In 2008, before the financial crisis had even reached its nadir, Rahm Emanuel famously said: “You never want a serious crisis to go to waste.” Emanuel’s quote became the conventional wisdom for crisis management, even if the idea is age-old: John F. Kennedy Jr. famously pointed out that the Chinese word for “crisis” is composed of two characters, one for “danger” and one for “opportunity.
Nearly five years after the global economic meltdown, we can now look at the world’s major powers and assess how well they’ve responded to their various crises. Three categories emerge. Who took advantage of crisis? Who never really had a true crisis? And who is letting crisis go to waste?
A crisis unwasted: Japan and the Euro zone
Let’s begin with Europe, which experienced a real and urgent crisis. Remember that as little as 18 months ago, the media and bond markets had the euro zone pegged for imminent fracture, when the debts of its member countries and the untenable divide between its core countries and those on the periphery threatened to overwhelm the political unity and economic cohesion that the bloc enjoyed. A lack of fiscal coordination, political and monetary dexterity, and balance between strong and weak states pushed the world’s largest economic bloc into existential crisis.
But with the help of Germany, bolder monetary policy from the European Central Bank, and some very painful budget-control measures, Europe has emerged on sounder footing, and the prospect of collapse is firmly behind it. There has been a fundamental restructuring, and now Europe is on the mend. The looming crisis itself helped affect structural change. Without market pressure and alarm bells, the periphery would not have been shaken from complacency, nor would the ECB have taken a bolder stance to put a floor under the crisis.
Japan had a very different crisis than Europe did. Two “lost decades” didn’t spur the Japanese into action. Japan went through nearly 20 years of stagnation, stuck in a whirlpool of deflation, low growth and rising public debt that prevented the country from competing as the rest of the world’s powers modernized their economic approaches. What shook Japan out of its malaise? In part, it was an increasingly acrimonious challenge from China, which has surpassed Japan to become the world’s second-largest economy. Japanese voters’ economic and security fears from the regional superpower prompted them to give Shinzo Abe another crack at the prime minister post. He’s used it to create an economic plan heavy on stimulus, join the Trans-Pacific Partnership trade pact negotiations, and work toward making all “three arrows” (monetary easing, government spending and structural reform) of his economic plan take flight. It’s still unclear whether Abe’s ambitious plans will succeed, but there is no question that Japan has converted its slow-motion crisis into a remarkable opportunity.