John Rapley
ECONOMISTS HAVE been saying it for years: American consumers, with their profligate ways, low savings and mountains of debt, have been keeping the world economy afloat. Japan is sluggish, the big European economies can't seem to get moving, and China is booming largely because it sells so much to the United States.
Plainly, the situation can't continue forever. More and more observers fret that if a rebalancing doesn't take place soon in the world economy, some kind of crash could occur. And so, great expectations had formed that the recent elections in Japan and Germany might signal that weary Americans could pass the baton to some new runners.
DYNAMIC ECONOMIES
Once dynamic economies, both Japan and Germany sank into relative gloom in the 1990s. Germany got sucked down by the sheer cost of absorbing the former East German economy. Japan paid for the excesses of the 1980s, when its property and real estate markets inflated into huge bubbles.
But lying underneath such cyclical changes were deep structural problems. Both countries faced the prospect of declining populations. This meant both fewer workers and fewer consumers, not to mention a growing aged population to support. Fewer workers meant higher labour costs, since employers would have to compete for a dwindling supply of workers.
Immigration was one possible solution. However, both societies have struggled to come to terms with foreigners in a way that the Americans, for all their vices, have not. That meant other ways to reform labour markets in order to reduce costs became necessary. Japanese Prime Minister Junichiro Koizumi proposed that as a first step, he would privatise the country's post office. As for German Chancellor Gerhard Schroder, despite his socialist credentials, he began partial reforms to the country's generous welfare and labour laws, making it easier for firms to lay off workers.
In both countries, such changes threatened a decades-old consensus around preserving a blend between economic efficiency and some form of equity. Needless to say, rebellion was inevitable. An old guard in the Japanese prime minister's LDP (Liberal Democratic Party) rejected his privatisation bill. Mr. Koizumi then sent the country to the polls.
The same sort of thing happened in Germany, where the left wing of Mr. Schroder's SDP (Social Democratic Party) cried "enough," and abandoned the fold. As in Japan, Mr. Schroder then called national elections.
Mr. Schroder, though a skilled politician, had become very unpopular among his compatriots. Polls and pundits all predicted that his conservative opponent, Angela Merkel of the CDU (Christian Democratic Union), would win a convincing victory. Ms. Merkel's platform called for sweeping changes to the German economy.
BIG VICTORY
Mr. Koizumi scored a big victory in his country's election two weeks ago, putting the reform train back on track in Japan. After the election, with polls still predicting a Christian Democratic victory in Germany, many economists heaved sighs of relief. The Japanese and German electorates, they said, were finally coming around to the virtues of the American way.
But when their so-called moment of truth came, Germans held back. They delivered a victory to Ms. Merkel, but only just: her party's seat count remained well shy of a parliamentary majority. Meanwhile, the country's electorate fragmented from left to right, delivering no clear mandate to anyone. Coalition negotiations could now go on for months, and any resultant government will likely have a weak and confused mandate.
In short, reform in Germany is likely to have been put on the back burner. But the Japanese model may not be as bold as the image put forth by the shock-haired Mr. Koizumi. Japanese postal privatisation won't actually occur until 2017, and Mr. Koizumi has spoken only vaguely of other changes. After all, for all the talk of Mr. Koizumi's new approach to Japanese politics, his party has run the country for all but ten months of the last half century. It is hard to imagine a bunch of politicians this well-entrenched suddenly opting for dramatic change.
All in all, it would seem the wind of change that was expected to blow through some of the industrial democracies amounted to little more than a whisper. The effect on the world economy, and thus on all of us, will remain to be seen.
John Rapley is a senior lecturer in the Department of Government UWI, Mona.
