If you ask which advanced countries have grown fastest since 1999, the answer is the US and the UK. Real incomes and output are up by around 30% (to 2012) in these two leading economies, compared with growth of around 20% in France and Germany. Italy and Spain are lower. Those who write in to this site to belittle the UK’s economic performance should take note. On this measure Japan has done badly, leading to people to talk about a lost decade or two with no growth.
If, however, you ask about growth per head the picture is different. Italy, France and Spain still struggle at the bottom of the table, but Japan fares much better. Falling population in Japan is part of the reason why GDP is not growing. When you measure output for each individual in the society, the Japanese growth rate has been faster than the UK and the US. Germany also does better on this measure. Japan between 2003 and 2012 grew by around 7%, the US by around 6% and the UK around 4%.
This week sees the visit of the Japanese Prime Minister to Europe. Last week President Obama was in Tokyo. Unusually, the two close allies did not reach agreement on crucial matters for the planned trade agreement or “Trans Pacific Partnership”. Japan is not willing to go as far as the US wants in liberalising agricultural trade.
Japan sees the need for more allies in the west. Whilst the US has reaffirmed her military and diplomatic support for Japan at a time of tension with China, the move of the US towards less foreign intervention is leading the Japanese to look around for additional security through partnerships elsewhere as well. Japan is easing her restrictions on the export of arms and looking for security partnerships with leading EU countries and NATO.
The curious case of the Japanese economy is worthy of study for those of us wrestling with the aftermath of the Great Recession and banking crash in the west. Japan took a long time to sort out her broken banks and to adjust her grossly overblown property market following the collapse of 1990. Japan has run with very low interest rates for years, has built up a collosal state debt, run large deficits and has printed a lot of extra money. None of this has so far proved inflationary, nor has it boosted output much.
Japan has been able to do this because it has high domestic savings, with savers prepared to put much of their money into Japanese state debt. It has also run a good balance of payments surplus until recently, meaning it has a strong external position. These forces do not apply in the US and UK. Japanese policy is geared to trying to generate some inflation, which is starting to happen.
There is growth and there is growth. People in practice value growth in their own incomes and living standards more than general growth, which may in part be based on expanding the population. The figures show Japan has not done as badly as some think, though an ageing population and an economy relatively closed to 0verseas money and talent does find it more difficult to adapt than more open societies. The UK is now going to enjoy both sorts of growth, after a period of poor performance in real incomes led by the big drop in output and income per head in the Great Recession.