July 11 (Bloomberg) -- It's fitting that Japan chose the Windsor Hotel Toya to stage this week's Group of Eight summit.

The resort on the northern island of Hokkaido opened in 1993 under the name Hotel Apex Toya. It was an inauspicious start amid the deflationary funk that followed the bursting of the bubble economy. Its fortunes became emblematic of Japan's ``lost decade'' and revival today.

Hokkaido Takushoku Bank, the hotel's main creditor, went bankrupt in November 1997, and the hotel suspended operations early the next year. It reopened as the Windsor Hotel Toya in 2002 -- the same year, as fate would have it, that Japan's longest post-World War II recovery began.

And so, leaders such as George W. Bush of the U.S. and Angela Merkel of Germany converged in a building that's as good a symbol of 10 years of squandered growth as any. It was a fitting locale as economists debate what lessons Japan holds for the G-8.

Count Hong Kong real-estate mogul Ronnie Chan firmly among those who think Japan's 1990s experience is highly instructive. The reason: Lost decades may become the rule, not the exception.

``What if the lost decade in Japan becomes the global norm?'' Chan, chairman of Hang Lung Properties Ltd., said at the Asia Innovation Initiative conference in Fukuoka, Japan, on July 8. ``Can you imagine that? Perhaps we should. Perhaps people should get used to slower growth, or no growth.''

Different Picture

It's not that Chan, who runs Hong Kong's fourth-largest real-estate development company by market value, is a pessimist. Property developers don't often relish 10 years of lost growth here and 10 years of declining asset values there. Chan sees a rare confluence of economic and demographic trends that bode poorly for a global rebound.

No one should be surprised by the rapid pace of economic expansion after World War II, Chan says in an interview over lunch. It began from a low base, following the devastation of economies in Europe and parts of Asia. Next came rapid population growth and a boom in innovation. Then there were new social and institutional paradigms as democracy spread and organizations such as the United Nations and the World Bank offered support.

Today, the picture looks vastly different. As everyone tries to stabilize growth, things are hardly at a low base. Population growth is fueling demand for commodities, driving up inflation and increasing poverty rates. Innovation may slow as investment dries up. And institutions such as the International Monetary Fund hardly seem up to today's challenges.

Democracy's Flaws

Oddly, one of Asia's potential failures is democracy, Chan says. It simply isn't proving to be the panacea that leaders in the U.S. and Europe promised. Poverty rates remain stubbornly high in many Asian democracies, and so does corruption. The former is often a result of the latter.

It's certainly not that democracy is bad. Yet there's something to be said about what Chan calls ``premature democratization'' in Asia.

Elections matter only when nations build strong institutions such as independent courts, ministries, a free press, credible central banks and ample systems of checks and balances. Their absence means many governments don't operate as transparently or successfully as expected.

All this may be a problem for the region as it tries to avoid the worst of the credit-market crisis. Chan wonders if the type of prosperity during the decade before the 1997 Asian crisis will be more unusual in the future.

Golden Years

``Those 10 golden years of rapid growth and high returns may well have been an aberration,'' Chan says.

The combination of surging energy and food prices will challenge economies with political rifts, such as Thailand and Malaysia. Nor does it bode well for high-poverty ones such as Indonesia and the Philippines, or those trying to compete amid China's boom -- South Korea, Singapore and Taiwan, for example.

Slower growth is absolutely necessary, of course. Economists, including Kenneth Rogoff of Harvard University, argue that accelerating inflation is a clear sign the global economy needs to cool to let commodity supplies and fuel alternatives catch up. Yet a sharp slowdown in Asia may be devastating.

Take China, which needs to expand about 10 percent annually to raise the living standards of 1.3 billion people. Slowing growth will place dangerous pressure on Asia's second-biggest economy. For a nation at China's level of development, 5 percent growth is essentially a recession.

Careful Balance

A balance needs to be found. The world may require a bit less John Maynard Keynes and bit more Milton Friedman. Keynesian stimulus will only delay a necessary slowdown and lead to even more of the monetary-fueled inflation of which Friedman warned.

Policy makers are merely putting off the inevitable and treating the symptoms of what ails the global economy. If they aren't careful, Japan's experience during the 1990s will become a familiar one.

``It's not a scenario many expect for the West or for Asia,'' Chan says. ``But I'm not sure it can be ruled out.''

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Fukuoka, Japan, at wpesek@bloomberg.net

Last Updated: July 10, 2008 14:01 EDT