Thursday 24 September 2009

Re: Business Schools REFORM!!!

To
The Editor,
Economist

Dear Sir,

This article looks only at peripherals. But the issue of Business Schools REFORM deserves honest analysis, solutions and actions.

Even though it is debatable whether management can be taught, whether it is an art or a science, whether it is objective or subjective etc., but the root cause of the problem is as long as management is divorced from ownership, things cannot improve.

Why would a CEO who has no stake whatsoever in the business apart from few stock-options to his name bother about long-term sustainability of the business? His interest would be to keep the share-price moving North so that he can en-cash his options on time.

So how can ownership and management be tied together? 1) in a joint stock company with tradable shares or 2) in a family owned business listed on stock exchange without limiting the management to just family members

The solution is simple - remove the 'limited liability rule'. Business means risk. Only people who have a 'real stake' in business are capable and equipped to manage that risk better. You don't need CSR (Corporate Social Responsibility) lessons from HBS (Harvard Business School) to teach that. It is common-sense.

I'm sure with unlimited liability Dick Fuld would have thought 100 times even before thinking about the word 'leverage'. But the fact is with no personal real stakes involved Lehman Brothers was leveraged 44 times its capital. (don't tell me he was holding majority of his wealth in Lehman Stocks. The fact is, even after Lehman went bust he had 'fleeced' enough money to last many life-times with no criminal liability attached) Similar stories of leverage ranging from 20-45 times the capital run for Goldman Sachs, UBS, RBS, HBOS, Northern Rock, BOA, Citi Bank etc. in the banking sector alone. We can narrate similar stories across the whole corporate business land-scape.

If business schools cannot teach the simple basics, then I don't think adding history lessons, CSR case-studies and other jargon-spewing stuff will add any value.

When liability is not limited and when it affects the management directly then peer-pressure, self-regulation, responsibility etc., are all automatically taken care of.

Sadly, the 'business education' (MBA) has transformed itself into 'education business'. The saying 'what you sow, is what you reap' has never been more true. By sowing the 'eduction business' seeds, we have reaped 'crooks' like Dick Fuld, Andy Hornby, John Thain, Adam Applegrath.....just to name a few from this round of disaster.

The fact is, it is not just business education problem, it is the problem of how business is structured in a market-place.


Regards,

Pradeep Kabra

---------------------------------------------------------------------


The pedagogy of the privileged
Sep 24th 2009
From The Economist print edition


Business schools have done too little to reform themselves in the light of the credit crunch.

THIS has been a year of sackcloth and ashes for the world’s business schools. Critics have accused them of churning out jargon-spewing economic vandals. Many professors have accepted at least some of the blame for the global catastrophe. Deans have drawn up blueprints for reform.

The result? Precious little. Business schools have introduced a few new courses. Students at Harvard Business School (HBS) have introduced a voluntary pledge “to serve the greater good” among other worthy goals, which about half of this year’s graduates embraced. But for the most part it is business schooling as usual. The giants of management education have laboured mightily to bring forth a molehill.

That is too bad. You do not have to accept the idea that the business schools were “agents of the apocalypse” to believe that they need to change their ways, at least a little, in the light of recent events. Most of the people at the heart of the crisis—from Dick Fuld at Lehman Brothers to John Thain at Merrill Lynch to Andy Hornby at HBOS—had MBAs after their name (Mr Hornby graduated top of his class at HBS). In recent years about 40% of the graduates of America’s best business schools ended up on Wall Street, where they assiduously applied the techniques that they had spent a small fortune learning. You cannot both claim that your mission is “to educate leaders who make a difference in the world”, as HBS does, and then wash your hands of your alumni when the difference they make is malign.

The real question is not whether business schools need to change, but how. One of the most common stances—often heard outside and sometimes within the schools themselves—is that management education needs to start again from scratch. On this view, these institutions are little more than con-tricks at the moment, built on the illusion that you can turn management into a science and dedicated to the unedifying goal of teaching greedy people how to satisfy their appetites.

That is not true. A study by two economists, Nick Bloom of Stanford and John Van Reenen of the London School of Economics, concluded that companies that use the most widely accepted management techniques, of the sort that are taught in business schools, outperform their peers in all the measures that matter, such as productivity, sales growth and return on capital. Many companies in the developing world, not least China, are desperate to hire more MBAs in order to improve their traditionally slapdash approach to management.

