Fast Forward to 2011

Above we have seen that even a major earthquake can leave the economy unhurt overall and actually provide positive stimulus in the form of increased investment for reconstruction. Can we expect a similar outcome in the case of this year’s Great East Japan Earthquake? Unfortunately we cannot be that optimistic. This is because the natural disaster of the earthquake and tsunami has been compounded by the human-caused disaster of the nuclear plant accident and resulting shortage of electricity. At one point TEPCO was predicting a 25% shortfall in the supply of power to its service area at this summer’s demand peak, though the company has now revised the outlook, saying it expects the figure to be “only” 15%. Data from the past indicates that electricity consumption goes up by 1% for every 2% of economic growth; based on this, the summer shortfall will work to push down production in eastern Japan by 30%. Meanwhile, the accident at TEPCO’s Fukushima Daiichi plant has made local residents in other parts of Japan leery of nuclear power. This can be expected to lead to the halt of operations at nuclear plants around the country, causing power shortages in areas served by other power companies as well.

This means that steps to increase the supply of power are an urgent priority for the sake of promoting reconstruction-generated investment. The situation is similar in a way to that in the period after Japan’s defeat in World War II, when expanding the supply of coal was the first item on the agenda. The second item on the agenda is also similar to that of the postwar period, namely, for the government and private sector to do everything in their power to build up the country’s export capacity. We must accept it as an objective fact that the Fukushima Daiichi accident will bring a halt to the earlier plans for increased use of nuclear power. And it will be hard to come up with sufficient “clean” energy to make up for the resulting shortfall. So our dependence on fossil fuels will increase, and the democratic uprisings in the Middle East, combined with the fallout from the Fukushima accident, can be expected to cause the price of these fuels to rise further.

For many years the ruling families and dictators who have monopolized control over the production of oil in Middle Eastern countries have used the money earned from oil exports to buy shares in companies in advanced countries so as to continue to enjoy affluence even after their oil reserves are depleted. This has created a cozy symbiosis between the advanced countries and the oil exporters. But the democratic revolutions that have been breaking out in the region are bound to change this situation at least temporarily. Even Saudi Arabia, the world’s top oil-producing country, will probably seek to avoid radical political change by hiking the price of crude oil and using the income to provide largesse to the general public. Meanwhile, the Fukushima disaster has heightened aversion to nuclear power in the advanced countries. This can be seen most clearly in Germany, which moved quickly to suspend the operation of seven nuclear reactors, but the United States also seems likely to reconsider its plans to build new nuclear plants. The result will be higher global dependence on fossil fuels.

Even if energy prices rise, as long as Japan can keep up its export capacity, it will be able to import the resources it needs to support economic growth. But if it cannot do so, it will find itself short of the funds needed to pay for imported resources, and the limits on the supply of electricity are likely to become permanent. The Japanese government currently has its hands full dealing with the emergency situation and coming up with a consensus in the face of the split in public opinion about the future of nuclear power. But an issue that has now become even more important from a long-term perspective is the drive to conclude free trade agreements with other countries.

(Originally written in Japanese.)