Interpreted as an economic decline, a recession is underway when the gross domestic product (GDP) falls for at least two consecutive quarters, reflected in stagnating or dipping income, employment, industrial output, and retail sales. At this 21st Century juncture, Japan is still moving in and out of what is generally considered the largest recession stretch in any industrialised country, while Australia seems poised to break the exact opposite record, of going the longest duration without a recession. Japan began its dubious journey after 1990, and Australia, which began its own illustrious counterpart in June 1991, is just one quarter short of the record set by the Netherlands, from 1982 to 2008. Both the Australian and Japanese experiences carry volumes of wisdom, as much for developed countries as the developing ones.
Until the 1990s, the global political economy was still frolicking with what has been called the Japanese miracle, with some countries relishing its rewards (mostly less developed countries across Asia), while others, swallowing hard from losing comparative advantage in one product/industry or another (the United States). How a country devastated by World War II expenditures, atomic bomb-damages, and familiar only with an imperialistic economy transformed within the space of a few years (the 1950s) to becoming the household word in economic development across the free world is still legendary classroom discussion. Not only was Toyota challenging the U.S. Big Three that ruled the Fortune top-echelons in the 1970s and 1980s, but even before, with electronics, Japan had become a byword for perfectionist production and meticulous marketing from the 1960s. The name carried enviable connotations of disciplined workmanship, the leading goose of a flock specialized in export-led growth, and one of the engines plucking traditional societies across Asia out of agriculture by encouraging low-level industrialization as well as market-awareness. Such was the pace and production volume that it leaped out of nowhere to become the second largest economy in the world. Jeffrey Garten and others foresaw, in the 1980s, a world polarizing around three engines: two of them, Germany and Japan, rising from World War II ashes to challenge the country that lifted them, the United States.
Success often breeds its own countervailing forces (for example, export incomes pushing living costs up, raising production prices, and, mostly for Japan from 1990, over-valuing the currency). Yet, it is the unwillingness to change structures that quintessentially pull any glowing economy down. Japan's success depended, ultimately, upon a benevolent Cold War-wary United States opening its markets for Japanese exports and production processes from the early 1950s into the 1970s; and, given that lengthy streak, the stubborn refusal of Japan to reform its very tight and arcane state-centric decision-making and market-accessing structures. The result: what looked like a temporary economic hiccup in 1988 and 1989 getting wider, deeper, and more robust from the 1990s, just when a demographic ghost appeared in the firmament and a hitherto safe and stable leadership began to fray. Reforms were left dangling, cronyism intensified, a more cosmopolitan consumer-base could not be satiated, and as the rest of the world drifted into neo-liberalism, bringing with it a free-trade-agreement (FTA) splurge, the economic momentum not only shifted away from the land of the rising sun, but literally threw Japan into the sea. Mexico displaced it as the second largest U.S. trading partner in 1994, and China shortly thereafter as the second largest global economy. What first looked like a "lost decade" (1990s), soon became a "lost score" (twenty-plus sagging years).
Australia did not take the same route, but its dependence upon a vibrant global market was as critical as Japan's need. Its claim to recession-free fame stemmed from its primary sector (unlike Japan's secondary sector: the manufacturing nexus). Spiraling demands, largely from China, for minerals and other agricultural products, paved the way for the golden Australian age at the turn of this century (much as wool and meat had once done at the turn of the last century). There was not just China, but, since the 1990s, the advent of BRICS (Brazil, Russia, India, China, South Africa), and other emerging/frontier economies put a premium on accessing key minerals for growth. Australia began to roll, so much so that even the 2008-10 Great Recession could not more than dent this flow-structure. Although China's easing-off over the past couple of years has slowed the Australian export-machine, and other domestic concerns, like rising prices (as in Japan), but also environmental sentiments (unlike in Japan), have made enough inroads to stall that growth, Australia's economy is still set to break the Dutch record in the summer of 2017. With 2017 expected to show better economic returns than 2016, Australia could be back firmly in the saddle soon. Yet, the Damocle's Sword that pierced Japan's economy hovers dangerously over Australia's too.