A second popular argument is that business schools need to put more emphasis on business ethics and corporate social responsibility (CSR). There is a great deal of talk about embracing “principles of responsible management”, such as “sustainability” and “inclusiveness”.

This makes some sense. A 2006 study of cheating among graduate students found that 56% of business students had cheated, compared with 47% in other disciplines. The authors attributed this to “perceived peer behaviour”. Presumably more talk of ethics might change those perceptions. But it would be a mistake to expect too much from CSR. Both business schools and businesses have been talking about it for years without turning business people into angels (one of the loudest advocates was Ken Lay, the chairman of Enron). Moreover, many admirers of CSR confuse the sort of creative destruction that makes us all richer, in the long run, with corporate skulduggery.

So what should business schools do to improve their performance? More history classes would help. Would-be business titans need to learn that economic history is punctuated with crises and disasters, that booms inevitably give way to busts, and that the business cycle, having survived many predictions of extinction, continues to prey on the modern economy. The 2008 debacle might have come as less of a surprise if all those MBAs had been taught that there have been at least 124 bank-centred crises around the world since 1970, most of which were preceded by booms in house prices and stockmarkets, large capital inflows and rising public debt.

History courses aside, business schools need to change their tone more than their syllabuses. In particular, they should foster the twin virtues of scepticism and cynicism. Graduates in recent years, for example, seem to have accepted far too readily the notion that clever financial engineering could somehow abolish risk and uncertainty, when it probably made things worse. It is worth noting that such scepticism is second nature to the giants of financial economics, as opposed to the more junior propellerheads. Andrew Lo, of MIT’s Sloan School of Management, was fond of pointing out that in the physical sciences three laws can explain 99% of behaviour, whereas in finance 99 laws can explain at best 3% of behaviour.

Boosters beware

The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work. HBS has produced fawning studies of almost every recent corporate villain from Enron (which was stuffed full of HBS alumni) to the Royal Bank of Scotland. A taste for cheerleading has been reinforced by the rise of a multi-million-dollar management-theory industry. Professors with dollar signs in their eyes are always announcing the birth of the latest revolutionary management technique or the discovery of the hottest new “supercorp”.

Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise.

Friday 11 September 2009

Re: Turner is asking the right questions

Dear Mr. Wolf,

Thank you for the article and continuing the debate.

On the issue of Capital Reserves - You have argued back that it will not work because the mainstream banks will go off-shore via off-balance sheet vehicles or unregulated shadow banking.
Don't you think this leveraging process grew exponentially since 1999 when Bill Clinton repealed the The Glass-Steagall Act of 1933. That act sustained the financial system in a reasonable form for almost 60 years. Of-course, the lobbyist of financial industry and the political donations lead to chipping it slowly for few years before the final nail was laid.

On the issue of Pay and Bonuses - Gillian Tett's article in today's FT "What bankers can learn from Chelsea football club" is more insightful. Also it suggests a solution.

So agreed that there cannot be a single comprehensive solution to a problem like this. But a combination of actions including Capital Reserve Ratio Guidelines, Industry wise guidelines on pay, guidelines on political contribution etc., will definitely bring better results.

Final 'food for thought': The US Economy grew from less than 6 trillion dollars to more than 13 trillion dollars in just 15 years. In the same period the size of Japanese economy (from a much lower base of US) grew by about 1/3 and I presume the same of Europe's main economies. I don't see any great relative innovation coming out of America. It is just financial engineering in the name of globalization.

Pradeep Kabra
-----------------------------------------------------------------

Thanks for these interesting comments. I largely agree.

I don't know whether the result would have been different if Glass-Steagal had remained in place. The distinction never existed in continental Europe. But it did not have the same kind of crisis. The big issue may rather be the domination of investment banking over commercial banking in the US and, to a lesser extent, UK.

Maybe, the approach you suggest to regulation would work. I don't know.

Finally, I think there has been a great deal of fundamental innovation in the US - it dominates IT and life sciences business innovation. It is not just finance.

Martin Wolf

-----------------------------------------------------------------

Turner is asking the right questions
Martin Wolf
I like and admire Lord Turner, chairman of the UK’s Financial Services Authority. He is more than an acute analyst. He is also brave. He showed that in his struggle with Gordon Brown, then chancellor of the exchequer, over plans for pension reform published in 2005. He is showing that again today in the lively debate he has initiated on the future of financial regulation.

