This page has been archived and commenting is disabled.
It's Not Just Japan That's Failed; The "Asian Miracle" Model Has Also Failed
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The inevitable result of the centrally planned Asian Miracle Model is credit bubbles and the crippling misallocation of capital in Building Bridges to Nowhere.
Japan's extraordinary rise from the ashes of World War II created an "Asian Miracle" template that other Asian nations have followed, and continue to follow.The outlines of the model are straightforward.
The growth engine is export-dependent mercantilism: organize the economy to prioritize exports at the expense of domestic income and consumption. The central government manages the mercantilist project in conjunction with favored cartels or state-owned enterprises (SOEs). In other words, The Asian Miracle Model is central planning plus credit expansion plus export-based cartel-capitalism.
The Asian Miracle form of centrally planned capitalism depends on these four pillars:
1. Integration of government ministries and private-sector cartels
2. Heavy reliance on export sectors for growth and profits
3. Domestic savers provide the capital for export expansion
4. Defaults and write-offs of bad debt cause loss of face and are thus hidden from public view or rescued with government bailouts or zombie loans.
This combination of central planning, credit expansion and export-based capitalism ignites a rocket booster of rapid growth. Since the Asian nations pursuing this model are starting from relative poverty, the rapid expansion of credit, exports and employment in the export sector are all the more miraculous.
But the model runs off the rails when central planning and credit expansion reach diminishing returns. Central planning is very effective at allocating scarce capital in the boost phase, because the capital is invested in building an efficient export machine and in essential infrastructure that enables exports: ports, railways, highways, etc.
But once all this basic infrastructure is built out and exports reach their zenith, central planning slips from miraculous to disastrous. The state bureaucracies that guided the Miracle boost phase have no other plan other than more credit expansion and more investment in infrastructure.
The inevitable result of the centrally planned Asian Miracle Model is credit bubbles and the crippling misallocation of capital in Building Bridges to Nowhere. China has already burned through the booster phase and has reached the credit bubble/building ghost cities stage.
The hubris of central planning knows no limits. Though the only possible endgame of the central planning plus credit expansion plus export-based cartel-capitalism model is stagnation and implosion, central planners in Japan and China remain supremely confident in their ability to re-ignite a rocket with no fuel.
Following Japan's Failed Economic Model with Gordon T. Long:
»
- 12829 reads
- Printer-friendly version
- Send to friend
- advertisements -
Perhaps. But how does this differ from the current Western model?
New model of success in this world is grow your own food, produce your own energy, and live within your means.
But how can they fail when they work so hard?
Just like a fisherman who fish and other person eats to provide fisherman some work to do.
Smart work is better than hard work.
You take 4 steps forward and 3 steps back, you diligent hardworker, while I lazily take 2 steps forward and 1 step back. End result, we're in the same place, but you consumed 133% more resources.
@matt, what it us "Ants" are 5 steps forward and one back? Sounds like you will be begging for food?
Feed yourself and you'll be the most dangerous animal to any CPer or govt.
My reply is to PT "how can they fail when they work so hard?" I didn't say anything contrary about growing your own food and being self-reliant. Do people have trouble understanding how indentation works on forum threads?
Congrats. You're just over half way down my list. Last year I posted the Labour Lies. Learn them now and you won't have to learn them later. It could save you a lot of time and distress. Here they are:
As a service to newbies, here are The Labour Lies. Learn 'em now and you won't have to learn 'em later:
"Don't be picky. If you want money then you have to work for it. Take whatever job is offered."
"You didn't work hard enough."
"You didn't study hard enough."
"You chose the wrong job. You'll can't expect to get rich doing that job."
"You need to be your own boss."
"You need to be competitive."
"You need to work smarter, not harder."
"You didn't take on enough risk."
"You didn't manage your risk properly."
"You need to be agile. Go where the money is."
"You need to find your niche."
Now get a 20 year old economist and put him in the same room as a 40 year old businessman. Let the economist talk about capitalism and free markets and time how long it is before the businessman interrupts him and says something along the lines of, "Business isn't about free markets. Business is about building relationships."
Oh yeah, and make sure you have a really good think about what that last sentence is all about: BUSINESS IS ABOUT BUILDING RELATIONSHIPS. Who told me that? How many people told me that? How many times? What does it really mean?
You're welcome.
Wal-Mart must be a real good friend of everyone, since people abandon their local stores and shop Wal-Mart instead. Or is it simply a matter of price? For most people, they'd rather pay half as much then purchase from their neighbour they've known their whole lives.
