Abstract

The last ten years have been the lost decade for the Japanese economy. Its economic growth has been much lower of those of the US and the EU and this despite twelve fiscal stimulus packages, a monetary policy which has brought interest rates to zero since 1999, important injections of public money to recapitalize banks, and various programmes of liberalization and deregulation. How is it possible that all these policies have failed to bring the Japanese economy back on a sustainable growth pact? This article argues that the failure of Japan's efforts to restore a sound economic environment is the result of having deliberately chosen inappropriate and inadequate monetary and fiscal instruments to tackle the macroeconomic and structural problems that have burdened the Japanese economy since the burst of the financial bubble at the beginning of the 90s. These choices were deliberate since the "right" policies ("in primis" the resolution of the banking crisis) presented unbearable political costs, not only for the Liberal Democratic Party (which has been in power 46 out of the last 47 years), but also for the bureaucratic and business elites which had tied their fortunes to it. The misfortunes of the Japanese economy during the last decade not only allow drawing important economic policy lessons - analysed in the last section of the article -, but also stimulate further reflections on the disruptive role on economic policies played by powerful vested interests and strong distributional coalitions in times when an economy needs to undergo broad and deep structural changes.