Insecure, exasperated and bored with the old politics: The American shogunate

By Chalmers Johnson, Le Monde diplomatique, March 2002

There is so much frustration among Japanese about endless American demands that the policy proposal is resisted emotionally. America may not know it, but it is crushing the identity of the people of Japan and in the end they won't tolerate that (1). This unusually frank statement by a former senior civil servant, Makato Utsumi, identified a central, unspoken aspect of the Japanese crisis: the influence of the United States on a society unable to set national objectives and define a political role commensurate with its economic weight.

The corruption, waste of resources and astounding incompetence of the Liberal Democratic party (LDP)-dominated elite do not stem directly from Japan's external dependence. The US did largely shape the system at the end of the second world war by building a relationship completely designed to serve its own needs. Under the anti-communist former Secretary of State, John Foster Dulles, the US transformed its former enemy Japan into an ally, satellite and agent in its confrontation with the Soviet Union and China. With the outbreak of the cold war, and the communist victory in China in 1949, the US abandoned its plan to democratise Japan and encouraged the emergence of an elite that has monopolised power for nearly 60 years.

Rather than serving the public interest, that elite was marked by complicity, cronyism and corruption. This limited Japan's independence. The state and political system failed to mature and most Japanese governments since the US occupation have been incompetent. The description by the French historian, Raymond Aron, of the Soviet satellites in Europe as shameless mediocrities could equally apply to Japanese governments.

US policy was similar to that of the Soviet Union in some respects, but differed in that in the Far East the US entered into an informal bargain that benefited its dependent allies economically. In return for their acceptance of an indefinite military presence, it gave Japan and South Korea preferential access to the US home market and tolerated their protectionism and mercantilism. It offered no such advantages to its neighbours in Latin America.

This policy rested on two beliefs: that East Asia's poor economies would never be able to compete with the US and that economic growth would divert the people from socialism, neutralism and communism. Japan's spectacular growth rate made it the second biggest economy in the world by the end of the 1970s. In the 1980s Japanese competition wreaked havoc on American manufacturing. The costs to the US economy were enormous, as the growing trade deficits of the 1980s and 1990s testify (a $81bn US deficit with Japan in 2000) (2). Those years saw bitter commercial disputes and bilateral monetary arrangements that were often at odds with Japanese interests.

In the mid-1980s Japan became the world's leading creditor nation and the US the world's largest debtor. This reversal of roles ought to have changed the balance between the two countries. Instead, they became even more dependent on each other. After the 1987 Wall Street crash Japan helped prevent more serious panic by buying many American shares. Japan's export of its trade surpluses to the US made up for the dearth of US domestic savings and allowed the US to run huge external deficits. The US avoided paying any of the usual costs and kept its financial markets buoyant.

Japan holds the key to the health of the US financial system. If Japan ever brings home the money invested in US government securities, Washington will be forced to finance its own debt from domestic savings. These were negative in 2000; the deflationary impact of such a capital outflow on the US economy would be devastating. Instead of concentrating on exports and trade with the US in the 1980s, it would have been better for Japan to have shifted its economy, expanded domestic demand and forged mutually beneficial trading relations with its partners.

Doubling income

In the 1960s Hayato Ikeda, then prime minister, had managed to propel the country into a period of rapid growth with his successful income doubling plan (shotoku baizo). Japan could have followed a similar policy in the 1980s, since it had the means to expand domestic demand by spending on housing, hospitals, urban development or transport. There was much potential in these, and still is.

Instead, the government bound itself ever more firmly into its cold war relationship with the US. It tried to maintain its one-way trade advantages by investing in greater production capacity for export. Between 1986 and 1991 Japan invested $3,600bn in new industrial plant (3). The aim was to cut manufacturing costs by 40-50% to offset the rise in the yen following the 1985 Plaza accords (4). But this resulted in massive overcapacity that domestic and international markets were unable to absorb. The banking crisis, financial bubble and prolonged economic stagnation still affecting the country all followed, though they had their more direct origins in the financial liberalisation and the wave of speculation at the end of the 1980s.

