Why the U.S. is not—and never will be—Japan
By Ian Bremmer
The opinions expressed are his own.
Though I’ve already written about the recent Munk debate in Toronto elsewhere, it’s worth taking some space to expand on my position, and why the U.S. truly is not going to experience a Japan-style lost decade of economic stagnation.
(The debate was on this resolution: Be it resolved North America faces a Japan-style era of economic stagnation. I joined Larry Summers in arguing the Con side against Paul Krugman and David Rosenberg.)
Let’s start with the political realities: Japan experienced 50 years of single-party rule. In the last 22 years, the country has had 17 prime ministers. Recently, the Democratic party there defeated the long-time incumbents, the Liberal Democrats, only to find that they had no idea how to govern the nation. They had no idea how the ministries worked, no relationships with industrialists or financial institutions, no grasp on the levers of power in society, and no strong policy apparatus. If the U.S.’s political situation looks bleak, consider that alternative.
In fact, the political situation in the U.S. may not be pretty or easy to watch, but it’s functioning. The President and Republicans continue to hammer out centrist deals on issues like tax hikes and the debt ceiling, albeit at the last possible minute after much gnashing of teeth. Ignore naysayers who say that budget supercommittee doom is coming; a deal will likely get done. And after the presidential election, things will get even better. That’s because Republicans are almost certain to retain the House and take the Senate. Whether Obama or the likely GOP candidate Romney wins the election, their dealings with a unified legislative branch will become far easier than the current divided government.
Our stable government is why foreign investors continue to flood into the dollar. Paul Krugman may have argued at the Munk debate that a strong dollar is what’s harming the U.S. economy, by making the country less internationally competitive, but I believe the confidence that foreign and sovereign investors continue to show in US debt outweighs that negative. Ask yourself what the better scenario is: a strong dollar that puts us at a slight relative disadvantage, or a pullout of investment dollars in the U.S. altogether? Investors continue to make bets in dollars, and that’s good for us. Yes, gold has risen dramatically in recent years, but “gold” is not a country. When investors need security and stability in currency, only the U.S. can still claim to provide it.
Krugman is also frustrated that the U.S. can’t move on a dime to enact policies needed to slam the country out of its current GDP growth lethargy. Looking around the world, there are only a couple countries of size that I can point to with that ability. One is Russia. Vladimir Putin has positively gutted that Moscow’s fledgling institutions to let his will be done. Their growth rate has been phenomenal, but at what cost? No one can say what will happen to Russia when Putin exits the stage, and that’s not a situation the U.S. will ever be in. Our institutions endure.
Finally, let’s look at the U.S.’s secret weapon when it comes to avoiding a lost decade: its demographics. With healthy immigration and a fertility rate that hovers around replacement levels, our outlook for population and labor force growth beats that of Japan, the EU, and even China. We’re going to have workers that are educated and capable of entrepreneurship in a way that other regions of the world will not. They will continue to follow our lead, but the innovations will come from the U.S. and North America.
Ultimately that’s the most important point of all. Nearly twenty years ago, the rise of the Internet, which was a long-gestating government and university networking project, began to reshape the world. Today, we don’t know what the next Internet-like innovation is going to be. It could be 3-D printing, or laser fusion, or nanotechnology, or something none of us has ever heard of. But we do know that it’s almost certainly going to come from the United States. If that was not the case, 50 percent of Chinese millionaires wouldn’t want to actually live in the U.S. rather than China.
Our biggest economic competitor over the coming decades will be China. But in China, 1.3 billion people are in the process of industrializing. We’ve seen the industrial revolution in England and in the U.S. It’s necessary, but not pretty or simple. Check the air quality in Beijing for proof of that. The decision among the world’s elites as to where they want to locate themselves will always be a relative question. And relative to the rest of the world, the United States continues to stand alone.
This essay is based on a transcribed interview with Bremmer.
Photo: Japan’s Prime Minister Yoshihiko Noda (L) talks with China’s President Hu Jintao (2nd R) at the start of their meeting on the sidelines of the APEC summit in Honolulu November 12, 2011. REUTERS/Kyodo