From 1991 to 2000, Japan went through a period of almost stagnant growth. Read Wikipedia’s discussion of the Lost Decade and think about how many similarities we have to that Lost Decade and are seeing in America today. The parallels are remarkably similar. One of the main trigger points in Japan was the exceptionally high value of land facilitated by cheap and easily accessible credit.

America’s surrogate in 2010. Exceptionally high house prices coupled with plentiful and cheap (or so many people thought without really thinking) credit: subprime loans. Then the party stopped and things started to blow up. But one thing that Japan had that the United States did not have, and that lessened the effect on Japanese households, was the Japanese tradition of large personal savings. American saving rates until recently had been very close to zero overall, so there was no cushion.

Many American companies were saddled with massive debt as they entered a recession from overzealous expansion. Banks that had accumulated massive amounts of real estate debt on their balance sheets began to see more and more of that debt go bankrupt, many failing and still failing. Some of the largest banks in the country had to be backed with massive amounts of federal money through TARP. Some of the country’s largest financial institutions, like Bank of America and Merrill Lynch, for example, were forced to merge. And we know what happened to the auto companies and the effects they had on the communities around them. The Federal Reserve has cut bank interest rates to near zero, but credit is still locked up. Many large Japanese companies during the Lost Decade shed thousands of permanent employees and replaced them with part-time workers without benefits. We see a similar trend in the United States.

Now look at where we are in 2010. Just look at two facts. Growth is beginning to occur, but it is very slow. Unemployment remains high and is expected to decline very slowly. None of this is good for small businesses, especially if credit remains tight. The economy will improve and eventually return to full employment (historically considered around 5%). But it will take several years, and a lot of what used to be one of the mainstays of the economy, manufacturing, will change a lot. More production has been moved overseas, and technology continues to improve manufacturing capabilities without adding employees. The jobs are gone and will never come back, and these are often some of the highest paying jobs around. Most small businesses will grow at the same rate as the economy, but because it is likely to be slow, they may need to stay lean for much longer than many larger businesses that have a larger cushion and margin for error. financially.

Japan’s Lost Decade offers a mirror for America today. Small businesses should look in the mirror and see what’s in store for them.