I hear Walmart built some good relationships with some municipalities. Tell me again about Walmart, land and taxes. I'm starting to forget things again.
<--- Melissa Francis
<--- Steve Liesman's bosses
Actors. And Actresses. It takes an ex actor like Ronald Reagan or an ex actress like Melissa Francis to say that the crony capitalism (the term Ron Paul popularized) aka Facism (the term Roosevelt popularized) crashes and burns
http://www.mediaite.com/tv/cnbc-responds-to-fox-biz-anchor-melissa-franc...
All perpetual growth systems crash and burn once they hit 50% consumption of available resources.
Well, no disrespect, but the Western model is (despite all governments efforts to the contrary) creative, while the Eastern model seems to be an "improvement" based model...take what Western (white nerds) make, analyze, and improve upon it. There is only so much growth you can have when you are essentially relying on an outside force.
I know this is a generalization, but it does seem to hold water. From my experience Asians, despite their intellect, are not that innovative. So there's a wall there.
So the U.S. model is exporting it's productive capacity, career employment, and having a centrally planned parasitic financial oligarchy that bribes the kleptocrats into controlling the increasingly impoverished and oppressed citizenry.
The only difference in all this treachery and skullduggery against the people appears to be way in which the ships sail.
The summary: The Rothschild theft-by-bank model has left the DC US a hollow shell that is about to be destroyed by supernova-inflation, and Asia and Europe sitting on too much capacity that will send them into a blackhole-depression.
As an American, if I had to choose, I'd choose excess capacity and the depression, but then, they didn't ask me.
Man the guillotines!
An American, not US subject.
Its only inflation if they fight deflation, if they try to ride out the deflation/defaults then they may delay the hanging ropes. As Japan has done, so far. But once inflation starts is abandon ship as far as money. Everyone will dump dollars and buy everything and anything else. Euros will go to the moon untill the machines are turned off, as will the Canadian dollar. Deflation would kill the banks and most debts takeing the well off into destitution. No win dismial outcome for a dismial magic.
bbq on whitehou...
usually i agree wholly but i had to pause on your estimation the loonie would go to visit alice on the moon. the cad is heavily impacted by the price of oil as well as other commodities. if oil continues to slide other currencies would appear more attractive than the loonie.
1. Integration of government ministries and private-sector cartels.
Same at the in the West then.
“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power”
? Benito Mussolini
Familiar?
They need to put Obama in office for a term to really get Japan's economy back on track, plus having the tranny in the Japan White House will do wonders for all the Japanese women!
Yes I believe he has a birth certificate somewhere that says he was born in Tokyo.
"Nihongho Waskarimasen"
Japan is also failed because of "their" exceptional-ism. A term used in Japan is "jitensha nori" mean you must paddle if you want to ride the bicycle. "Proud to be Japanese" are aged and old. New generation don't want to paddle.
I hope they like coffee in Japan. That way all the young hipsters can be employed serving roasted bean juice to each other.
At least the Asian central planning focuses on that which creates value (production and investment), while ours focuses on that which extracts (trading and modern "finance") and consumes (our consumption ponzi) value. All China had to do is let the USD crater and its people will see a massive wealth and income effect, enriching the household sector and enabling the transition. Meanwhile, our parasitic financialization has gutted our productive capacity. We will have to rebuild...
CHS misses the entire point with this article. Asian economic practices were never intended to be "successful" according to his criteria, they were designed as a means of waging economic warfare against the West via dumping and also of rapidly advancing to a level of rough parity with Western technical achievement (which again will be used to wage war against the West). The idea of producing a carefully manicured free-market economy in which everyone is relatively prosperous and satisfied is an item of intellectual currency you might expect to run into in Paris, Oslo, or New York, but it forms no part of Asian thinking on these subjects.
Until China's rise, the Asian economy was Japan. The US has been controlling Japan's economy since 1853 either by advice and consent or coercion. Before Abenomics, there was Kan's "Third Way" Western model (Abenomics by any other name). Both have the IMF/Fed Reserve stamp of approval if not wholly designed by them.
Japan's 'miracle' was meant to fail when it threatened US dominance, plaza accord
SE asian miracles was meant to grow only as far as they remained pliant puppet states that fed the high lords of finance
China's miracle was meant only to serve as slave-labor camps for the west, then US fell asleep at the wheel and had their own little financial clusterfuck, and forgot to keep China in check
but don't worry, the focus is back now, the Asian pivot is here, the high lords of finance are working on a blowup of China's debt right now, stay tuned...
as long as we don't get distracted again by the ME, Russia/Ukraine, the domestic economy, ebola, and competent leadership... we still have time to tame China, we'll make those slanty-eyed gooks our slaves yet :)
It was not a tragic misallocation of capital. It was allocated precisely where it was intended, into the hands of friends and family of the powerful. Time to hit the reset button and start it all over again.