Very much like Japan, Australia has not developed a significant Plan B: its economy is not as protected from the global market as Japan's since it does not rely as much on state intervention, which carries its own thorns. Since its comparative advantage is not in manufacturing industries, like Japan's, but it must build its Plan B from its primary-product export-base. Just as Japan's imperatives begin with structural reforms, tearing walls down, and shifting its resources into large-scale overseas production (that is, harnessing off-shore investments while opening new markets), Australia's Plan B cannot but be to build a network of safe services (because of its necessary inputs) in a region exploding with trans-Pacific trade and investments, but particularly in the financial sector to begin with, while also pushing tourism and patronizing development abroad, among other initiatives.
Both must handle the immigration beast adroitly, not emotionally. For Japan, this may very soon become the highest priority if the country is to stop becoming too old (in terms of average population age), to permit a wide array of entitlements for the pensioners: new blood could pump the economy faster and with more certainty, just as it would dovetail the needed reforms. For Australia, foreign blood would help keep production prices low, while reinvigorating the work-machine constantly. Both choices face more political constraints than any economic breakthrough can overcome: they could become the Achilles' heel of both countries at a time when some critical future decisions must be made.
What can the rest of the world learn from these two astounding stories as they enter their make-it-or-break-it phase?
Developed countries must look beyond the business cycle to constant structural adjustments, given the shifting and more fluctuating modes of production. First, they must battle market competition, not by retreating into their own shells, raising or imposing walls, but by reinventing the wheels they find their comparative advantage in. Second, retooling workers, no matter how old they have become and regardless of the adjustment costs, has not only become an imperative, but also demands a well-lubricated and actively pursued industrial policy. Third, the training needed for this, as well as the education that come beforehand, must become part and parcel of the market-competition fame: new technologies have to be constantly cultivated, a consideration that should push governments to collaborate with, rather than remain independent of, worse still, oppose scientists, technicians, academics, and educational institutions. Finally, cutting back on entitlements to suit preferred tax-levels may prove to be more counter-productive than preserving them, cultivating post-retirement odd-jobs given the rising life-expectancies, and jacking taxes upwards to meet the spiraling costs, could be encouraged.
If these spell short-term disasters, the long-term may better withstand the pressures than being thrown to the competitive wolves, as is being noticed with the United States today (perhaps inside several European countries too).
Developing/Emerging/Frontier countries have their work cut out for them, too, once they stop counting their spiraling export incomes. First, the need for a Plan B is as imperative at the start of the ball-game or in mid-stream, than at the end-point stage. For example, Bangladesh must explore a post-RMG alternative increasingly urgently: it cannot expect to be both a rising middle-income country and a competitive low-wage RMG exporter simultaneously, at least not until something buckles. What it is earning from RMG exports must be channeled into infrastructure-building rather than hoarding in private bank accounts abroad.
Second, their low-wage identity should be neither taken for granted (as the above argument illustrated), nor allowed to remain benign at a time when so many developed countries cannot but turn to off-shore production. In turn, the appropriate domestic infrastructures should be kept oiled, beginning, in this age of unprecedented terroristic concerns, with production and personnel security, but extending to transactional (such as from cyber attacks). Bangladesh learned a lot on this given its "oborrodh"-driven anxieties 2-3 years ago and the Bangladesh Bank heist last year.
Third, given the lowly-tagging educational levels and infrastructures, countries in this domain have no choice but to constantly elevate the standards: missing out from not preparing for next generation's tools and kits can virtually guarantee a return to a lesser-development status in spite of any recorded elevation. Bangladesh, it is time the quality and nature of education rather than the quantity of poorly-educated graduates deserved greater attention.
Finally, given all of the above, these countries must graduate from reaping low-hanging fruits (RMG exports) to high-hanging counterparts, such as from more sophisticated, concurrent, or forthcoming technologies.
Ultimately, both developed and developing countries have the single golden lesson any recession brings: openness is the long-term answer whose short-term pains should not ramp the protectionist instinct higher or deeper.
Dr. Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance at Independent University, Bangladesh.
[email protected]
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