Shabu shabu is a simple but delicious Japanese dish in which translucently thin slices of beef are dipped into a boiling broth of vegetables and tofu. A few seconds will do; just enough for the meat to turn pinky-grey.
In Japanese finance shabu shabu is the enduring symbol of the mid-1990s banking crisis. It was at a shabu shabu restaurant in Shinjuku – staffed by mini-skirted waitresses sans underwear – that top Japanese bankers regularly entertained the ministry officials who were supposed to be supervising them. The entertainment fulfilled its purpose. The men from the ministry turned a blind eye to Japan's deepening bad loan crisis until 1997, when banks began to implode and the whole system teetered on the brink of failure.
Numerous lessons have been drawn from Japan's “lost decade”, mostly focusing on technical issues of monetary policy and banking regulation. Less attention has been paid to the political lessons that the Japanese themselves drew from their travails. These cast an intriguing light on the current debate about market failure, the role of government and the future of capitalism.
In stark contrast to today's conventional wisdom in the US and UK, Japan concluded that its “no panties” moment argued for less financial regulation, not more; for more shareholder influence over corporate executives; for stronger financial markets and modernisation of the financial industry; even for turning Tokyo into a global financial centre, still the dream of a few visionary politicians.
Slowly but steadily Japan has walked the talk. In 1998 it introduced its “Big Bang” financial reforms. The effects are still rippling through the Japanese economy today. The recent ousting of management at wig-maker Aderans by foreign activist investors could not have happened in the pre-shabu shabu era, when management was sacrosanct and shareholders were expected to close their eyes and think of the national interest.
Meanwhile, in the former bastions of capitalism we have seen a stunning reversal of once firmly held principles. Governments have taken control of major manufacturers, using their muscle to re-arrange the interests of creditors and reward favoured client groups. Shareholder rights have been trampled underfoot as bureaucrats and executives have cobbled together politically expedient banking mergers. Poorly conceived short-selling restrictions came and went with little attempt at explanation. And respected commentators have started to attack the finance industry in terms usually reserved for criminal conspiracies.
The political and psychological dynamic is easy to see. When a big bubble bursts, there is a powerful reaction against the values of the era that spawned it. Almost overnight the institutions and individuals who gained the most become villains. Features of the economic system that were once sources of pride become shameful flaws. Opinion-leaders who cheer-led the vanished golden era re-invent themselves as zealous revolutionaries demanding wholesale change. The public – without whose active and enthusiastic participation no serious bubble gets off the ground – is now angry and scared.
In Japan's case the narrative of the bubble years was of “socialism that works”; a harmonious greed-free society in which management planned for the long term, workers were motivated by company loyalty and the economy was steered by dedicated, astonishingly able bureaucrats. The bursting of the bubble shattered the “Japan Inc” myth and cleared the way for a new, pragmatic approach.