This financial crisis was no minor blip, to be forgotten as quickly as possible. On the contrary, the UK (and other significant countries, not least the US) have just received a monstrously expensive warning. That is why Lord Turner’s willingness to raise unpalatable questions is both welcome and refreshing. His report for the FSA is among the best analyses of the crisis. Now, in a discussion for the British journal Prospect, he has taken the debate into even more controversial territory.

I will address five of the issues raised there: the case for moving the responsibilities of the FSA over banking into the Bank of England; the supposedly excessive size of the financial sector, particularly in the UK; the levels of capital required of banks, particularly on their trading activities; the possible role of taxes on financial transactions – the so-called “Tobin tax”; and, finally, the vexed question of bankers’ pay.

On the first, Lord Turner is right to argue that “the institutional architecture is the least important issue here”. The fundamental issue is not structure, but philosophy. The UK authorities adopted the same view as the US: market forces guaranteed both efficiency and stability. They were wrong. Now that the view has changed, the upheaval caused by transforming the regulatory structure is unnecessary. Worse, it might make things worse: giving any institution a monopolistic position would surely be a mistake.

Now turn to whether the financial sector is “too large”. John Gieve, former deputy governor of the Bank of England, argues that it is not “very helpful to try to define the right size for the financial sector”. I agree. But the sector enjoys subsidies from the state, via access to the lender-of-last-resort function of the central bank and explicit and implicit guarantees against insolvency. These need to be offset.

This leads us to the third point, the case for higher capital requirements. Here Lord Turner is a part of the choir: the Group of 20 finance ministers and central bank governors meeting in London last weekend also agreed to require banks “to hold more and better quality capital”.

Yet higher capital requirements are far from a panacea. One danger is that banks may take on even more risk, to sustain high returns on equity. Another is that banks would again find a way around higher capital requirements via off-balance sheet vehicles and exploitation of risky derivatives strategies. A third is that higher capital requirements would again trigger an explosive expansion of an unregulated shadow banking system. In short, higher capital requirements will only work if they come with a huge increase in regulatory will and effectiveness. I am not holding my breath.

That leads naturally to the “Tobin

tax”. Obviously, it would have to operate in all significant financial centres. So the chance of its happening is zero. As a way of shrinking the financial sector it also seems ill-designed. The argument for it would have to be, instead, that it would be desirable to reduce the liquidity of markets in this way.

Until recently, I would have viewed that as unacceptable. But I might now entertain the argument that willingness to invest in costly “due diligence” on what investors are buying may be undermined by the perceived ease of selling. For these reasons, market liquidity no longer seems an unambiguous good. Maybe shifting the structure of incentives towards “buying and holding” might be better.

Finally, how far are changes in the structure and levels of pay the answer? I agree with Lord Turner that “the honest truth is that bad remuneration policies, though relevant, were far less important in the unravelling of the crisis than hopelessly inadequate capital requirements against risky trading strategies”. The issue cannot be the level of bonuses, unless we want to decide the “just rewards” of everybody. Nor should it be the principle of bonuses, since a link between performance and reward is desirable. The issue should be the nature of incentives. Employees must not be rewarded for breaking the bank, particularly if it is then rescued by the taxpayers.

Lord Turner is making important contributions to a debate we must have. It is horrifying that this industry inflicted such damage. It is horrifying, too, that it is guaranteed by the taxpayer, even as it returns to business as usual.

But the more one analyses both the debate and what is happening, the more difficult it is to believe that a safer and more responsible industry is emerging. I love Lord Turner’s willingness to raise difficult questions. But I am not persuaded that he, or anybody else, offers convincing answers.

by martin.wolf@ft.com  

Tuesday 8 September 2009

Re: China, Bernanke, and the price of gold

This is consistent with our understanding that china is creating a good bank for its new investments (including gold, Euros, Yen, investments in metals, commodities, oil firms etc., ) and keeping all its old investment in bad bank. The new good bank will be well diversified firm which is not dependent on US Govt and complements its own needs as well.

The bad bank will have US Dollars, UK Sterling.

