dismaltrader:

From Naked Capitalism. Regardless of how persuasive the views of Ambrose Evans-Pritchard are, Japan once had a serious problem on excess capacity in the late 1990s. At that time, many Japanese corporates had trio structural problems, excess debt, excess workers and excess capacity. I understand these problems are closely tied together, and closely related to expected demand in the future. The most important thing is that a company could recognize its own proper levels of debt, workers, and capacity not only by considering current sales but also by expecting the future demand of the company or the industry overall. Through the recovery process in the 2000s, Japanese companies both streamlined their labor force and capital stocks and expected higher demand.

I view excess capacity as a double-edged sword. Excess capacity makes capital investments less likely as the economy turns around. Excess capacity also means that here was probably a lot of malinvestment in the last business cycle. However, it also means that a lot of investments have already been completed. This makes additional hiring less risky (the infrastructure is already there). This would be a very good thing in the current economy. Unfortunately, there are many people that are employed part time that need to be absorbed as full time before such hiring picks up. But, even the transfer of people from part time to full time should be viewed as a positive thing. Excess capacity makes such a transfer fairly easy. I agree with the thesis that on balance, excess capacity is a bad thing. However, the story played out by the official statistics will highlight the problems and not give enough credit to the benefits.