By Choi Sung-jin
In 1990, Japan’s per capita gross domestic product stood at $25,140, not much lower than Sweden’s $29,294. The ratio of national debt against GDP was 67.0 percent in Japan, not terrible compared with the 46.3 percent in Sweden. And Japan’s economic growth rate of 5.6 percent was far higher than Sweden’s 0.8 percent, which meant that Japan could take care of its debt easily.
Last year, Japan’s per capita GDP was $32,481 while Sweden’s had soared to $48,966. The national debt-GDP ratio surged to 245.9 percent in Japan but Sweden’s fell to 43.9 percent.
Analyzing and understanding what have happened in the two countries over the past 15 years is important for Koreans, who face a situation similar to what Japan and Sweden encountered in the early 1990s, economic experts point out. Korea’s per capita GDP is now in the mid-$20,000 range, the nation’s economy has entered into a low-growth phase, and its national liabilities have started to balloon.
The contrasting trajectories of Japan and Sweden look to be behind the government’s recent decision to set Sweden as its role model and regard Japan as an example of failure.
At a meeting to discuss the nation’s fiscal strategy, chaired by President Park Geun-hye, Friday, the Ministry of Strategy and Finance pointed out that Japan has ended up sharply increasing its national debt while failing to pull up its growth rate because the country dragged its feet in structural reforms and was bent on consumptive economic stimuli amid sharply increasing welfare demands resulting from its population getting older.
Sweden, on the other hand, has attained both economic growth and fiscal health through bold industrial restructuring as well as fiscal, pension and welfare reforms, the ministry said.
Ministry officials stressed in particular that Sweden has achieved fiscal soundness by strictly controlling government spending based on strong discipline. Since 1996, the Scandinavian country has set a ceiling on government expenditures while introducing “surplus targets” in fiscal earnings and expenses.
The fiscal reforms, initiated by agreement of most all of the politicians and carried out with bipartisan support, led to the establishment of a fiscal policy council responsible for guiding the nation so that it could attain economic growth, stable employment and fiscal sustainability. As a result, while most other European countries coped with fiscal crises by raising taxes and reducing welfare programs, Sweden did not need to resort to these austerity measures thanks to the soundness of its well-thought-out and executed fiscal reforms.
On the other hand, Japan has delayed fundamental reforms, increased the issuance of government bonds, which pushed its fiscal deficits higher and higher.
“Japan’s strong manufacturing sector has hindered the country’s industrial restructuring, keeping Tokyo from improving industrial structure through continuous fiscal input,” said Roh Hyung-wook, an assistant minister of strategy and finance. “And the Japanese government did not spend its money effectively, investing most of it into social infrastructure and building a number of while elephants.”