Articles:
Comparing Britain and Japan

The question that everyone wants economists to answer, and which even economists would dearly like to be able to offer good answers to, is the question of why some countries achieve economic success and why others fail. The trouble is that, as with all the really interesting questions in economics, there is no simple answer. Countries are complicated things, and so are human beings, and above all economics is not a mysterious science about technical formulas but rather it is the study of human behaviour. Human behaviour, especially with regard to money and economic progress, is a complex business.

Yet that should not be considered a cause for despair. I have just been forced to study a question very like that difficult one about why some economies succeed and others fail, and do think I could see a clear answer. The question I had to examine concerned the comparison between my own country, Britain, and that of Japan during the past 20 years. The reason I studied this comparison was because I was asked to give a speech at a conference of an organisation called the UK-Japan 21st Century Group, which holds an annual meeting gathering together top Japanese and British businessmen, politicians, academics and even a writer, such as me.

The UK-Japan 21st Century Group was celebrating its 20th anniversary this year. When it was founded in 1984, Britain seemed to be a country in decline, suffering from economic failure and even political instability (we had terrorism in our Northern Ireland province, as well as violent industrial strikes and even some riots by immigrants in our big cities). Japan, of course, was a country enjoying rapid economic growth, great political stability and a huge worldwide reputation as a country likely to become more and more important.

Now, however, the situation looks very different. Britain is a revived, more successful and more peaceful country. Japan has suffered 14 years of economic stagnation following the bursting of the bubble economy. Why should this change of reputation and of relative success have taken place?

In trying to answer that question one can look at many government policies, many political decisions, many aspects of economic and social life in both countries. The answer can become very complicated, in other words. But I do not think it needs to be so complicated. Fundamentally, my feeling is that all these complicated issues can really be summed up in one much simpler one.

That simpler issue is this: flexibility, or, to use another word, adaptability.

For many decades leading up to the 1980s, Britain became very resistant to change. Entrenched interests among businessmen, trade unions and bureaucrats tried to protect their old ways and particularly the old privileges, even while the world was changing around them. Because British governments had nationalised many industries after 1945 and provided protections to labour unions and to powerful companies in other sectors, they were able to succeed in blocking change, even while the overall economy and society became unstable and relatively poor.

Such resistance to change is understandable. No one likes change, especially when it threatens old rights and privileges. But the consequence is clear, and divides into two aspects: first, that the world around you will change in any case, making your old rights and privileges increasingly outdated and unrealistic; but second, and more important, that if you resist change for years, then when the change does eventually come it will be even more painful and shocking.

That, essentially, is what happened in Britain. Entrenched interests resisted change. The result was economic decline, rising unemployment and even social instability. Margaret Thatcher became prime minister in the 1980s and sought to solve this problem. By that stage, the solutions had to be quite painful and shocking: rapid sale and often closure of big nationalised companies, controversial reforms to labour law, painful introductions of stronger competition.

Looking back now, over those 20 years, and especially looking back to the pain and controversy of the time around 1984, the change in Britains circumstances and economic performance looks remarkable. It is not, you must understand, a matter of Britain suddenly becoming a high-growth, world-leading economy; that is not what has happened. Instead, what has happened is that Britain has become an economy with moderate but steady economic growth, year after year. Out of our instability 20 years ago has now come a great sense of stability.

The reason for this does begin with Mrs Thatchers painful and controversial reforms. But it does not end there. For the real, long-lasting effect of those reforms is not pain and it is not controversy. It is that by liberalising so many aspects of British economic and social life, taking away privileges, protections and blockages, she and her successors made Britain a much more adaptable society and adaptable economy.

What this now seems to mean is that Britain is able to adapt in many small, continuous ways rather than having to bring about sudden big changes. Our economy has had to adapt to changes in our currencys value, the boom and bust of our stockmarket, the rapid rise of the so-called \”new economy\” of the internet and IT. And it has adapted very well. No doubt there will be other problems ahead; top of our current list is what seems to be a bubble in house prices here. But I feel that now Britain could deal with such problems without a big crisis.

What lessons are there for Japan? My view is that Japan in the 1980s and 1990s took on the same characteristic as Britain in the 1970s: having once been very adaptable and change-oriented, Japans economy and society became rather resistant to change. Entrenched, established interests among big companies, banks, bureaucrats, politicians and some workers (especially in agriculture and retailing) started to block change and to try to protect their privileges. Now, with every year that has gone by, the pain of change looks larger, more controversial and more difficult to accept. Yet it must be done.

My hope is that more and more people in Japan now understand this. Change cannot be resisted for ever. But the purpose of removing barriers to change, of destroying old privileges and liberalising the economy and society, is not a purpose of making change always painful and shocking. It is just the opposite. The purpose should be to make Japan again a country that is adaptable and flexible, so that it can change in continuous small ways, as the world and its own social needs change. By having a more liberalised, market-friendly economy, that continuous change and adaptation can take place, in a steady, stable way: just like in todays Britain.