What ‘Balance Sheet Recession’?
Maybe I "just don't get it," but as I read Paul Scalise’s
review of Richard Koo’s book, Balance
Sheet Recession, what struck me as odd was: why? Why have
Japanese firms shifted from profit maximization to debt reduction?
I can find no reason why they should. Nor can I find any evidence
that they have.
from that, it is a nice idea. Of course, if the reason is "because
expected returns on investment are low" then it is not a new
theory at all. I am saving up my hard-earned yen to buy Richard
Werner’s book, Princes of the Yen (just kidding), but if
you could explain this one point to me, I won't need to give my
money to Mr. Koo instead.
R.J., Tokyo Japan
Koo extrapolates his thesis
from two statistical observations. The first is found in Exhibit
2.1: Interest Bearing Debt Returning to the Pre-Bubble Trend
Line (Balance Sheet Recession, pg. 18) sourced from the Ministry
of Finance (“Financial Statements Statistics of Corporations by
Industry, Yearly”) and Toyo Keizai (“The Japan Company Handbook”).
The second is found in Exhibit 2.4: Net Wealth Ratio of Japanese
Companies (Balance Sheet Recession, pg. 37) sourced from
the Cabinet Office (“Annual Report on National Accounts, 2002”).
notes that “the outstanding balance of interest-bearing corporate
debts declined by JPY113tr between its peak in 1995 and the year
2001.” This phenomenon, he reasons, is largely the result of once
profitable firms using their cash flow to pay down their overextended
interest-bearing debt in the face of on-going asset deflation. To
support his supposition, he cites data indicating an eventual improvement
in the aggregate net wealth ratio (net assets divided by total liabilities)
of the country circa 1996 to present – although these companies
problematically appear to include financials.
does this debt reduction mentality linger? Koo doesn't systematically
dwell on the causality, but hints at a range of possibilities such
as fear of bankruptcy, increased unemployment, lower disposable
incomes or destroyed credit ratings. Based on personal experience,
we often find ourselves asking the same questions: Why do
Japanese companies do half of the seemingly irrational things they
do? Financial analysts wrestle with expensive multiples, unsustainable
cash flows, and unprofitable business strategies every day.
Managements will claim they are being rational; some financial analysts
and economists will disagree. The point is that the line between
microeconomics and macroeconomics is sufficiently blurred in this
book to keep us thinking about Koo’s theory long after we put it
we’ve spoken to other economists who insist that this “one-idea”
book overemphasizes the legitimate point about excessive debt and
corporate leveraging at the risk of downplaying other potential
factors affecting businesses (narrowly) or the economy, more generally.
Such examples include Japan’s low rate of return on capital, as
you rightly point out. But to be fair, Koo implies a sort
“chicken-and-egg” mentality is at work here. Which came first:
lower consumption and investment triggered by low rates of return
on capital _OR_ low rates of return on capital triggered by low
consumption and investment? The mainstream would argue the former,
while Koo (we believe) would argue the latter.
A major weakness (or strength?) of Koo’s Balance Sheet Recession
is that these causal relationships are not explicit at either the
theoretical or empirical level. Then again, John Maynard Keynes
was never forced to substantiate his theories using econometric
into the Real 'Japan'
a newly arrived missionary in Miyakonojo, Miyazaki
from Texas. I am glad that I found your wonderful site! Your
reviews are the best I've come across, extremely detailed and informative.
However, they seem to naturally be focused on new releases.
I'm really looking for a list of "must read" memoirs about
life in Japan written in English.
looking, as always, to the written word for personal insight.
What books would you suggest that I absolutely “must order” from
Amazon and read right away? Thanks in advance for any and all help
you can offer.
Thanks for the kind
words. Getting us to think about “must order
and read” memoirs was a fun
exercise. We came to the conclusion that the Japan memoir fits one
of three categories, sometimes overlapping, but part of virtual
cottage industry that separates itself from academe. Since each
has a different target audience, it’s
hard to say which is your cup of tea. They include:
public policy memoir:
usually written by a diplomat or journalist who “lived through”
major policy changes, or a lack thereof.
an endangered genre where the author simply is a tourist, or
outsider, experiencing Japan; and
a sometimes sublime, but more often than not, wild romp. Japan
is the backdrop to some personal or professional development.
you consider to be essential, or a “must-order” memoir, really depends
as much on your personality as it does your purpose. Below
is a list that has elicited some strong (good and bad) reactions
from readers who enjoy personal memoirs. Our preferences are marked
with an asterisk followed by an explanation of our top choices.
with the public policy memoir. Here is a genre that tries
to use inductive (on-the-ground) research to arrive at a public
policy conclusion about Japan. The selected anecdotes, sometimes
vividly personal, are offered up as proof in abstract debate. Moreover,
they usually match the author’s Manichean vision; the world
is black and white, good and evil, right and wrong, fair and unfair.
These black and white colors don’t always blend together to offer
a “gray” picture of Japan, so it becomes difficult to assess whether
the stories are representative, let alone decisive in policy discourse
(as opposed to methodical and systematic data analyses). Some
controversial titles include:
Michael H. Friends or Rivals?
