With the news from Prime Minister Kan that the budget deficit of Japan’s economy is more than twice the country’s GDP (as at June 2010), we could see an international fall-out of nuclear proportions.

As if it’s not enough that most of the major European economies are struggling with massive debt, here we have the world’s second biggest economy announcing that things can only get worse if austerity measures aren’t introduced right away.

To European ears, this all sounds mightily familiar. And yet, out of all this clamour, what conclusions have been drawn from what has been widespread and collective economic mismanagement?

To say this could be the end of Capitalism probably has too much of a Doomsday ring about it. On the other hand, one doesn’t have to be an economics expert to see that austerity measures being pursued throughout the world will surely have a recessionary effect.

Taking spending power out of people’s pockets means they have less to spend on goods and services; businesses and business turnover will suffer; tax revenues will fall and unemployment payments rise.

So why are so many countries facing such unprecedented levels of fiscal debt? Could no-one in any of these countries (G7 or G20 economies) see what was happening?

Surely these horrendous figures haven’t ballooned overnight. What have the armies of economists and civil servants employed by governments been doing all these years? Was it too politically dangerous for parties in power to say to people: "Times are good, but it will all end in tears if taxes don’t go up and state services are reined in."

Can you imagine a scenario in, say, 2005 when G7 governments had made announcements along these lines. The world would have thought our political masters had gone mad. And what of the knock-on effects this would have had on that fragile commodity the markets call ‘confidence’?

It turns out that successive Japanese governments have been borrowing heavily since their economic bubble burst 20 years ago. Ongoing deficits have been shored up by issuing long-term government bonds which Premier Kan now says is ‘unsustainable’. What is so surprising about this is that Mr Kan was Japan’s Finance Minister before recently assuming his Prime Ministerial role.

Is it the case that government civil servants in Japan have been too cowed by their political leaders to raise objections? And how can civil servants object to anything when they don’t have the power of a political mandate?

The same thing has been happening in the UK. The new government has apparently been "aghast" at the previous incumbent’s profligacy in its dying days. This wasn’t some kind of ‘scorched earth’ policy by a Labour government that knew its days were numbered. It was more like a collective complacency about what was going on at all levels of economic life and a fear among bureaucrats to register their dissent.

Now we have the unedifying spectacle of a new UK government preparing new economic forecasts by the same advisory teams who’d worked for Labour.

To go back to Japan and all the other countries in financial turmoil. The problem seems to be not a failure of Capitalism as a philosophy, but more a failure of the reporting mechanisms that support governments with their collection and interpretation of economic data.

Some may also argue that the much-vaunted wealth that knowledge-based economies were supposed to deliver has been shown to have no credence. To wit, China and India with their mixed economies which are nevertheless underpinned by a strong manufacturing base.

Capitalistic market forces are still at work in these emerging powerhouses but, inadvertently, they have shown that manufacturing, engineering and aggressive international marketing are an unstoppable force more than a century since our Victorian forefathers prospered on the backs of dirt, sweat and toil.

The danger with IT businesses -– and to a lesser extent bio-technology -– is that they’re basically ‘service’ industries. Yes, they generate efficiency benefits, jobs and cash injections into various economies. What they should do is work more closely with manufacturing industry rather than as the introspective harbingers of a new world economic model.

Of course, multi-national corporations of all types generate massive wealth. What appears to be happening is that much of this wealth is funnelled into the pockets of shareholders and institutions which are the recipients of preferential dividends.

The shortcomings of this private sector self-interest (Capitalism) are now being felt by national governments who clearly haven’t been raising enough tax revenues to cover the public sector infrastructure that people living in western economies have come to expect.

This is a very complex subject with lots of side-shows. On the other hand, the ramifications of the economic news coming out of Japan, the UK and EU are a threat to economic and political stability.

So far, we’ve seen very few civil protests by disaffected workers forced to accept cuts in their incomes. It may be that the big ship Capitalism has been sailing off course for so long that the collision no-one thought possible is in fact just over the horizon.

About the author:

Mike Beeson is a UK-based journalist, PR consultant and copywriter. Mike’s company, Buzzwords Limited, was established over 20 years ago and is located in Knutsford, Cheshire (south Manchester). For more information, visit: http://www.buzzwords.ltd.uk