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From financial to nuclear crisis

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As Japan tries to pull itself out of the depths of its nuclear disaster, it is instructive to draw a few comparisons with the global financial crisis.

In the years leading up to the Lehman shock of September 2008, which unleashed the full brute force of the global financial crisis, financial markets had gone through a long period of stability.  In fact, many praised the efficiency and dynamism of American financial markets.  They believed that their capacity to allocate finance efficiently was a key element of the success of the American economy. 

True, many pointed to the risks posed by growing imbalances.  But the mood of the times was captured by Citigroup CEO Chuck Prince who told the Financial Times in July 2007: "...as long as the music is playing, you've got to get up and dance. We're still dancing."

It’s a bit the same for nuclear energy.  Sure, we had the Three Mile Island accident and then the Chernobyl disaster.  But they had faded into the distant past.  Now we knew better.

True, we hadn’t solved the problem of disposal of nuclear waste.  But many people had fallen for nuclear power as one of the solutions to the challenge of climate change.

Coming back to the world of finance, everyone knows that it is littered with financial crises.  But they are something for the developing world.  Of course, we can have little crises, but the US and Europe, with their superior systems of governance, are above irresponsible crises!

As my mother says, pride comes before the fall.  And as we were lulled into a false sense of security, the world of finance became complacent.  Same thing for the nuclear world, they also became complacent.

In the financial area, complacency showed up in financial deregulation going too far.  In the money-driven US political system, Wall Street had captured the government, and especially Congress, and bought itself political favors.  And when it comes to implementing financial regulation, the understaffed and poorly paid regulators never had a hope against those tricksters from Wall Street.    

For its part, Japan’s nuclear industry is poisoned by the Japanese disease of “amakudari” (descent from heaven in Japanese).  This is the system whereby high-level bureaucrats get parachuted after retirement into high paying jobs in the private sector.  This is bad enough, but it means that business, government and regulators are all in bed together, and regulators go soft on business in times of complacency.  There are already too many stories about the Tokyo Electric Power Company (TEPCO) cutting corners, not paying enough attention to risks, and regulators being too kind.

What happens when crisis strikes?

When someone realizes that they have screwed up, they start along the path of the stages of grief.  First, there is the stage of “denial”, which involves cover up and minimizing the problem.  Then, there is “anger”.  It’s not fair, how can this happen to me, I am too important.  After that comes “bargaining”.  Please let me off the hook, as TEPCO CEO is probably arguing from his hospital bed.  Next comes “depression” which TEPCO must be feeling, as it is now threatened with nationalization, and the possible loss of its high paying jobs.

Lastly, the stage of acceptance comes.  We are still a long way from that.

Who bears the cost of all this?  Again it's the little guy, like you and me.

In the US, and also Europe for that matter, lots of poor people have been thrown out of work by the financial crisis.  They have lost their homes, and they face massive tax burden in the future.

In Japan, it's basically the same.  It’s not the TEPCO CEO who is gaining into the nuclear reactor to fix the problem.  He is in hospital suffering from high blood pressure. 

Again, it is poor working men and women who are suffering.  Thousands upon thousands have lost families and friends, and are still in temporary shelters.  I bet lots of them are also suffering from high blood pressure! 

It is also poor working men who are going in and facing the force of nuclear radiation.  These workers are being called heroes. 

There have been many reports of the amazing sums of money that are being offered Japanese nuclear workers.  There is even one report that the daily pay for nuclear plant disaster workers is possibly over $4,000.  But there are also reports that some workers are suffering from exposure to nuclear radiation and their lives are threatened.  Is it really worth the money?

At the same time, there is an exodus of Japanese rich people to Hong Kong and Manila.  “They are fiddling while Rome burns”.

And it is worse than that.  Bureaucrats from Japan’s Ministry of Economy, Trade and Industry are salivating over the prospect of nationalizing TEPCO, breaking it up into smaller units, and of course creating lots of cushy amakudari jobs for themselves.

What are the lessons of all of this?  In short, you cannot trust government and business leaders.  It is not that they are evil.  They are just human like you and I, with all the foibles that implies. 

French President Nicolas Sarkozy, who is chairing the G20 this year, has now called for clear international standards on nuclear safety in light of the ongoing crisis at Japan's Fukushima Daiichi nuclear plant.  He has proposed that nuclear safety authorities from the G20 countries discuss the issue in May.

This is fine.  But any standards will be a political compromise.  Some countries like France are doing their utmost to defend nuclear energy, while others are seriously reconsidering whether nuclear is really a sensible option.  And once standards are agreed, they have to be translated into national legislation, and then they have to be implemented, which brings us back to the human factor.  

And meanwhile, what about those financial markets?  The prospect of nationalization has pushed up TEPCO’s share price, and the NIKKEI index.  And for the moment, the yen is doing very well.  But it ain’t over yet!