too am well aware of the propensity of the Japanese media to sensationalize, and for that reason I resist making comments about U.S.–Japan relations that might lend themselves to overdramatization. Extreme statements, even those made by people who know nothing of America, are prized by the Japanese media because they are easy to report. But the American media are just as bad. When Sony bought Columbia Pictures, Newsweek described it as “a piece of America’s soul.” Columbia had been a nearly bankrupt company nobody seemed much interested in until it was sold to the Japanese. The media then reported its purchase as if Sony had stolen the crown jewels. The same was true with the sale of Rockefeller Center. The media carried on as if the traditional Christmas tree were going to be replaced with a bonsai. When Konishiki, a Hawaiian, won a sumo tournament in November 1989, how did the New York Times caption its account of the victory? “An American Is Enthroned and Japan Is Shaken.” What nonsense! Far from being shaken, many Japanese were thrilled at Konishiki’s success.
In both the United States and Japan such media distortions are everyday occurrences. Driven only by profit-making and rapidly becoming morally bankrupt, the media constantly sensationalize.
After the Kerlin Wall, the Japanese Wall. James Fallows has argued that allowing Japan to expand indiscriminately and destructively is not in the best interest of Japan or the rest of the world. I agree with him. Whether these views are correct logically speaking, I cannot say, but I believe that now is not the time to think purely in terms of logic. Speaking from the logic of economics, certainly no one can claim that Japan is wrong. Working without a moment’s leisure, saving for the future, caring more about conservation than consumption, offering the world better products at cheaper prices, making money—these are all actions that live up to capitalist ideals.
Capitalism means competition; its dominant principle is that whoever wins, survives. That is the premise upon which neoclassical economic theory is based, and as a modern economist who belongs to this school, I find Japan’s actions both logical and correct. But what happens if we advance that argument one step further? If a highly competitive Japan should continue to be as successful as it has been in offering its goods to the world, naturally its profits will increase. As a result, the yen will rise in value and the dollar and all the other currencies in the world will fall. If Japan one-sidedly grows so strong that it tramples on the livelihood of people in other countries, then no matter how many good products it makes, it will gradually become unable to sell them.
Economic textbooks teach that a system of checks and balances, sometimes referred to as the “invisible hand,” will operate to check Japan’s export strength; there is no need, therefore, for governments to set up safety nets such as tariffs and controls. Viewed from that vantage point, Japan’s behavior is quite rational and it is Japan-bashing that is unfair. But is reality adhering to textbook theory? Are these checks and balances operating between America and Japan? Did sales of Japanese goods decline when the value of the yen went up? Was the Japanese surplus erased and a trade balance achieved? After the dollar became cheaper, was the United States able to rapidly expand its exports to Japan?
Unfortunately, events have not transpired the way the textbooks say they should. The system of checks and balances that operates between the United States and Europe does not work between the United States and Japan. Why not? The answer seems to be, as Fallows says, that the customs and institutions within Japan—as seen from the American side—are “different.” Consequently, insofar as Western logic does not work in Japan, America must come up with some sort of national policy to take the place of the “invisible hand” in the form either of protectionism or of managed trade. This is what Fallows really means when he speaks of “containing Japan.”
The most recent (1989-90) round of bilateral trade negotiations, the U.S.–Japan Structural Impediments Initiative, took place against this background. The SII talks were based on the premise that an underlying factor in the trade imbalance between the United States and Japan was “structural differences”—fundamental divergences in the two countries’ economic and social structures. In an effort to ensure more transparent trade practices and a more open marketplace, American negotiators came to the bargaining table armed with a list of nontariff trade barriers that they claimed prevented U.S. access to the Japanese market. Indeed, many practices that the Japanese take for granted seem strange when looked at from outside and certainly do not conform with international rules. Contractors who meet together to decide which of them will get a certain job or companies that submit a bid of one yen in order to win a contract that will result in a long-term relationship and a virtual future monopoly—sleazy bidding practices such as these are carried out as a matter of course not by gangster-controlled syndicates but by top-ranking computer firms and the construction industry. Such practices would be inconceivable in other countries. Bringing them out into the open is highly embarrassing, but they must be exposed so that Japan can prepare for the future.
The Structural Impediments Initiative talks concluded with both sides promising major structural changes. Japanese concessions included promises to curb tax benefits for farmland owners in urban areas, to remove the right of small-store owners to veto the opening of large retail outlets in their neighborhoods, and to increase staff on the Japanese Fair Trade Commission. In return, the United States promised to cut the budget, increase federal support for research and development, strengthen export promotion, and require the adoption of the metric system for federal procurements beginning in 1993. Although the Japanese felt that U.S. interference in Japan’s domestic problems was unwarranted, they have more effectively addressed the compromises reached during the talks, whereas until recently under the Clinton administration the United States made no effort at all to comply with Japan’s demands to increase savings and decrease the government’s budget deficit. Although I do not believe the Structural Impediments Initiative talks produced any significant results, they have somewhat alleviated the tension between the two countries. If they have had the secondary effect of helping to bring Japanese rules in line with international rules, then they were valuable.
By adopting exactly the same policy toward Japan that it has toward its European trading partners, America has incurred a huge trade deficit and run up against an invisible wall that surrounds the Japanese archipelago. Under the circumstances it is not at all strange that Americans have concluded that there is something different about Japan and have decided to rethink their views. Reacting against this new U.S. position, some in Japan have argued that it is America that is different. Certainly, America would appear different from the Japanese perspective; this sort of nationalistic sentiment is quite understandable. But that does not mean Japan can force its rules on the rest of the world. And to believe that America ought to be the one to change is not only impractical but irresponsible. It is unreasonable to expect Americans to understand—let alone put into practice—such Japanese concepts as group solidarity or corporate groupings or to expect them to behave like the employees of Mitsubishi who will drink only Kirin beer. For better or for worse, the postwar world plays by America’s rules. That comes with the territory of world leadership, a subject I will discuss in more detail later.
America can manage quite well economically without Japan, but Japan cannot get along without the United States. Some Japanese commentators seem to be unaware that Japan does not exist independently of the rest of the world. They have projected a rosy-colored future for Japan and predict that the twenty-first century will be “the Japanese century,” but even if such prospects exist at the microeconomic level, I have my doubts about these optimistic scenarios. Since 1989, Japan’s attention has turned in on itself. That year many of Japan’s political elite were implicated in the Recruit shares-for-favors scandal and Prime Minister Noboru Takeshita was forced to resign. Voter wrath over the imposition of a 3 percent consumption tax led to the poor showing of the ruling Liberal Democratic party in the Upper House election that July and brought about the ouster of Takeshita’s successor, Sosuke Uno, who had been discredited by a sex scandal. While Japan was absorbed by the spectacle of three prime ministers succeeding each other within the space of a single year, the rest of the world greatly changed. The democratic movements in Eastern Europe, the collapse of the Soviet Union, and
