Fraser Nelson Fraser Nelson

Prepare for a Japanese-style lost decade

Zombie banks and high unemployment look set to curse our economy as they did Japan’s, say Fraser Nelson and Mark Bathgate. A Conservative government could avoid disaster, but only if it is prepared to face the painful reality

Zombie banks and high unemployment look set to curse our economy as they did Japan’s, say Fraser Nelson and Mark Bathgate. A Conservative government could avoid disaster, but only if it is prepared to face the painful reality

To say a country is turning Japanese has a very special meaning to economists. It means entering recession and never properly escaping it. It means entering a world of zombie banks that are being kept alive by taxpayers’ money. It means year after year of huge government deficits: profligacy masked as Keynesian medicine. It means year after year of false dawns, high unemployment and lapses back into recession. It is an acute form of economic purgatory — and one which Britain might well be facing.

There are plenty of parallels for those with an eye to see them. Japan’s ‘lost decade’ followed a debt-fuelled boom, a mirage which politicians vainly mistook for prosperity. Once the bubble burst, the government entered denial and kept spending — thinking the deficits would somehow incubate a recovery. Crucially, Japan never applied a proper fix to its banking system — taking a ‘see no evil’ approach to the bad debts of the nationalised banks. It was a recipe for ten years of stagnation in a booming world economy. And it is a recipe that Britain is following to the letter.

The secrets and lies which surround Britain’s banking system are increasingly seen as the main problem. Last month Adam Posen, an American who sits on the Bank of England’s monetary policy committee, spelled out the threat. ‘The UK has an uncomfortable parallel with the Japanese financial system — when its economy began to recover in the mid-1990s and was unable to sustain it,’ he said. ‘The closer one looks, the more worrisome this specific parallel becomes.’ Until the banks are fixed, in other words, there might be no recovery at all.

Already a subscriber? Log in

Keep reading with a free trial

Subscribe and get your first month of online and app access for free. After that it’s just £1 a week.

There’s no commitment, you can cancel any time.

Or

Unlock more articles

REGISTER

Comments

Don't miss out

Join the conversation with other Spectator readers. Subscribe to leave a comment.

Already a subscriber? Log in