Compendium: Japan’s Lost Decades and the Rise of Zombie Firms and Zombie Banks

The “Lost Decade” refers to an economic and financial crisis that affected Japan, the effects of which continue to linger since the 1990s. The Japanese economy was devastated by the bursting of the asset-price bubble that came as the consequence of the 1985 Plaza Accord. Prior to any serious Western economist commenting on the meteoric resurgence of Mainland China, Japan was the nation-state that attracted the most attention after the death of Bretton Woods. The Japanese economy in the 1980s was the leading contender against the economic strength of the US economy to the point of sparking a Trade War during the presidency of Ronald Reagan.

The American-Japanese Trade War was sparked over the rising trade deficits of the US economy and the unwillingness of the Japanese to adjust Exchange Rates. The US Dollar in the early 1980s was still suffering from high Inflation during Reagan’s first term, its Value depreciating in the midst of two Recessions. The Federal Reserve had its Interest Rates increased to reduce the amounts of US Dollars in circulation as Kapital, allowing the US Dollar to appreciate and bring the US out of its Recessions. One of the results that culminated from this affair in relation to the Japanese was the Plaza Accord, of which Japan was a signatory member of.

The Plaza Accord was followed by the Louvre Accord of 1987, when the US Dollar was allowed to depreciate further in order to offset the US trade deficits as well as the Federal budget deficits due to the Reagan administration’s adherence to “Supply-Side Economics.” The Plaza Accord’s significance in relation to the Lost Decades is tied to the Japanese Yen appreciating in Value as a result of the US Dollar depreciating. The terms of the Plaza and later Louvre Accords contributed to the Japanese economy undergoing a Recession between 1985 and 1986, which concurred with the onset of an asset-price bubble that the Bank of Japan (BOJ) was reluctant in curtailing.

The BOJ figures prominently into why there little or no intervention in avoiding the excesses of the asset-price bubble during the late 1980s. As the Japanese Yen appreciated during this period, the BOJ tolerated a contractionary monetary policy while the economy was expanding because of an overreliance on exports and Kapital for foreign investments only. But when the Yen continued to appreciate towards the end of the decade, the Japanese pursued a belligerent combination of monetary and fiscal policies. On the monetary side, the BOJ allowed for monetary easing that made borrowing cheap Kapital easier at preferrable Interest Rates for potential Borrowers. And on the fiscal side, the national government increased public investments to generate Inflation to offset Currency Appreciation.     

The financial effects of the bubble economy were discernible from various sectors of the Japanese Financial Regime. Land Prices outside of the major metropolitan areas fell massively whereas the metropolitan areas themselves rose or stagnated during this period. The commercial banks themselves allowed for an unusually large amount of Credit available for borrowing than the amount of Kapital that they could afford to maintain in their reserves. All of these factors had to be done in order to ensure that the Japanese Yen can finally acquire a healthy dose of Inflation to halt its constant appreciation in Value.

Unfortunately, since the Japanese economy was and still is a Liberal Capitalist Market Economy, the proliferation of Kapital allowed the bubble to expand for years until it finally burst in the early 1990s. It was around this point that the country’s Financial Markets reported losses, Borrowers failing to pay back their Lenders, prolonged fall in asset prices commensurate with a drop in consumption and investments in the Japanese economy. Due to these factors, the negative effects of the Lost Decade were allowed to permeate throughout the 1990s and continued to perpetuate themselves well into the 2000s and 2010s. Given the Japanese economic and financial woes that came from being affected in the Dot-Com Bubble, 9/11 Attacks, and the Great Recession that the “Lost Decades” is appropriate in this contemporary context.

Additionally, the Lost Decades contributed to the rise and gradual proliferation of “Zombie Firms” and “Zombie Banks.” Both proliferated in the wake of the initial Lost Decade in the 1990s and was allowed to accumulate among the major Liberal Capitalist economies of the Liberal International Economic Order (LIEO). These terms have been chosen by political economists to describe a phenomenon that resembles more like zombies rising from the dead to feed upon human flesh. In this sense, firms and banks incapable of sustaining themselves and operating under heavy amounts of Schuld are only able to stay alive due to a steady influx of Kapital from a specific part of their nation-state’s Financial Regime. And in the case of the Zombie Bank, they arise whenever a bank makes too many bad loans while exhibiting the familiar characteristics of their non-financial counterpart. The Central Bank has often been employed by Liberal Capitalist regimes to support them, with their interactions characteristic of practices once undertaken by the BOJ since the 1990s.

