The New York Times features a review of Gillian Tett’s new book Saving the Sun: A Wall Street Gamble to Rescue Japan from its Trillion-Dollar Meltdown. In a market economy, entrepreneurs and managers make decisions about how to best use their capital goods and available savings toward future production possibilities. Their goal is to arrange production in such a way as to best meet consumer demand. Because the future is uncertain and decisions are at best conjectural, many errors are made. For the market to work, losses must be realized and capital released so it can find its way to its next best and highest use.
The alternative is that bad decisions, once made, become frozen. “Zombie” companies that cannot make a profit continue to absorb savings that could otherwise be used to meet more urgent consumer demands elsewhere. The unwillingness of policy makers to allow bad debts to be liquidated is one of the causes of Japan’s twelve years of economic malaise. According to the reviewer “the barriers to recovery are more cultural than economic. Japan’s problem, according to Tett, is the deeply held belief that risk and reward must be shared, that group cohesion trumps strict economic considerations.” In a “culture of socialized risk....the idea of letting longtime borrowers fend for themselves was anathema.”
Author Tett believes that the “American model” or allowing failures to fail is not consistent with Japanese cultural mores, and that the best path is some kind of “third way” mid-way between the Japanese and American styles. But according to the reviewier, cultural obstacles to reform look more like convenient excuses by reluctant politicians and executives.”
