THE NATURE versus nurture debate is common enough in most studies of human behaviour. Think, for example, of the vast tomes devoted to the issue in the field of psychology. Or consider that favourite of the school English literature syllabus, Lord of the Flies. When it comes to debates on relative economic performance, however, nature seems to rule.
Japan is in trouble because, by definition, its economic system just doesn't work. We know this because Japan has been through over a decade of unpleasant deflationary adjustment. The US, on the other hand, is absolutely fine because it's been a success through much of the last decade and, therefore, must know how to get things right. It follows, therefore, that, faced with a collapse in asset prices, the US is bound to come up smelling of roses whereas Japan will continue to remind us of the local sewage farm.
Is this conclusion safe? Talk to many investors in the US and Europe and the answer is a definite "yes". According to this view, it's simply not possible that the US could have long-lasting problems. The US has a well-functioning democratic system that delivers reform when needed. Corporate governance is very good, even in the light of the Enron and WorldCom debacles. The labour market is enviably flexible, leaving other countries in the economic dark ages. The Federal Reserve is the most enlightened central bank in the world and is culturally incapable of making lasting errors.
And Japan is exactly the opposite, failing on all four counts, a failure reflected in its decade-long economic stagnation.
All very well but this argument contains more than a sprinkling of short- termism and more than a smattering of economic imperialism. The differences I've outlined have been in place for decades - apart from, perhaps, the Fed's inner wisdom - but it's hard to argue that the US has outperformed Japan because of these differences.
For those of you that may have forgotten, Japan's economy grew a lot faster than America's in the 1980s, miles faster than America's in the 1970s and light years faster in the 50s and 60s. Admittedly, there were lots of "one-off" factors that might have contributed to Japan's initial out-performance: post-war reconstruction is the most obvious example. These "one-offs" will not see the light of day again. By the 1980s, however, most people were convinced that the economic supremacy of Japan was established on a permanent basis.
The West was short-term, Japan was long-term. The West invested little in its workers, Japan had established the certainties of lifetime employment. The West didn't understand industrial relations, Japan did. And so it became relatively easy to justify the extraordinary gains in Japanese share prices and land prices in the late-1980s.
Today, it is easy to forget that Japan's economic system had established a cultural supremacy during the 1980s. It's also easy to forget that Japan avoided recession at the beginning of the 1990s when other economies were in a state of near-collapse. Surely, this was proof that Japan was the ultimate economy, the one that was able to shrug off the effects of an asset price bubble and maintain low levels of unemployment on an apparently permanent basis. Japan, of course, has learnt from this hubris. So, too, have many other Asian countries that went through their own "mini-Japan" experience in the late-1990s. Given that all these countries eventually let the side down, failing to deliver on all of their earlier promises, it's perhaps not surprising that the US is still regarded as a relative success.
But is success guaranteed forever? …