The Consequences of Japan's Catastrophe

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One of the first phrases foreigners pick up when they live in Japan is ganbatte kudasai, because it is so commonly used. Japanese say it in parting, at moments when Americans or Brits might say "take care" or "have a good one," but the meaning is different. Translated fairly literally, it means "please endure it."

No one can doubt that the Japanese capacity for endurance, the country's almost spiritual sense of stoicism, has just had its greatest test since wartime defeat and destruction in 1945. Sudden death on the scale seen in March 11's huge earthquake and tsunami is not something that modern, industrialized, mature societies are used to. Nor are they used to the fear of nuclear meltdown and contamination (still ongoing as NEWSWEEK went to press) from the potential catastrophic failure of the Fukushima Daiichi nuclear plant in the zone of destruction.

So all of us should be cautious about jumping to conclusions about the long-term economic, political, and psychological impact of these disasters. What we can do, however, is to use analogous experiences, in Japan and elsewhere, to provide a framework for thinking about this issue, to offer clues as to what might matter most in the coming weeks, months, and even years.

The first, and most fundamental, lesson from other natural disasters is that the economy is the least important thing to worry about. Typically, if economic effects are measured simply by gross domestic product, natural disasters cause a short-term loss in output, thanks to the destruction of offices and factories and the disruption to transport links, but after just a few months they actually act like an economic stimulus package.

This is what happened after Hurricane Katrina in the U.S. in 2005, and it was what happened after Japan's last massively deadly earthquake, the temblor in Kobe in 1995 that killed 6,500 people. Reconstruction spending kicks in quickly, creating jobs, raising incomes, and boosting activity. Insurance pays for some of it, government spending and private investment the rest.

The only real difference in the current Japanese disaster is that the scale of it will be unknowable until the nuclear dangers have either transpired or been brought definitively under control. Admittedly, nuclear-power plants are not insured commercially, but rather by the government and the power companies themselves, so in this case more of the costs will fall on the state.

In the end, this reality about the aftermath of natural disasters should remind us of the limitations of GDP as a measure: it tells us what happens to output, to economic activity, but tells us nothing about welfare and happiness.

But hasn't the Japanese economy been in a weak state for the past two decades, and isn't its government deep in debt? So how can it afford to pay for this reconstruction? Those are the questions many non-Japanese will be asking.

The answers are that, yes, Japan has performed poorly since the mid-1990s, but that is mainly by comparison with its hyperachievements we all became used to in the 1970s and 1980s. Last year, having been hit hard in 2009 by the global economic crisis, Japan's GDP rebounded strongly, by 3.9 percent. Its longer-term record since 2000 has not been great, but given that—thanks to a low birthrate and negligible immigration—the population has been falling slightly, income per head has fared rather better than the headlines suggest.

Japan's true weaknesses have been debt and deflation. Its gross public debt now amounts to 200 percent of GDP. After moneys owed by one part of government to another are netted off, the figure is still 120 percent, well above the U.S. figure of roughly 80 percent. Yet this is almost all financed domestically, so the government should, at this time of national crisis, face no serious difficulty in borrowing more. It could probably even levy a special reconstruction tax, given that at this moment the Japanese people will be entirely prepared to make sacrifices and share the national burdens.

The only economic doubt worth contemplating concerns deflation, or rather inflation. Prices have been falling in virtually every year since 1997, pulling wages and consumption down with them. The one risk associated with the disaster is that this might change. The crisis will create shortages and has anyway destroyed some productive capacity. Money will be poured in as the reconstruction effort gets underway. With this happening at a time when global energy and food prices are also rising, there must be some risk of deflation turning into inflation in Japan.

But, as previously stated, these economic questions are not really the most important ones. The most important are the political and psychological consequences, for this is a human tragedy, not an economic one.

Those, too, cannot and should not be predicted with dogmatic certainty. We know that Japan has a very resilient society, accustomed to endurance and always displaying a great sense of solidarity. But we also know that its politics has—since the mid-1990s, really, but certainly in the past five years—been chaotic and dysfunctional. Moreover, we should also note that, since the mid-1990s, popular disillusionment with politicians, with government in general, and with big companies has been increasing.

In politics a fairly new party, the center-left Democratic Party of Japan (DPJ), won a historic victory in August 2009, pushing the Liberal Democratic Party (LDP) out of power for the first time since 1955. But the DPJ has since been a big disappointment, divided and ineffective, and is already on its second prime minister since achieving office, Naoto Kan. Just before the disaster it lost its talented young foreign minister, Seiji Maehara, in a political-funding scandal, and the opposition LDP was plotting to force an early general election by blocking passage of the annual budget through Parliament.

For sure, such political maneuvers will now be put into their true, petty perspective by this human tragedy. The LDP will want to be seen as a supporter of national unity, and the government will at least have a clear agenda for the next few years, namely that of managing the reconstruction.

Yet where the uncertainty must lie is in the popular view of government. The sense of national unity will be strong. So far, Kan and his government are viewed as having handled the crisis well and—crucially—with honesty. But the nuclear aspect of this disaster could complicate things: there is already a history of cover-ups and mistrust about nuclear safety following accidents during the past 20 years, a mistrust that might well now increase. The DPJ government's aim will be to ensure that that mistrust, and possible recriminations about poor safety procedures, are directed at the Tokyo Electric Power Co., the private operator of the Fukushima plant, and at previous LDP governments.

This won't be easy, however, especially as the government will face a tough choice about what to do with Japan's other aging nuclear reactors. Altogether, nuclear power provides nearly 30 percent of Japan's electricity. So if plants are shut down because of safety fears, that will worsen shortages of power and raise costs for customers; but if they are not shut down, the government risks suffering amid a popular backlash against nuclear energy.

The psychological uncertainties are well illustrated by the question of what sort of backlash there will be. The Japanese will be stoical and willing to make sacrifices. But perceived sacrifices with their lives, in the cause of a quicker reconstruction? That could be a harder call.

So, finally, is the question of whether the Japanese will now react to disaster, as in the 1950s, by reenergizing themselves for entrepreneurialism, by deepening their connections with the world, or whether they might instead become more parochial, more inward-looking, as a result.

The scale of this disaster, vast and shocking though it is, should not be compared directly with that of 1945: it is more limited, and the rebuilding effort is, say, a five-year one, not a matter of decades. But this disaster also comes at a time when Japan's aging population is already feeling buffeted and even a tad threatened by the rise of China, and when the recent trend had been a gradual disconnection from the world rather than the enthusiastic embrace of globalization.

A shock such as this one could have the effect of turning Japanese even more inward, preoccupied as they will have to be with their internal affairs. Understandable though that would be, let us hope not. The world is better off with an engaged and active Japan.

Emmott, a former editor of The Economist, is the author, most recently, of Rivals: How the Power Struggle Between China, India, and Japan Will Shape Our Next Decade.