The question is how much hit does it have to take on Bad Bank. I'm sure it will be much more than standard 20-25% it used to write off from local creditors. It should be in the range of 50-75%. Quantitatively it will be far-far higher than the usual 40-80 billion US dollars. It has to be at-least half a trillion US dollars.

Well the intervention in the second world war was the price US paid to change the world order form UK Sterling/Gold to US Dollars. This at-least half a trillion dollars will be the price I believe China has to pay to change the world order from US Dollar to a multi-currency world of Dollar/Euro/Yuan/Yen.

The only question that remains to be answered now is how long will this take? 1 year, 5 years, 10 years???

Regards,

Pradeep

From, 2009/9/8 Amin Merchant

China, Bernanke, and the price of gold

By Ambrose Evans-Pritchard Economics Last updated: September 7th, 2009


China has issued what amounts to the “Beijing Put” on gold. You can make a lot of money, but you really can’t lose.
I happened to see quite a bit of Cheng Siwei at the Ambrosetti Workshop, a gathering of politicians and global
strategists at Lake Como, including a dinner at Villa d’Este last night at which he listened very attentively as a
number of American guests tore President Obama’s economic and health policy to shreds.

Mr Cheng was until recently Vice-Chairman of the Communist Party’s Standing Committee, and is now a sort of
economic ambassador for China around the world — a charming man, by the way, who left Hong Kong for
mainland China in 1950 at the age of 16, as young idealist eager to serve the revolution. Sixty years later, he calls
himself simply “a survivior”.
What he said about US monetary policy and gold – this bit on the record – would appear to validate the long-held
belief of gold bugs that China has fundamentally lost confidence in the US dollar and is going to shift to a partial gold
standard through reserve accumulation.

He played down other metals such as copper, saying that they could not double as a proxy currency or store of wealth.
“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not stimulate the
market,” he said.

In other words, China is buying the dips, and will continue to do so as a systematic policy. His comment captures exactly
what observation of gold price action suggests is happening. Every time it looks as if the bullion market is going to buckle,
some big force steps in from the unknown.
Investors long-suspected that it was China. We later discovered that Beijing had in fact doubled its gold reserves to 1054
tonnes. Fait accompli first. Announcement long after.

Standing back, you can see that the steady rise in gold over the last eight years to $994 an ounce last week – outperforming
US equities fourfold, even with reinvested dividends – has roughly tracked the emergence of China as a superpower in foreign reserve holdings (now $2 trillion).

As I have written in today’s paper, Mr Cheng (and Beijing) takes a dim view of Ben Bernanke’s monetary experiments at the Federal Reserve. “If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall
hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

This line of argument is by now well-known. Less understood is how much trouble the Fed’s QE policies are causing in China itself, where they have vicariously set off a speculative boom on the Shanghai exchange and in property. Mr Cheng said mid-level house prices are now ten times incomes.
“If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.”
“Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”
Of course, China cold end this problem by letting the yuan rise to its proper value, but China too is trapped. Wafer-thin profit margins on exports mean that vast chunks of Chinese industry would go bust if the yuan rose enough to close the trade surplus. China’s exports were down 23pc in July from a year before even at the current exchange rate, and exports make up 40pc of GDP. “We have lost 20m jobs in this crisis,” he said.

China’s mercantilist export strategy has led the country into a cul-de-sac. China must continue to run its trade surplus. It must accumulate hundreds of billions more in reserves. Ergo, it must buy a great deal more gold.
Where is the gold going to come from?

Re: Future of Food - Facts about Food

Dear All,

If you have missed this on BBC 2, this is worth watching. (unfortunately, it is for UK users only) (If you are busy, download it on your iplayer - then it becomes available for the next 30 days)

Three eye-opening episodes on Food, Food, Food. The focus is on UK but the perspective is truly Global. It is really educational - just like spending 3 good hours in University from the comfort of your desk!!! Unfortunately, they don't teach these things at School/Uni.

Example: Question: Why is UK cancer prone? (they say 1 out of every 3 people in UK is cancer-prone)
Answer: Processed Food (primarily thanks to our American friends)

Many more fascinating and eye-opening facts.

Share it with you near and dear ones.

Thank you BBC and a big Thank You to George Alagiah for opening my eyes.

