An opinion piece on US/Japan and monetary policy/free markets

Interesting take on U.S./Japan comparison and the nature of we two to the rest of the world.

TOKYO — Japan and the United States combined produce 30% of global economic output and register 50% of all new patents.

These two powerhouses of productivity and innovation should be leading the world into a dynamic new age of prosperity, right?

But they’re not. Why? That’s what I kept asking myself as I listened to a parade of global industrial executives, government policymakers and academic big brains hold forth at the 43rd annual Midwest-U.S.-Japan Association conference, where Gov. Rick Snyder began his weeklong Asian trade mission.

Why are the economies of both the U.S. and Japan stalled? Why are their middle classes hollowed out?

Why was Keiro Kitagami, vice-minister of Japan’s once-vaunted Ministry of Economy, Trade and Industry talking about his nation’s industrial giants rapidly shifting operations overseas, mostly to Southeast Asian countries? Doesn’t that sound like Michigan over the past few decades?

Why do government leaders in two such sophisticated nations seem clueless about how to stop the bleeding?

I put my questions to several attendees and speakers. The responses were intriguing.

Sandy Baruah, president of the Detroit Regional Chamber, noted the troubling parallels between Japan’s 20-year tailspin and America’s current funk. “They each began with real estate busts and breakdowns in financial services. Japan didn’t fix those problems fast enough and neither did we,” he said. “Are we repeating the same cycle?”

Are we, indeed?

Cheng-Guan Michael Quah, who was chief technology officer of the nonprofit NextEnergy incubator in Detroit before becoming chief scientist of the Energy Studies Institute at the National University of Singapore in 2009, said Wall Street and hedge fund lobbyists now control policy making in the once-rich nations — and their focus on short-term gains is choking the manufacturing sectors.

“I believe we are still a very innovative nation,” said Quah, who led a panel on innovation at the Tokyo conference and who travels often between Singapore and Farmington Hills, where his wife still resides. “We need to revive manufacturing. We need to get Wall Street off our backs.”

OK, but how?

Perhaps the most sober, but still unsettling, assessment came from Diego Donoso, president of Dow Japan and Korea, a unit of Midland-based Dow Chemical.

The dynamic economies of Asia at the moment — China, Singapore, South Korea — are “all tremendously focused on where they are and where they want to go, and their governments are all tremendously focused” on massive support of leadership in key technologies, Donoso said.

Winners in the global economy, by his reckoning, will be those companies and hands-on government units that collaborate intensively to implement key technologies in ways that are deemed to benefit their societies.

What we’ve witnessed in Japan, and seem to be seeing in the U.S. today, are endless rounds of federal monetary tinkering that are insufficient to re-ignite economic growth. Yet among free market purists and their powerful lobbies, there is an entrenched aversion to overt industrial policy that would choose winner and loser industries or — heaven forbid — decree that the manufacturing sector must be maintained at a certain scale for the national good.

Which leaves the rich nations of the U.S., Japan and Western Europe sort of sitting on the sidelines, watching the aggressive growth strategies of China, Singapore and Korea — and wondering whether they will fizzle or leave us in their dust.