THE DRAGON ALSO SETS:

A Japanese lesson for China: Officials in the U.S. and China can learn from Japan's boom and bust in the 1980s and '90s (Lawrence H. Summers, February 26, 2007, LA Times)

A RISING Asian power is an export juggernaut and enjoys prodigious growth fueled by high savings and investment rates. Its rapidly modernizing industries threaten an ever greater swath of industry in Europe and the United States. Its formidable central bank reserves and burgeoning account surplus lead to claims that its exchange rate is being unfairly manipulated. Its financial system is bank-centric, heavily regulated in favor of domestic institutions and closely tied to government and industry. Rapid productivity growth holds down prices, but its asset values rise sharply.

Key congressional leaders in Washington demand radical action to contain the economic threat. Diplomats warn that public bashing is unproductive but make clear that economic issues are a crucial part of the bilateral relationship. Delegations of senior U.S. officials engage in "dialogue" with their counterparts about the many aspects of their economic policies that promote imbalances, warning of the congressional demons who stand ready to act if "results" are not achieved quickly.

All of this describes what is happening in China, and with our relationship with Beijing, today. It also describes the Japanese economy in the late 1980s and early 1990s, before its lost decade of deflation and considerable deterioration in global prestige. Although there are obvious differences, notably China's much lower level of development, the similarities are striking enough to invite an effort to draw some lessons from the Japanese experience.

China has greater natural resources and a bigger military, but shares the rest of the structural problems that doomed Japan. Folks who fear China -- as Communism, Fascism, & Islamicism -- generally fail to comprehend just how massive an advantage our culture gives us.

Posted by Orrin Judd at February 26, 2007 7:04 AM