The Pandemic Depression
The Global Economy Will Never Be the Same
The devastating earthquake, tsunami, and nuclear disaster that struck Japan on March 11, 2011, humbled the world with its demonstration of human fragility in the face of nature's fury, especially given Japan’s status as one of the most developed and disaster-prepared nations on earth. Yet the catastrophe highlighted the challenges Japan was already facing as it struggled to maintain its leading international position: its large elderly population, many of whom were victims; its recent political instability, accentuated by the public’s frustration with the shortcomings of its sixth prime minister in five years; its shortage of natural resources, which drove a reliance on nuclear energy despite Japan's susceptibility to earthquakes and tsunamis; and its economic woes, with the rating agencies’ warnings that Japan might have difficulty issuing bonds for reconstruction on the back of its 200 percent debt-to-GDP ratio.
But the disaster also revealed deep reservoirs of strength in Japan’s economy and national character. Global supply chains stalled as the tsunami disrupted production of critical Japanese high-tech components such as silicon wafers for semiconductors. Although the earthquake, tsunami, and nuclear plant malfunction likely took 25,000 lives and cost $300 billion in damage, the International Monetary Fund estimates that Japan has ample domestic savings to finance reconstruction and will return to growth within the year. Meanwhile, the courage and rapid response of the Japan Self-Defense Forces (JSDF) showcased how much the Japanese military’s relationship with the public has changed, as dozens of helicopters and thousands of troops were welcomed across the stricken Tohoku area. The self-mobilization of Japanese youth through social media in response to the disaster belied a growing narrative about a lost generation of young Japanese who supposedly cared only about themselves. And the stoicism and orderliness of the Japanese public impressed the entire world. Even so, the disaster is sure to change the course of Japan’s future in several critical aspects.
The longer-term impact of the disaster is already a topic of major debate. The first question is whether the events of March 11 will prompt Japan to introduce a more dynamic economic growth strategy, as opposed to the overly protective approach of the past decades that often stifled innovation and competition. Before the earthquake and tsunami, the government of Prime Minister Naoto Kan was actively pushing for Japan to join the Trans-Pacific Partnership (TPP), a free-trade negotiation with fellow Pacific Rim nations and the United States that would have led to major liberalization in Japan’s economy, particularly in its tariff-protected agricultural sector. The conversation about the TPP is on hold for now, and when it restarts both supporters and opponents will use the trauma of the March disaster to make the case for either opening up or hunkering down to protect agriculture and other sectors hit by the earthquake and tsunami.
Although the outcome regarding discussions about the TPP remains unclear, there are other areas in which March 11 is more certain to change Japan. The first is in the quality of Japanese political leadership. The currently ruling Democratic Party of Japan (DPJ) came to power in 2009 promising to replace the decrepit leadership style of the long-dominant Liberal Democratic Party (LDP). Once in office, however, the DPJ offered no compelling leadership of its own. Kan had only 20 percent support in polls before the disaster struck and will now survive in office long enough to see Japan through the initial phase of the recovery. After that, the Japanese public will likely demand a new level of proficiency from its leaders. A handful of younger ministers and politicians in the DPJ and the LDP have distinguished themselves during the earthquake and tsunami fallout for their decisiveness and poise. Historically, in times of crisis, younger Japanese political leaders have vaulted ahead of their disoriented elders in a process called gekokujō (meaning “the low overturn the high”). Japanese politics are again primed for such a transition.
Competent crisis management will likely be particularly rewarded in future Japanese leaders. A year after the 1995 Hanshin earthquake, which destroyed much of the port city of Kobe, the national security hawk Ryutaro Hashimoto became prime minister and ushered in a series of new crisis management and national security policies, including the unprecedented expansion of bilateral U.S.-Japan defense planning guidelines to cover challenges from China and North Korea. By enhancing civilian-military cooperation and opening crisis management offices, the reforms begun under Hashimoto and continued under Junichiro Koizumi, who served from 2001 to 2006, led to Japan’s effective response to the March earthquake and tsunami, if not the resulting nuclear crisis. More such reforms are likely to follow in the years ahead as a result of March 11. Japan’s defense budget is less than one percent of its GDP and unlikely to increase significantly in the future, but removing anachronistic constraints on JSDF rules of engagement, interoperability with U.S. forces, and participation in international defense industrial collaboration would give Japan a great deal more defense capability without spending more money.