Regards,

Pradeep

----------------------------------------------------------------------

1. http://www.bbc.co.uk/iplayer/episode/b00m9xk9/Future_of_Food_Episode_1/

George Alagiah travels the world to reveal a growing global food crisis that could affect the planet in the years ahead. With food riots on three continents recently, and unprecedented competition for food due to population growth and changing diets, the series alerts viewers to a looming problem and looks for solutions.

George joins a Masai chief among the skeletons of hundreds of cattle he has lost to climate change, and the English farmer who tells him why food production in the UK is also hit. He spends a day eating with a family in Cuba to find out how a future oil shock could lead to dramatic adjustments to diets. He visits the breadbasket of India to meet the farmer who now struggles to irrigate his land as water tables drop, and finds out why obesity is spiralling out of control in Mexico.

Back in Britain, George investigates what is wrong with people's diets, and discovers that the UK imports an average of 3000 litres of water per capita every day. He talks to top nutritionist Susan Jebb, DEFRA minister Hilary Benn and Nobel laureate Rajendra Pachauri to uncover what the future holds for our food. (R)

2. http://www.bbc.co.uk/iplayer/episode/b00mffbk/Future_of_Food_Episode_2/

George Alagiah travels the world to reveal a growing global food crisis that could affect the planet in the years ahead. With food riots on three continents recently, and unprededented competition for food due to population growth and changing diets, the series alerts viewers to a looming problem and looks for solutions.

George heads out to India to discover how a changing diet in the developing world is putting pressure on the world's limited food resources. He finds out how using crops to produce fuel is impacting on food supplies across the continents. George then meets a farmer in Kent, who is struggling to sell his fruit at a profit, and a British farmer in Kenya who is shipping out tonnes of vegetables for our supermarket shelves. He also examines why so many people are still dying of hunger after decades of food aid.

Back in the UK, George challenges the decision-makers with the facts he has uncovered - from Oxfam head of research Duncan Green to Sainsbury's boss Justin King. He finds out why British beef may offer a model for future meat production and how our appetite for fish is stripping the world's seas bare.

3. http://www.bbc.co.uk/iplayer/episode/b00mk723/Future_of_Food_Episode_3/

In the past year, we have seen food riots on three continents, food inflation has rocketed and experts predict that by 2050, if things don't change, we will see mass starvation across the world. This film sees George Alagiah travel the world in search of solutions to the growing global food crisis.

From the two women working to make their Yorkshire market town self-sufficient to the academic who claims it could be better for the environment to ship in lamb from New Zealand, George Alagiah meets the people who believe they know how we should feed the world as demand doubles by the middle of the century.

He heads out to Havana to find out how they are growing half of their fruit and vegetables right in the heart of the city, investigates the 'land-grabs' trend - where rich countries lease or buy up the land used by poor farmers in Africa - and meets the Indian agriculturalists who have almost trebled their yields over the course of a decade.

George finds out how we in this country are using cutting-edge science to extend the seasons, recycle our food waste and even grow lettuce in fish tanks to guarantee the food on our plates.

He hears the arguments about genetically modified food and examines even more futuristic schemes to get the food on to our plates.

Monday 7 September 2009

Re: How Tamiflu became a global blockbuster

This is a good article on smart marketing of rubbish products - all in the name of 'growth'. That is what American Consumerism is all about. Rather than spending resources on the 'real problems' - there are too many to list (few like Malaria, Alzheimers, HIV, Cancer Detection etc., can at-least be prioritized) - the resources are spent on 'growth products'

The best solution is to ban stock market listing for all the pharma firms. The growth then can be driven by small boutique firms which provides the innovation and capital can be provided by the governments depending on the priority for their people. For example, for Africans it will be Malaria and HIV. For Americans it can be Cancer Detection and other developed world diseases.

After all, as the current financial crisis shows, there are lots of things wrong with the present form of Capitalism!!! I think the world 'leaders' should be brave to try practical alternatives. But then how will they? When they themselves are bank-rolled and financed by the same crooks?

Pradeep Kabra

------------------------------------------------------------------------

How Tamiflu became a global blockbuster

By Andrew Jack

Published: September 7 2009 03:00 | Last updated: September 7 2009 03:00

When senior executives from Roche host a briefing for journalists today in Basel, their chosen topic will be unusual for a drug company that focuses on oncology and other hospital-prescribed niche medicines.

