Some observers have commented that the still unfolding events in northeastern Japan represent a triple-whammy of sorts or the ultimate trifecta of awfulness. It’s nice to think these things come in threes, but just as the nuclear power plant travails continue well after the main event of the M9.0 earthquake and resultant tsunami so too do the economic impacts.
Japan’s stock traders, as reflected by the Nikkei average, have expressed worry that these events will cripple any hope of recovery from a decade of stagnant growth. The U.S. and other world markets have likewise responded with pessimism suggesting they too fear that these events will undermine the embryonic economic recovery from the Global Financial Crisis some thought we were finally seeing. By some estimates as much as $1 trillion has been wiped off corporate balance sheets in the trading sessions since the earthquake and tsunami struck five days ago, an amount almost as great as that lost after Lehman Brothers collapsed near the beginning of the financial crisis in 2008.
These worries seem understandable if not completely reasonable in light of the images of devastation and hopelessness we see coming from the disaster area. But do they accurately reflect the long-term prospects of these countries or their economies?
Of all human inventions, economies and their ability to facilitate the exchange of goods and services among individuals, groups and societies may be the most resilient of all. But this illustrates one of the issues with which advocates of resilience must wrestle: all recoveries take time, some take much longer than others and the results often do not turn out the way we expected.
It took Japan less than two decades to recover from the Great Kanto Earthquake of 1923, which nearly destroyed Tokyo. Peter Hadfield credited this event, in part, with precipitating the rise of nationalism that led Japan to invade China and ultimately launch a war that ultimately spanned the Pacific and led to the far more catastrophic consequences that resulted from the United States unleashing the first nuclear weapons on Hiroshima and Nagasaki to end the bloodshed of World War II.
Governments intervene in (some would say interfere with) markets or the economy to address what we blithely call market failures. In most cases, these failures reflect the inability of markets to produce what we want when we want it, rather than their inability to adapt over time to the resource constraints and expectations of market participants. In other words, our tendency to expect more than we can get quickly lead us to both boom and bust conditions that although they may ultimately correct themselves often result in other undesirable social, political or technical consequences or discontinuities that we experience as negative externalities.
The Great Tohoku Earthquake of 2011 illustrates the capacity of these discontinuities alone to disrupt economic recovery, but only in the short term. All of us would agree that the economy and the underlying structural conditions affecting recovery in employment and GDP growth did not trigger the earthquake and tsunami. Some might try to suggest that the nuclear power plant accident is somehow related, but this would be a stretch and remains to be proved. By the same token, the earthquake, tsunami and nuclear accident cannot rightly be considered the cause of the underlying economic problems affecting Japan and the rest of the industrialized world despite the shockwaves now reverberating through the markets. Stronger economies have absorbed these shocks or managed to take them more or less in their strides.
In the short run, the significant price tag accompanying the damage and devastation will suppress economic growth in Japan. But over the long term, rebuilding, especially if it is approached from a strategic perspective may well increase economic output beyond what it would have been had these disasters not occurred.
What does this mean for other world markets? It may well create an opening for others, especially China and the Asian tiger economies, to fill the void created by a diversion of capital from export sectors to meeting Japan’s internal needs. This could, help the United States as well, by creating opportunities for us to capitalize on the President’s strategy of out-educating, out-innovating and out-building the rest of the world.
Call me a pie-eyed optimist, but something good might well come of all of this terrible destruction. But we might just have to wait awhile and accept that it won’t look the way we might like when it gets here, or more likely, when we arrive where it takes us.