Being deliberate rather than a result of incompetence does not make it less tragic for the victims.
"Time to hit the reset button and start it all over again."
\sarc?
"What difference does it make?"
The Asian Model was nothing more than Currency Manipulation sanctioned by ALL the powers that be..........
"The inevitable result of the centrally planned Asian Miracle Model is credit bubbles..."
Credit bubbles mark the end of the Asian Miracle Model, but there must be something deeper driving this, because as we look around the world we see credit bubbles happenning everywhere anyway.
Pu-leeze! The author shouldn't let his allergy to state planning get the best of his thinking processes. While he's whining at the admittedly stupid ghost towns that were built when China was over-enthusiatic with its newfound prosperity, German businessmen are going positively bonkers over the New Silk Road ending in Berlin. And I don't think these guys are either dreamers or fools. They can smell the whiff of a buck a mile away.
Well, at least Charles Hugh Smith got a couple of sentences in.
Dear Japan: lower the price of two things:
Real Soju
PlayStation 4 Destiny Bundle
and your economic woes will end forever.
Did China just move out of Asia?
America made both Japan following WWII, and later we built up China as a way to keep the old Soviet Union in check. I hope we did not give either country a warranty.
Many Americans cringe when they think about the billions of dollars of consumer goods we import from China every month, but what makes it even more bizarre is that the country many Americans fear most is an American make product. Several decades ago America started down a perilous path to build China into a world power.
Years ago our pathological fear of Russia and the Kremlin’s atheism caused America to seek a counter balance in the region. Central to the American effort was offering the prospect of economic incentives to China, we combined this with a hardline military response to communist aggression. Ironically, it was the China’s communist longevity the Washington wise men should have feared more. The article below delves into how and why America made China into the economic giant it is today.
http://brucewilds.blogspot.com/2012/09/china-made-by-america.html
The Japan miracle was no miracle. The Chinese miracle is no miracle they both follow the same plan.
1. Allow companies to bring in technology and make them partner with you.
2. Learn the technology then tell your partner you don't need them.
3. Sell the same product in the US at a lose to eliminate competition.
4. Get free money from your government so you can sell at a lose.
5. Reverse engineer and steal when cant get a partner.
6. repeat.
If this were a term paper, I believe it would deserve a D for effort.
Lets start with the title of the paper. It should be: How Hyper-Keynsian Economics Has Failed Japan.
Comparing China and Japan simply based upon the criteria listed above is a half baked effort.
Of the four listed, I would say that the only truly Asian driver is the "culture of saving" which although not unique (e.g. Germany), is clearly a big factor. 2 ,3 and 4 are hardly unique to Asia.
Further, I don't know how you can have a discussion of something called the Asian Economic Miracle without considering Korea and all of the Asean countries (Indonesia, Singapore, Malaysia, Vietnam, Hong Kong and the Phillipines). Many of those countries were IMFed in the Asian financial crisis and defaults and bad debts were certainly NOT swept under the rug. Those countries were forced to swallow the medicine that Europe and the US are now avoiding like the economic plague: economic restructuring consisting of massive asset write downs, debt writeoffs and the shut down of insolvent banks.
Indeed, the US and Europe are the ones "Turning Japanese".
Finally how can you leave off the cost of labor, rapid techological assimilation in the manufacturing process, particularly robotics, absence/weakness of trade unions and barriers to entering domestic competition to name but a few?
For Zero Hedgers, I believe it would be more interesting to discern the principle differences between the German and Japanese economic miracles, particularly the role of their central banks. I note that Germans are essentially savers much like the Japanese.
Is Japan's failure a result of mercantilism and/or central planning? Or is it a result of dwindling workforce (itself a result of demographics and immigration policies)? Given a growing workforce, why would a government guided savings/export economy not work?
As well, we (the U.S.) are also failing but we are anything but savers/exporters. We borrow and consume way beyond production, never mind export. Why? Because of our unsustainable debt overhang exacerbated by financial engineering.
I posit Japan fails NOT because of mercantilism but U.S.-style Keynesian policies, coupled by U.S.-style financial engineering. The reason why they lead us in timeline is because of their worse demographics.