William Burns, head of pharmaceuticals, will instead discuss Tamiflu, the antiviral drug that has become an unexpected "blockbuster": with projected sales this year of SFr2bn ($1.9bn, €1.3bn, £1.1bn), it has become Roche's fourth-biggest selling product. For a drug that was almost stillborn when it was launched in 1999, it provides a case study in how to create a commercial success.

With seasonal flu long dismissed as a relatively minor threat, in spite of killing up to 500,000 people globally a year, Japan had been the only large country to widely adopt Tamiflu to treat it.

What changed for other governments was the growing fear of a pandemic. In 2003, the H5N1 bird flu virus, which killed millions of animals and dozens of people, raised concerns that there could be a repeat of the 1918 Spanish flu outbreak.

Politicians were under pressure to avoid repeating previous failures to prepare and respond to emergencies such as Hurricane Katrina in 2005, the 2003 heatwave in France that killed thousands, or the foot and mouth outbreaks in the UK.

Tamiflu became a key part of their response. First, it met a clinical need. While far from a cure, clinical studies show that it can reduce the severity and duration of infection, especially if taken within two days of the onset of symptoms.

Second, it offered an advantage over the alternatives. Flu strains including H5N1 are resistant to older antiviral drugs. Only one other drug exists in the same class: GlaxoSmithKline's Relenza, which was launched just ahead of Tamiflu. But Relenza has to be inhaled, making it more difficult for patients to take than Tamiflu, a capsule that is swallowed.

Third, Tamiflu filled a psychological gap. With no vaccine able to protect against flu until after the specific pandemic variant of the evolving virus emerged, stockpiling the drug allowed politicians and policymakers to show that they were doing something to prepare.

Moreover, its brand name - snappier than oseltamavir, its generic prescribing name, and more clearly linked to the name of the virus it was designed to treat than Relenza - helped raise its public profile. Searches on Google for Tamiflu even briefly surged ahead of those for Viagra in 2005 and again this year.

Fourth, by supporting and circulating studies that compared the widely varying levels of stockpiles purchased by different governments, Roche added pressure for the laggards to purchase more.

Fifth, the company has extended its franchise. It has supported sales to private doctors and to companies concerned that supplies through national health systems would not be sufficient to meet demand. It has funded research on whether the drug can be used in combination with others, in higher doses and over longer periods, to further boost efficacy - and sales.

Roche has sold bulk versions of the drug's ingredients to governments prolonging its shelf-life even beyond the seven years regulators have allowed. And it is now proposing ways for governments to send back older stock of the drug for reprocessing and reuse - at a price.

Finally, Roche has attempted to deflate criticism that while it makes profits from richer countries, poorer ones cannot afford the medicine. It has made donations to the World Health Organisation, and introduced discounts in the developing world.

Not everyone is impressed. Generic drug companies claim Roche's discounting has kept them out of the market. Some doctors are sceptical of Tamiflu's efficacy and concerned about side effects.

The expanding market has also spurred its rivals to accelerate research on at least two new experimental antiviral drugs, and GSK has made improvements to Relenza.

By the time of the next pandemic, Tamiflu's patent may have expired, its efficacy been reduced and it will face greater competition.

But fear, need and a clever marketing strategy have helped it far exceed Roche's expectations.

Friday 4 September 2009

Re: Japan’s continuity we can believe in

Dear Mr. Rachman,


Many thanks for the informative article on Japan and the merits of its systems.

The only exception I take to is when you say US public-sector debt could hit 80%. Officially it is less than 50% but that is excluding Fannie Mae and Freddie Mac (kindly refer today's analysis sheet in FT). That way US debt is already above 100% and can easily surpass Japan's if things don't improve soon (they look bleak anyway)

My suggestion is to use real figures rather than those dished out by govt. officials.

Infact you have mentioned that fact in the unemployment section of your article wherein you mentioned 'there is probably a lot of disguised unemployment'

Infact this gives you or your colleagues two topics for next few articles: a) disguised statistics b) disguised hype (remember, few months back, "China's stimulus will save the world" changed to "China's stimulus will save itself" few weeks ago )

Regards,

Pradeep Kabra

----------------------------------------------

Japan’s continuity we can believe in

By Gideon Rachman

Published: August 31 2009 19:32 | Last updated: August 31 2009 19:32

pinn

When the great recession began last year, the fate of Japan was often held up as an awful warning to the west. If the US and the European Union failed to adopt the right policies, it was said, they too might suffer a Japanese-style “lost decade”, followed by years of feeble growth.

