If you want to silence a room filled with Japanese politicians, suggest they should learn from China (CNGDPYOY).
The conventional wisdom favors the flip side of this dynamic: China should be studying Japan's playbook. Japan, after all, is an example of both what China needs to do (create a vibrant domestic economy and high living standards) and what it mustn't (slide into bad-loan crises and deflation).
Yet I have one word for Japanese policy makers who dismiss the idea they should heed China's example: Shenzhen.
For two decades now, economists have been urging Tokyo (TPX) to create a special-enterprise zone or two. The idea is to have a laboratory where officials could try drastic alternatives to Japan's rigid, bureaucratic and change-resistant model -- a controlled environment in which the nationwide laws and norms that thwart economic energy could be repealed.
Southern China features such a place. In 1980, Deng Xiaoping started China's first special-economic zone in a coastal village that was nothing to look at. Today, Shenzhen is a teeming collage of huge skyscrapers, thriving industrial parks, 10 million people, one of the world's busiest ports, and some of the biggest manufacturing and outsourcing industries anywhere.
It's the center of Chinese experimentation. There, officials can test what works and what doesn't: which corporate tax rates offer the best balance of attracting foreign investment while filling government coffers in Beijing, which labor standards make the most sense, which corporate-governance standards are most advantageous, which immigration procedures are optimal, which regulations stay or go.
China's experience inspired nations as disparate as Angola, Bangladesh, Brazil, Iran, Kazakhstan, the Philippines, Poland, Russia and even North Korea to erect special economic regions. India, too. You can argue that India's software industry is such an entity -- one immune enough from New Delhi's dysfunction to create the growth and jobs India so badly needs.
Why not Japan?
David Fuller's view I regard Deng Xiaoping as one of the greatest leaders during the second half of the last century, but he did not have to reinvent the wheel. Two remarkable Chinese success stories were there for all to see - Hong Kong and Singapore.
If Hong Kong could flourish with the light tiller of Britain's benign and laissez faire governance, and if Singapore could prove equally successful under the paternalistic leadership of Lee Kuan Yew (another great leader), then Deng and China had little to fear and everything to gain from capitalism.
What Japan achieved during forty-five years following World War II was remarkable for its economic success, high educational standards, its civility and inclusiveness among Japanese people. Unfortunately, Japan has yet to recover fully from what was arguably one of the biggest bubbles of all time in the late 1980s.
Bubbles come in all different sizes and the damage which they cause is inevitably in proportion. To date, few economists would agree on an ideal template for recovering from the bigger bubbles. The best plan is to curb their expansion before they soar out of control.