As usual, the government tried to grow its way out of its troubles by encouraging exports and getting the strongest banks to bail out the weakest. It did not use Japan's huge hoard of domestic savings to liquidate non-performing loans, nor did it consolidate the financial sector. But the Industrial Bank of Japan has calculated that, without such intervention, repayment of debt would take 84 years in the real estate sector, 32 years in wholesaling and retailing and 19 years in construction. Moreover, between 1998 and 2000 the government embarked on many dubious projects costing nearly $1,400bn. In 1991 Japan's public debt was 50% of GDP compared to 151% today.

Throughout the decade of slow growth (1990-2000) the US criticised the way that the Japanese economy was managed, in particular the prominent role of the state, claiming that was the source of all the problems. But the evidence suggests the opposite. The Japanese economy was not over-regulated, but under-regulated. The state's ability to intervene had been weakened by its policy of liberalising financial markets.

Japan's economic problems began in the late 1980s, when the ministry of finance gave up supervision of the banks, even though they were engaged in irresponsible speculation. Japan's inability to reform in the 1990s was not caused by too much bureaucratic intervention, but by the bureaucracy's loss of autonomy in implementing policies that were against vested interests. As the World Bank's former chief economist, Joseph Stiglitz, has concluded, The scapegoat was over-regulation; but the real culprit was lax oversight (5).

Japan's critics are intent on discrediting alternatives to the US model, particularly East Asia's capitalist developmental state (6); they want to provide a sound ideological foundation for further pursuit of a US-dominated liberal democratic order. US ideologues ignore the cultural roots of economic state control in many East Asian countries, which take a long-term view, while US shareholder capitalism focuses instead on short-term gain.

The ideologues also wildly overstate the attractiveness of the US model. As John Gray says: The idea that the US is a universal model has long been a feature of US civilisation. Yet the claim of the US to be a model for the world is accepted by no other country. The costs of US economic success include levels of social division, of crime, of incarceration, racial and ethnic conflict and family and community breakdown, that no European or Asian culture will tolerate (7).

The problem in Japan is not economic but political. The Liberal Democratic party, in power since 1949, is corrupt and incompetent. Its old role as an anti-communist bastion is no longer relevant. But the Americans love it: it is the only party indifferent enough to the humiliation of the inhabitants of Okinawa (and other Japanese living close to 91 US military bases) to act as Washington's agent. Over the last decades the US has spent vast sums to support its LDP lapdogs and divide the socialist and progressive camp.

What Japan needs is a renewal of its political system to bring to power leaders worthy of the name and restore to its proper place the industrial policy it pioneered and perfected. Some believed the election of the eccentric, charismatic Junichiro Koizumi in April last year would change the stultified system. Despite a long association with an implacable and corrupt wing of the LDP, he was considered a reformer. He appointed five women to government, including the popular Makiko Tanaka as foreign minister. But it was a change of style, not of substance. Tanaka was sacked in January because of her more independent policy towards the US (8).

Japan will not come into its own as a major nation until it has a legitimate government that will put national interests before those of US strategists. Only then will it benefit from the changes in the region (the opening of China and the potential of Korea), take its proper place and contribute to the region's development. Such a government is not in prospect.

Notes

(1) Address given on 18 May 2001 at the Woodrow Wilson Centre for International Scholars, Washington DC

(2) Quoted in Richard McCormack, Japan To Displace US As World's Largest Economy, New Technology Week, 6 (20), 18 May 1992.

(3) Asian Wall Street Journal, 1 March 2000.

(4) Signed in New York in September 1985 by the United States, Germany, France, the United Kingdom and Japan, the Plaza Accords led to a massive revaluation of the yen.

(5) Joseph Stiglitz, How To Fix The Asian Economies, New York Times, 31 October 1997.

(6) See Meredith Woo-Cummings (ed), The Developmental State, Cornell University Press, Ithaca, New York, 1999.

(7) John Gray, False Dawn: The Delusions of Global Capitalism, New Press, New York, 1998, p 227.

(8) Tanaka had outlined a policy that was more open towards China and more critical of Washington.