Japan Isn't Doomed

TOKYO/STOCKHOLM: Pessimism about Japan is easy and pervasive nowadays. Its financial crisis drags on, growth is nil, unemployment rises, and, recently, deflation appeared. Is there any way out?

For a Swede, Japan's economic problems are a form of déjŕ vu. In 1992, Swedes accepted that their "Swedish Model" didn't work. This was hard to understand, because everything had gone so well in Sweden for so long. With an economy falling apart and a bankrupt financial sector, radical reforms were needed. Change began in banking.

Sweden's experience suggests that Japan's most urgent problem is its financial crisis. As in Sweden 8 years ago, there is too much bad debt and too many banks. Insolvency in the financial sector spills into other sectors in the form of a credit crunch, because Japanese banks are unwilling to lend money.

This type of financial crisis is not unique to Japan. Countries where land and stock prices rose and fell dramatically also experienced similar crisis. America in the 1930's and 1980's had banking crisis of this sort which had real economic effects. So, also, Sweden in the early 1990s.