The U.S.-Japan alliance is also poised to emerge stronger from March 11. Although some initial disconnects plagued the U.S. and Japanese governments’ assessments of the radiation danger from the damaged Fukushima nuclear power plant, the Japanese public seemed overwhelmingly thankful for U.S. assistance. Japanese support for the security relationship with the United States stood consistently at 75 percent before the crisis, and it would not be surprising for that number to increase in the tragedy’s wake. Japan’s reliance on foreign oil will also deepen following the demise of its nuclear power program, reinforcing public and government belief in the U.S.-Japanese alliance and the U.S. ability to protect sea-lanes and Japanese interests as far as the Persian Gulf. Whether these developments ease the long-standing controversy regarding the continued presence of U.S. Marine bases on the island of Okinawa remains to be seen -- one local Okinawan paper dismissed the U.S. military rescue efforts as a “publicity stunt.” But on the national level, the U.S.-Japanese alliance has proved its mettle, and there is no doubt that the people of northern Japan are grateful.
Although Japan’s relationship with the United States is likely to deepen, initial hopes that March 11 might transform Japan’s tense relationship with China are proving short-lived. Beijing certainly had reasons to clear the air after its collision with Japan last year over the disputed Senkaku/Diaoyu islands, which drove Japan to align more closely with fellow Asian nations wary of Chinese power and risked overstimulating anti-Japanese protests in China. Indeed, Chinese leaders appeared to show interest in a thaw after the earthquake and tsunami hit Japan. Xinhua, the official press agency of the Chinese government, published editorials reminding readers of the extensive relief efforts by the Japanese in the Chinese province Sichuan following its 2008 earthquake, and Beijing dispatched a small rescue team to Japan to assist with recovery efforts. However, those fleeting positive images were soon erased by news that the Chinese navy would continue its aggressive patrolling in the East China Sea -- exercises the Japanese Foreign Ministry condemned as insensitive given Japan’s current crisis.
Relations between Japan and Russia may improve more as a result of March 11 than those between Japan and China. Before the disaster, Tokyo and Moscow were embroiled in a territorial spat over the four Japanese islands Russia has occupied since World War II. However, this most recent dispute was rooted more in the two nations’ anxiety about their respective declines in power than actual competition for influence in Asia. With the damage wrought on its nuclear power industry by the March tsunami, Japan is now desperate for liquefied natural gas, of which Russia enjoys a large supply. The two countries have used negotiations on gas exports to better strategic relations, which far-thinking leaders in Tokyo and Moscow know are necessary to respond to China’s growing power.
March 11 may also solidify Japan-South Korea relations. The two countries experienced recurring tensions over territorial and historical issues, but relations between the two nations were slowly on the mend prior to March 11, due to a shared anxiety regarding China’s continued diplomatic protection of Kim Jong Il after North Korea’s attacks on the South Korean warship Cheonan and the island of Yeongpyeong last year. The South Korean Red Cross has already raised more money for the earthquake and tsunami in Japan than it has for any previous Japanese disaster and even the so-called comfort women, who were forced into carnal service by the Japanese military during World war II, interrupted their regular protests in front of the Japanese embassy in Seoul to offer prayers and support for those suffering from the catastrophe. Last December, U.S. Secretary of State Hillary Clinton and her Korean and Japanese counterparts came close to issuing an unprecedented collective security statement declaring that an attack on one party by North Korea would be viewed as an attack on all three. The South Korean side reneged at the last minute because of domestic sensitivities over issuing the statement during the same week that Seoul and Washington reached an agreement on a bilateral free-trade agreement, but closer trilateral security coordination is certain to strengthen in the future.
March 11 may also affect Japan’s relations with the developing world. Its relations with developing countries, particularly in Asia, have been strong for decades. Despite its economic slowdown since the 1990s, Japan remains the world’s fifth- largest provider of official development assistance (ODA), and editorials from Indonesia to the Philippines -- two countries that have received Japanese assistance -- have expressed fear about the potential impact of March 11 on Japanese largesse. Japanese culture values long-term relationships built upon on and giri, or obligations arising from favors given and favors received. The outpouring of international support and assistance in the wake of the disaster has awakened Japanese appreciation for how much Tokyo has helped the world and how that assistance was returned when Japan was in trouble. ODA budgets could well emerge from this disaster intact, and a new generation of Japanese will have special motivation to volunteer for international development and relief work.
There has been considerable speculation that the blow of March 11 could prove fatal to already sagging confidence that Japanese people have in their nation’s future. This pessimism has no basis in Japanese history and ignores the galvanizing impact that the disaster is having on an impatient and ambitious generation of national leaders waiting in the wings. In the wake of March 11, Japan will continue to face constraints on its power imposed by demographics and economic maturation. But power in the international system is also a function of national will -- and developments thus far suggest that that is one area where the destruction of March 11 is likely to yield positive change.