulatory
jurisdiction, like banks and insurance companies - has also
contributed to Japan's problems. The interests of the Banking
Bureau of MOF and the banking industry are interdependent. There is
little transparency or public accountability. Information is
hoarded about the actual scope of bad loans. Old methods of crisis
management (specifically, administrative guidance) prevail. These
elements help to explain why it took the government so long to deal
with the massive hemorrhaging of Japan's financial system. Although
Japan has made progress toward developing a more transparent,
rules-based system, the problems of nontransparency and weak
accountability have not disappeared.
Yen Appreciation: Another underlying cause of
the bubble, sustained asset deflation, and the liquidity trap is
the steep, long-term appreciation of the yen relative to the
dollar. For Japan, yen appreciation has been a chronic problem.
Exchange-rate factors have limited the effectiveness of certain
policy tools that might have cleaned up Japan's financial mess.
Caught in a classic liquidity trap, for example, the option of
designing monetary policy to hit specific inflation targets would
be difficult, in part because a sudden, sharp devaluation of the
yen would put enormous pressure on South Korea and Taiwan to
devalue their currencies. In an era of global capital flows, the
constant national need to make adjustments in the value of key
currencies, and the costs of overshooting, misalignment, and
potential speculative attack have enormously complicated domestic
macroeconomic management.
Global Capital Flows: Japan's rapid growth from
1955-1975 and its steady growth from 1975-1991 can be understood as
part of a global expansion of trade. But if postwar Japan has
benefited from the globalization of trade, it has profited less
from the globalization of capital flows. Neither the public nor
private sector has handled the liberalization of capital movements
as adroitly as the liberalization of global trade. Japan has
received surprisingly low returns on its massive dollar assets
abroad. Moreover, the Asian financial crisis between 1997 and 1998
crippled the country's efforts to shake off its stagnation.
Japanese manufacturing industries were better prepared to take
advantage of the globalization of trade than Japanese financial
institutions were to utilize the opportunities created by the
globalization of capital flows.
http://aparc.stanford.edu/research/causes_of_japans_economic_stagnation