James. Looking at the Sun.
Alex. Lost Japan.
Clayton. About Face
Mike. Leaving Japan
T.R. Confucius Lives Next Door.
Edwin O. My Life Between Japan
top choice: Lost
Kerr has written
a highly original (and personal) tour de force behind
Japan’s cultural icons such as
Kabuki, calligraphy, and traditional architecture. His backstage
experiences reinforce the developing argument that modern Japanese
culture is slowly corrupting its environmental landscape and
traditional aesthetic. Kerr’s quasi-sequel, Dogs and Demons,
is more well-known, but stands on shakier ground because it
extends the cultural argument to politics, economics and modern
artistic expression – sometimes (in our opinion) biting off
more than it can chew.
second genre, the travelogue memoir, is the exact opposite.
If the public policy memoir is written by the putative insider,
this genre is written by the self-proclaimed outsider; it doesn’t
try to persuade you to take the author’s position because the author
himself is one part sensualist, one part tourist. As author Donald
Richie describes himself: “I am not to be put on one side or the
other. You can’t get the bipolar grip on me.” While it’s clear the
author “knows” Japan, it’s unclear what he systematically “thinks”
about the country – making it more descriptive and light-hearted
than analytical and high-brow. And while it's true that every once
in a while an author can lapse into half-baked generalization (c.f.
Will Ferguson), ignore it; we all do. Some well-known examples
Dave. Dave Barry Does Japan*
The Roads to Sata
Will. Hokkaido Highway Blues
Donald W., and Carlson, Amy Greimann (editors). Japan:
True Stories of Life on the Road*
Todd Jay. Letters Home
Arturo (editor). Donald Richie Reader: 50 Years of Writing
Paul. The Great Railway Bazaar
top choice: Dave Barry Does Japan. Dave
Barry might be a humorist, but he’s also an astute observer
of the typical reactions most of us first have upon arrival
in Japan. Our favorite quote from his book: “The best way to
learn Japanese is to be born as a Japanese baby, in Japan, raised
by a Japanese family.” Well, maybe…
there’s the self-discovery memoir – a mixed bag. These either
can be highly nuanced expositions or the opposite extreme: self-indulgent
narcissism. At least with the public policy memoir, the author attempts
to weave a structured, lucid argument between the personal fabric.
In the case of the self-discovery memoir, barriers to entry are
low; all you need is a plane ticket and the willingness to navel
gaze. Sure: there are some well-informed, insightful individuals
experiencing Japan that can bring to life the facts and figures
we often know, but really don’t understand. The risk comes to personal
taste. You may not always enjoy graphic discussions of “sex, drugs
and rockin’ roll” (c.f. Karl Taro Greenfeld), constant carping about
Japanese exclusionist behavior (c.f. Peregrine Hodson), or
the occasional curmudgeon who sees the cup as always half empty,
rather than half full. But even these books have value. A
few of the most popular examples include:
Karl Taro. Standard Deviations
Peregrine. A Circle Round the Sun
Pico. The Lady and the Monk
Donald. Blue Eyed Tarokaja *
David. Turning Japanese*
John Burnham. Bicycle Days (novel)
Carolyn S. An Adventure Interrupted
top choice: Blue Eyed Tarokaja.
Donald Keene is a well-respected Japan scholar and translator.
His memoirs are an anthology of 37 personal essays and vignettes
interconnecting the literary and the personal. Topics range
from the basics (people and places) to more literary subjects
like his thoughts on The Tale of Genji. He’s not
everyone’s taste, but he’s ours.
any case, it stands to reason that these are personal experiences,
so it follows that these listed memoirs are just personal reactions.
There are more “bad” memoirs than “good” ones. A lot of them whine.
A lot of them preach. And – this is the real stickler – a lot of
them presume to know what’s best for Japan. Our choices always rest
with memoirs that set out what they wanted to do, and followed through
on that promise. What more can anyone ask?
Alma Mater, Boo-rah!
My quick thoughts
regarding the JRN comment in response to the trivia question #2
below. The reference to the Tokyo
University doctorate as a "no surprise" suspect of the
alleged charge implies to me that you hold a certain stereotype
about the university's graduates. Furthermore, this leads me to
believe that you have a categorical, grossly oversimplified and
mostly negative view of "Todai graduates" which consists
of a diverse group of people just like any other school.
If these are the case, it is unacceptable. The many graduates
of the school including me (who could be within or near the financial
industry and potentially your valued readers/clients) would certainly
not accept such a stereotype. Thank god, by a school in the country
of your subject, you don't have to worry about getting sued. I am
afraid this kind of thing really lowers your efforts and makes otherwise
great contents of your site somewhat undetectable.
trivia question of issue is:
“Question 2: A man has been just
arrested in Los Angeles for stalking Britney Spears. He is a Japanese
national. Where was he educated?
Stumped? The answer is a doctorate from Tokyo
University. No surprises in the last one.”
