Arthur Kroeber

They have names like North Korea, Russia, Pakistan, Afghanistan, a lot of dangerous actors.

Several of them have nuclear weapons, North Korea, Russia, Pakistan, and India.

So China, just in a very narrow sense, lives in a very dangerous neighborhood.

And so they quite legitimately have, I think, some pretty significant national security needs.

And they also have aspirations to be great power, and they want to do it on their own.

So, the incentive to get things right is much more existential in China than it was in Japan.

Japan essentially could take the choice to sort of say, oh, well, we're going to have a stagnant economy and that's bad and whatever, but actually we'll be fine, right?

And for China, it's not fine, right?

So, there is underlying it.

I think there's a spur there.

that increases the chances that the Chinese leaders will do the things that they need to do to keep the system more dynamic.

It's not a guarantee, but it's a pretty strong incentive.

But then if you look at some of the specifics, so the big difference

between the way that China and Japan are economically organized is essentially the relationship between the financial and the corporate sector.

So Japan had the system where banks owned equity in these giant industrial companies and in the trading companies and vice versa.

There were these cross shareholdings, which meant that it was essentially the entire economy of Japan, the entire corporate and financial sector had one big balance sheet.

And all of that balance sheet rested by the late 1980s on land values that had just gotten completely detached from any form of reality.

There was an investment thesis among investors who were playing the Japanese stock market in the late 80s that you did not look at the earnings –

of the Japanese companies.

Those were irrelevant.