Jake's View | Japan offers infrastructure aid while its own house is in complete shambles
Over the last 25 years, the Japanese have made themselves world leaders in an experiment with infrastructure investment. Unfortunately, they only proved that they should not have done it.
Vying to keep pace with China's rising influence and economic clout, Japan plans to provide US$110 billion to help develop roads, ports and other infrastructure in Asia in the next five years, Prime Minister Shinzo Abe said yesterday.
They certainly have the know-how. Over the last 25 years, the Japanese have made themselves world leaders in an experiment with infrastructure investment. Unfortunately, they only proved that they should not have done it.
We start with the evidence of the first chart. The big idea in 1990, when the stock market collapsed and the economy faltered, was that the Japanese government would spend its way back into growth. This is what a fellow named John Maynard Keynes said you had to do, you see.
They thus adopted a huge infrastructure programme, digging long tunnels to nowhere and slathering vast mounds of concrete all over the landscape, so that public investment spending soon amounted to almost 9 per cent of gross domestic product. That is the blue line in the first chart.
For comparison with another has-been, look at the red line representing Britain, where public investment has run at 2 to 3 per cent of GDP over the last 25 years. Yes, some roads in Britain are pretty bad, but Japan still clearly overdid it.