A. Thank you for the thoughtful e-mail. Your
concerns reminded us of the irate letters to Harvard Magazine
complaining that the movie Legally Blonde(2001) was
an affront to the dignity of Harvard Law. We would love to think
JapanReview.net is that much of a cultural icon, but alas. . .
As for being sued: our legally
admissible defense? It was all in good fun. As one of the editors
got to experience Tokyo University’s economics department
first hand for a few years, we feel we have free license to poke
fun at all of our alma maters. The Todai graduate doth protest
too much, methinks.
Many thanks for the survey results. On the whole, they aren't
too surprising and show what a motley crew (market) economists are.
To be fair, however, I think there is just about as much disagreement
among academic economists as well. I agreed with the majority response
on only 4 out of 10 questions, but it would be interesting to know
whether others were more consistent.
P.M., Tokyo, Japan
My impression is that there is not that much disagreement among
academic economists. I think one problem is that the phrasing of
the questions was such that people with very similar views could
give different (i.e., True or False) answers. You realize, with
hindsight, that constructing poll questions really is a talent.
R.J., Tokyo, Japan
I had a chance to read your economists poll and would like to
comment. The first question presumes a lost decade and someone to
blame. In fact, it was not all that lost, and there was a lot of
stuff going on that was so widespread that it is difficult to assess
responsibility. In fact, I think that it is the presumed values
of the Japanese people as read by politicians and decision
makers that are to blame: namely, the fear of hard landing. I say
"presumed" because I think that the LDP has done a real
snow job of asserting public fear and anxiety, when they really
mean their particular constituents. What "everyone believes"
is really what the construction companies and farmers believe. The
deviation between asserted anxieties and true public desires is
revealed by the wild popularity of nay politician or other person
who like a real reformer. That said, the true-false questions are
interesting and show both concurrence and divergences.
A.A., Washington D.C.
Headless State Lives!
I've always enjoyed reading this site, thanks so much. One point
I'd like to raise: Why not include books written by John Dower
and Herbert Blix?
a twenty-year veteran working full-time for the Japanese government
in international exchange I’m still strongly of the opinion that
Karl van Wolferen came closest to seeing the inside machinations
of governments here. That’s another story perhaps and maybe I’ll
write about the goings on I’ve witnessed.
P.E., Seattle, USA
A. We were supposed to review John Dower's work at one point,
but our busy schedules haven't allowed us to get to them. Needless
to say, Dower is an excellent historian with solid contributions
to the field. As for Karl van Wolferen's The Enigma of Japanese
Power, you might have a point. When was the last time the Koizumi
Cabinet engaged in anything that could be labeled "decisive"?
into the Source
Although I don' agree with much of your review of Alex Kerr's
and Demons, I found it be enlightening. One question, though.
In the review, you write: "In fact, Tokyo's
23 wards boast 90% of its transmission and 42% of its distribution
cables buried under ground, while London only records roughly 43%."
is your source? I am an American who lived in London for one year,
Tokyo for six, and now live and work in Kyoto. I don't know the
difference between "distribution" and "transmission"
in this context -- but I find your assertion very hard to believe.
Invariably, visitors to Japan comment on the ubiquity of telephone
wires. My father, a city planner in Philadelphia, was appalled
by, among other things, the wires that punctuate much of Kyoto's
year we wrote a response
to a similar question. While we’ll just ask you to read that response,
we will add the data in question are a matter of public record.
Tokyo’s network statistics for both distribution and transmission
cables come from TEPCO Illustrated. Data on U.K. network
system are sourced from the Office of Gas and Electricity Markets,
Report on Distribution and Transmission Performance.
Praise of Alex Kerr
Besides the fact
that is very easy to fall into the extreme opposite when writing
a critique about anything that emotionally affects the author, this
book is a good starting point to understand why the things are the
way they are in Japan. Anyone who has lived in Japan for at least
6 months will feel that he is not alone after having read the things
that upset Mr. Kerr in his book.
A. We're not so sure. Is everything in Japan rotten? How about
in America? Is "culture" the problem of Japan?
If so, how can you measure it from one generation to the next and
still attribute every thought, statistic and policy choice to a
vague value system? These questions are more complicated than Kerr's
reductivist approach would suggest. When sociologist Max Weber
argued that China's Confucionist culture prevented economic growth
100 years ago, it sounded like a plausible argument. Now the country's
economy grows faster than any industrialized nation (including Japan)
and is the source of constant fear and speculation about head-to-head
competition. What happened? Authors like Francis Fukuyama tell us
we have Chinese culture to thank. Really? So much for the cultural
Ciao, stamattina mi sono
svegliato e ho trovato il vostro web-site. E' proprio il caso
di dire: il mattino ha l'oro in bocca.......
Alex Kerr non vive piu' in Giappone perche' ha ricevuto
delle minacce dopo aver pubblicato Dogs and Demons ?
A. Come si dice in italiano, “l'uccello mattiniero
si becca il verme” In ogni caso, non lo sappiamo.
Sarebbe la prima volta che abbiamo sentite che l’autore ha
ricevuto delle minacce dopo aver pubblicato Dogs