The Japan Earthquake: The Cataclysm This Time

(page 3 of 3)

Japan historians often note that major earthquakes in 1855, 1923, and 1995 coincided with, and perhaps caused, significant national turning points. This is the hope of those who think Japan must set itself on a new trajectory to compete in the 21st century, that disaster might be transformative. "It's terrible for the Japanese people in the short run, but the long-term implications are positive," says Curtis Freeze, Tokyo-based founder of Prospect Asset Management, which manages $280 million and has been investing in Japan for more than two decades. "Think of New Orleans on a much bigger scale."

Japan in 2011 is not the Japan of 1855, 1923, or even 1995, yet history provides at least some precedent for measured optimism. The 1855 quake that destroyed much of what is now Tokyo came at the twilight of the Tokugawa period, during which Japan was isolated for two centuries. The aftermath brought on a headlong drive to import the latest technology and culture and launch Japan into modernity. The devastation of 1923 left about 130,000 people dead, set Tokyo ablaze, and destroyed about 37.5 percent of Japan's GDP. It also catalyzed the construction of the sophisticated networks of trains, roads, parks, and public services that helped Japan become an economic superpower.

The most famous example of Japanese resilience is the recovery from the bombings of Hiroshima and Nagasaki. From the ashes of history's only two nuclear attacks came a new democratic constitution and a zeal for creating a vibrant trading economy. The industrialists of the day created such names as Sony and Honda Motor (HMC), paving the way for what Japanese call the "Golden Sixties," a period of rapid growth and internationalism highlighted by the 1964 Tokyo Olympics. It also gave birth to Japan's focus on disaster preparedness. Even as the Fukushima Daiichi reactors smoke, it's worth noting they were protected by the highest sea walls in the world. And while the scale of the tragedy prevents us from celebrating the achievements of Japan's engineering corps, no skyscrapers tumbled during the strongest earthquake in a century. No trains traveling 150 miles per hour derailed. All the drills and preparations of civil servants, families, and companies reaped the most precious of all harvests: lives saved.

The psyche and character that built modern Japan aren't what they used to be. Emperor worship once provided a focus for society, but Akihito is not Hirohito. (The Emperor Showa may have had a role in war crimes, but his surrender speech—"The war situation has developed not necessarily to Japan's advantage"—was all it took for the Japanese to accept occupation.) The emperor's subjects are also not as innovative, or as young, as they once were. The median age in Japan is 44. China's is 35. And Japan's population is set to shrink from 127 million to 125 million by 2014. The country's leadership is aging, too. It controls the budget and coddles the elderly to such a degree that pundits call Japan a "silver democracy." It's no mystery why young Japanese lack optimism. In an October 2010 survey, Brian Salsberg of McKinsey in Tokyo concluded: "Youth is wasted on young, goes the old saying, but in Japan the young seem weary and resigned long before their time."

Japan's political establishment and corporate leadership have been reluctant to tap its female workforce. Too many educated women are relegated to the role of tea girl. Goldman Sachs strategist Kathy Matsui in Tokyo says if Japan's female employment rate matched that of males—one of the highest anywhere at about 80 percent, according to Matsui—GDP would get a boost of as much as 15 percent. Given that labor shortages could be Japan's biggest problem as it strives for recovery, it's crucial that women and immigrants, still poorly integrated into Japan's culture and workforce, be given a chance to compete. That goes for new companies, too. Incentives protect national champions at the top of the corporate food chain at the expense of startups that would create wealth and jobs at the other end of the economy. "Japan would gain from a friendlier business environment for startups, but policy makers remain disinclined to put their faith in market fundamentalism," says Jeff Kingston, a Temple University professor in Tokyo.

When Kan became Prime Minister in June 2010, he talked about shaking up the economy. He also set his sights on the phlegmatic bureaucracy standing in his way. Paradoxically, to succeed he'll need to stick around for a while. There have been five Prime Ministers since Junichiro Koizumi ended a five-year term in 2006. None has had the time to pursue a comprehensive agenda for the future, and none deserved it.

Sadly, Kan will have the benefit of a nation in shock. While many Japanese are still searching for loved ones and contemplating an unknowable future, politics and economics will be far from top of mind. When the country stirs, though, Kan must be ready to lead. It's possible that China's rapid offer of help and condolences set the stage for a softening of relations between Tokyo and Beijing. Asia's two biggest economies putting aside disagreements over trade, territory, defense, and history would benefit both populations. A change in the physical and mental landscape of Japan could also be a spur to urgency. If it is, the world may discover that cataclysm can be an opportunity, too.

William Pesek is a Tokyo-based columnist for Bloomberg News, providing opinions and commentary on economics, business, markets, and politics throughout the region. His columns routinely appear in the International Herald Tribune, The Australian, The Straits Times, The Japan Times and many other publications around Asia and the globe. He writes a monthly column for Bloomberg Markets magazine and is a regular on Bloomberg Television. The opinions expressed are his own.