Under normal economic conditions, it has often been said that such entities would have been expunged from the Liberal Capitalist Market or Mixed Economy. The Liberal Capitalist understanding of competition, Darwinian and Malthusian in its social outlook, envisage whole industries engaging in a “survival of the fittest” according to the Incentives of Supply and Demand. These Zombie Firms and Zombie Banks should have been weeded out by the free market, as its logic goes. But Liberal Capitalist economic theory is flawed in this particular sense because it neglects the possibility of certain firms “cornering the market” and becoming “too-big-to-fail.” There may be antitrust and anti-monopoly laws that cannot possibly be enforced just as the cost of nationalization is too much for the nation-state to tolerate. All of these factors were apparent in the Japanese economy, as evidenced by the prevalence of the “Keiretsu,” which refers to the country’s largest corporate conglomerates and concerns. It is only in this context does the appearance of the Zombie Firms and Zombie Banks become a necessary evil that must be sustained by constant injections of cheap Kapital.

Zombie Firms and Zombie Banks are notorious for contributing to the growing inclination among Central Banks to pursue Negative Interest Rates in order to sustain them with cheap Kapital. Negative Interest is the polar opposite of a normal Interest Rate, where the Lender must pay the Borrower for simply lending. Since the Zombie Firms and Zombie Banks cannot hope to pay Interest on top of their initial borrowing expenses, it is common for Central Banks to issue them Kapital in the form of “bailouts.” Their significance has been cited in the Great Recession as one of the justifications behind the Wall Street bailouts by the US Federal Reserve.

Furthermore, the Coronavirus Pandemic itself has offered a new dynamic in the scale and depth of Zombie Banks and Zombie Firms. Since the Pandemic had prevented large numbers of people to travel abroad or congregate in any massive gatherings, conditions are rife for certain firms related to tourism such as airlines and hotel chains to become Zombie Firms. In the US economy alone, the four major airline firms Delta, American, United and Southwest Airlines, Marriott International, and the Macy’s department store chain are considered among the 600 new additions to an economic phenomenon that emerged in the wake of Japan’s Lost Decades. Many of these firms are saddled with Schuld (Debt/Guilt) amounting to $2.6 trillion US Dollars.

The effects of the Lost Decades are systemic problems associated with the limitations of Liberal Capitalist economics and monetary policies. The idea of allowing whole sectors of an economy to be riddled with Schuld is a consequence of the death of the Bretton Woods and the rise of Fiat Currencies pegged to the Schuld Standard. Such practices are avoidable with the Work-Standard and can be prevented by a proactive government. But for the sake of stoking serious interest in the Work-Standard, how should the Work-Standard deal with the appearance of Zombies Firms?

To begin, it should be noted that the financial practices of the Work-Standard do not revolve around the dialectics of incessant borrowing and lending Kapital for Schuld at a specified Interest Rate. Their influence the economy would be diminished, eclipsed by the Work-Standard’s preferred dialectic of converting Arbeit into Geld and Geld into Arbeit. That reduces the chances of Zombie Firms and Banks appearing because one of the preconditions of such entities is for the State, Financial Regime and economy to exist as separate entities rather than integral parts of the nation-state as a whole and in service to the Totality.

The only way a Zombie Firm or Bank could exist under the Work-Standard is for the whole nation-state to be governed by sheer incompetence and corruption as in Japan’s infamous “Recruit Scandal” of 1988 and its BOJ or for the nation-state to be running the kind of trade and budgetary deficits that the US has tolerated since the Reagan presidency. There is simply no other way around this conclusion since previous entries in the SMP Compendium have elaborated on what the nation-state should do in order to avoid the possibilities of this happening.

Categories: Compendium, Economic History, Politics

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1 reply


  1. Economic History Case Studies: The Third Lost Decade (2022)   – The Fourth Estate

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