Now that the Japanese have used Sunday’s election to elect the Democratic party – breaking with more than 50 years of rule by the Liberal Democratic party – a new western narrative is taking hold. This is a political revolution; it is Japan’s big chance to break with the years of stagnation.

But both these stories are wrong. The Democrats are unlikely to shake things up hugely. Nor should they. For the story of Japan over the past 20 years is by no means as dismal as much western commentary would have it.

It is true that, since its asset-price bubble burst in 1990, the country’s economy has grown slowly, the stock market has slumped and national debt has risen to awesome proportions. But, despite these trials, it has remained a sane, stable, prosperous and exciting country. Politically, culturally and even economically, it offers not so much a warning as an inspiring example of how to deal with a long period of adversity.

The fact that, throughout the years of relative stagnation, the Japanese kept electing the LDP puzzled many outsiders. A few even saw it as evidence that Japan is somehow less than democratic. But it was willing to try and change. The country gave a mandate to Junichiro Koizumi, the flamboyant LDP prime minister, who pushed Japan in a more free-market direction from 2001 to 2006. Now it has turned to Yukio Hatoyama and the Democrats, who are less enamoured of the American model.

However, Japan has always gone for change within well-defined limits. Europeans and Americans worry that a deep recession could stoke political extremism – not without reason, perhaps, given the hysterical tone of politics in the US and the increase in the vote for far-right and far-left parties in Europe. But during almost 20 years of tough times, the Japanese have never flirted with political extremism.

That could be because they have coped much better with economic difficulty than foreigners sometimes acknowledge. The Economist, for example, has occasionally lamented Japan’s “amazing ability to disappoint”. It is true that foreign investors will have found the country’s stock market a particularly disappointing venue in the past two decades; the Nikkei currently stands at a little over 10,500, compared with 39,000 at the peak of the bubble. The Japanese have also been chastised by outsiders for their reluctance to deal more ruthlessly with “zombie” companies, and for clinging to outmoded traditions such as “lifetime employment”.

But the efforts to cushion the worst social effects of an economic downturn have paid off. Last week there were shocked headlines proclaiming that the global recession had driven Japanese unemployment to a new high – 5.7 per cent. That still compares pretty favourably to 9.4 per cent in the US and the euro area. There is probably a lot of disguised unemployment behind the official number – but the same is true in the west.

The Japanese determination to preserve jobs made their labour market less “flexible” and the economy paid a price – but not an unbearable one. The days when academics wrote breathless predictions about “Japan as number one” are long gone. But after 20 years of alleged stagnation, it is still number two – the world’s second largest economy. Its biggest companies still make world-beating products. Toyota, for example, has led the world in developing hybrid cars, such as the Prius.

Tokyo certainly does not feel like the capital of a country in the grip of terminal depression. The city’s restaurants have accumulated more Michelin stars than are to be found in Paris. Tyler Brûlé, the Financial Times style guru, prowls the streets of the city, searching relentlessly for examples of cutting-edge design – a tribute to the country’s reputation for style. When Japan hosted the soccer World Cup in 2002, just after its “lost decade”, it presented a cheerful and welcoming face to the world that contrasted pleasantly with the spooky nationalism of its South Korean co-hosts. The Japanese can even play soccer. The national team went to Beijing for the final of the 2004 Asian cup, beat China – and got out of the country alive.

Of course, Japan has its problems. Its average age is rising steadily and its population is shrinking. One in five Japanese is over 65. The Democrats have promised to raise pensions and payments to parents – and to cut taxes. It is hard to see how the sums add up. While the US and the UK worry that their public-sector debts could hit 80 per cent of gross domestic product, Japan’s debt is heading for 200 per cent.

Some of its efforts to deal with an ageing society are positively unnerving. The country has led the world in developing robots as companions for the elderly. These include a “snuggling Ifbot” that, according to press reports, “lives in an astronaut suit, chats about the weather, sings and plays games”.

It is best not to laugh. As the US and Europe struggle to come to terms with the aftermath of a bubble economy, rising public debt and the retirement of the baby-boom generation, they should look to Japan with respect. It may be the future.

gideon.rachman@ft.com