Unlike Indonesia that does not have a highly developed economy, Japan is in many respects worse off owing to the looming threat of nuclear aftermath not just in the immediate future, but for the long-term. While small amounts of radioactive material has been released into the atmosphere in comparison with Chernobyl and Three Mile Island,there are many skeptics not just among such groups as Greenpeace, but among nuclear scientists that there may be a potential for greater damage to earth, air, and sea. As of 28 March 2011, the scientific community is much more pessimistic about contamination than it was when the aging reactors initially showed signs of trouble.
Besides the environmental disaster that has a regional impact and it could be much worse than we now believe, the loss of life and disruption of the lives of millions of people is another concern that will have a global impact. It is only natural that Japan's stock market would plunge as it has by about 17% in just two days after the disaster, and it is only natural that it would drag with it the rest of the world's markets along with it. And all of this taking place during the Libyan revolt turned into civil war that had energy prices rising. The world's economy is so tightly integrated that the disaster in Japan means that US and EU reinsurance companies, banks, bondholders, exporters and importers are all going to suffer, some for the short term before recovering eventually, others, like insurance companies, in a major way longer term.
As the world's third largest economy that has been having difficulty regaining its pre1980s momentum, Japan suffers from public debt that is twice its GDP. The catastrophe of 2011 could push Japan to the point of considering bankruptcy, a highly unlikely scenario. But what if it is unable to service its loans amid a deflationary economic climate and rising unemployment, what if it suffers greater devastation from the nuclear power plants, what if another natural disaster hits as some seismologists are predicting? Given that its debt-to-GDP ratio is 201%, and given that Japan will have to spend tens of billions in order to rebuild the infrastructure, debt-to-GDP ratio will climb much higher to levels that can only be supported if other countries step in to buy its bonds.
The world is flooded with bonds and starving for cash exactly at the time that Japan may need $180 billion, or 3% of GDP. There are wild estimates that the cost longer term could rise to $1 trillion, or 20% of GDP, which is unsupportable. At most, it seems that Japan may suffer a bond rating cut from rating agencies like Moody's that recently warned about the high debt and future fiscal challenges. Japan, however, has been the world's production machine and its greatest asset is its population that will make the country stronger than it was before the tsunami.
While everything seems very bleak amid the shock of the tsunami and explosions in the two nuclear plants, the increasing concern of wider land, air and water contamination, longer-term Japan will become stronger than it was before the disaster of 2011. Unfortunately, many thousands have perished in the process, an unknown number may contract radiation sickness, and food and water may be a problem to add to the sea and air contamination that terrifies people because they know the consequences are long term.
Japan enjoys political stability under a neo-corporatist model around which there is broad popular consensus. Japan has greater social cohesion and cultural homogeneity than any western nation, it has a highly educated and hard-working population, a solid infrastructure that will be modernized, a solid industrialize base that will be updated, a culture of hard-working people that will be more united toward the goal of reconstruction, and a global trade network with a massive supplier and customer base. The earth quake and tsunami may actually propel Japan into another renewal such as it has not experienced since the end of the 1940s-early 1950s when it launched industrial development under the aegis of the US.
While long-term I am optimistic about Japan's capitalist economy, I am equally convinced that the socioeconomic gap will widen and the wall that is already very high against foreign labor could become higher. The labor market dualism, regular v. non-regular workers (estimated at 30%) earning considerably less (40% less on average) will continue, indirect taxes will rise, and social spending will decline to support infrastructure rebuilding.
Japan's income inequality and poverty have been rising in the last two decades and it is very likely that the catastrophe of 2011 will come on the backs of even greater income inequality. The Godzilla that devastated Japan is not the earth quake, the tsunami or even the considerable fallout from the nuclear plants. The real Godzilla is the regime that will use the catastrophe to exploit the hard-working people in order to strengthen the corporate structure so that the country can remain competitive on a world scale. In that respect, Japan's Godzilla is no different than that of America's Godzilla or of most countries around the planet.