[OPE-L:103] [OPE-L:339] Japan: a slaughtering of capital values?

Gerald Levy (glevy@pratt.edu)
Tue, 17 Nov 1998 08:45:50 -0500 (EST)

Andrew T wrote in [OPE-L:338]:

> Isn't this the problem with Japan, that there needs to be a slaughtering
> of capital in order for the crisis there to be overcome? Unless some
> banks in particular are allowed to go bankrupt then there is no way out.
> A Keynesian analysis would seem particularly irrelevant here since Japan
> has had 9 Keynesian injections of spending in the 1990s none of which
> have been able to kick start the economy out of its financial problems.
> But is this merely a financial problem or does it run deep? Is the
> cause of the crisis financial over exuberance or real profitability
> problems?

Good questions!

When you suggest that there is "no way out" unless Japanese banks are
allowed to go bankrupt, I'm not sure *how* this would be the way out of
the crisis.

If major financial institutions in Japan were allowed to go bankrupt, how
would that affect other firms, especially manufacturing firms that have
been largely reliant upon banks for financing investment?

I suppose one could make the case (are you?) that this process would
ultimately lead to the bankruptcy of many smaller firms throughout the
economy and that this process of concentration and centralization of
capital is required for the economy to be "restructured" ands the crisis

Yet, this seems to be a strategy which is *very* risky. E.g. couldn't the
banking crisis lead to deflation? If there is deflation, might that not
cause a further reduction in employment, spending, and profitability?

Furthermore, supposing there are the bankruptcies that you suggest (and
also the government's willingness to let this happen), how can it be known
that Japanese capital will emerge out of the crisis in a stronger position
than when it went into the crisis? E.g. couldn't the real "winners" in
such a process be business firms based in other countries rather than
Japan? (Of course, when we speak about "Japanese business firms" or "US
firms" this has less meaning now that so many international markets are
dominated by multinational corporations).

I'm also very unsure how such a financial crisis in Japan would affect
other markets in Asia especially and financial institutions
internationally (and how that, in turn, would ultimately affect the
Japanese economy).

Moreover, I don't see how the policymakers in Japan can possibly know _ex
ante_ what will happen _ex post_. This uncertainty might be a strong
incentive not to do anything drastic.

> Sorry to meet your question with more questions Jerry, but it would be
> useful to know if any work has been done on the situation in Japan,
> particularly from comrades there.

Well, I think I "answered" your questions with more questions of my own. I
also would like to hear from our Japanese comrades on this topic as well as
our Korean comrades.

[btw, (a question of some significance), how will the working-class in
Japan and elsewhere be affected by this restructuring? Would it be
possible to overcome the crisis *only* by reducing workers' wages and
benefits and increasing the intensity of labor?]

In solidarity, Jerry