Japanese not persuaded US gurus have all the economic answers


You may not be interested in the Japanese economy - but it is interested in you. The second largest in the world, it has one of the highest levels of household income. The largest pool of savings make it the world's largest creditor and source of capital, based on formidable export industries which dominate the most advanced sectors, from computers and electronics to automobiles and aircraft.

It therefore matters hugely for world capitalism how this economy fares. In the 1990s Japan has struggled to recover from recession triggered by the financial collapse of the 1980s bubble economy based on inflated land prices. But its continued strength, external assets and trade surpluses have nonetheless funded the United States deficit. If that relationship between the two largest economies were seriously disrupted the rest of the world would be plunged into depression.

By virtue of Ireland's extensive and successful participation in this global economy we are especially vulnerable to any such shocks. All the more reason to understand the issues at stake. Thus it was instructive to hear a senior Irish figure in Tokyo insisting that so much Anglo-American commentary on Japan is distorted and misleading.

This attributes Japan's undoubted difficulties in the 1990s to its failure to deregulate and restructure markets, cartels and corporate governance, open up protected domestic markets, close down sick financial institutions and recapitalise the rest - in short to follow "the simplistic logic of American-style laissezfaire".

The phrase comes from the latest book by Eamonn Fingleton, an Irish business analyst and writer based in Tokyo*. He goes on: "The truth is that the Japanese economic system is not based on laissez-faire but rather is a much more complicated animal whose inner workings require special knowledge to interpret." His stimulating and original argument is that hard industries such as Japan's provide a much firmer - indeed an indispensable - foundation for prosperity than the so-called post-industrial new economy based on information technology and down-sized manufacturing. Hence his controversial thesis that Japan will pass out the US by this year (which is based on the belief that the yawning trade imbalances with the US will trigger another major dollar collapse).

THERE was an opportunity to learn more about these matters at a conference of Japanese and European journalists in Tokyo and Kyoto last week. The theme was "Facing globalisation - EU and Japanese perspectives". The term craves definition, of course. And that can divide those who diagnose its effects and prescribe responses.

An illuminating book by the German sociologist Ulrich Beck** helpfully defines globality as the fact that we have been living for a long time in world society, in the sense that no country or group can shut itself off from others. Globalisation refers to the process by which sovereign nation-states are criss-crossed and undermined by transnational actors (such as big companies, media and NGOs) with varying power, identities and networks.

Globalisation intensifies contacts. But it does not homogenise all national societies; rather it creates world society without a world state, a globally disorganised capitalism continually spreading out, but without a hegemonic power. This poses key questions about how to create transnational community ties and political obligations. How can politics restore its primacy in governing such a system?

The conference touched on many of these questions, producing some fascinating agreements and disputes and a certain amount of talking past one another. Akira Kojima, a senior editor on the main Japanese financial daily Nihon Keizai Shimbun was scathing about US economic writers such as Paul Krugman. They diagnose globalisation in neo-liberal terms and blithely prescribe neo-classical remedies for Asian economies. He described this as a new form of US unilateralism, requiring a more rigorous and differentiated response by Japanese and European theorists, policy-makers and journalists.

There was agreement that globalisation is unavoidable and irreversible. The suggestion that European integration is an appropriate way to regulate it intrigued the Japanese participants. They have no such experience in their region, where Japan is still suspected and feared for its imperial past. So did appeals by European speakers such as Pascal Lamy, the EU trade commissioner, for closer co-operation on political and economic issues in world forums such as the WTO. He distinguished between a shared vision of a global market economy with international rules on trade liberalisation and the idea of a market society, subject to diverse national and regional values and goals. Other speakers referred to converging values in security and peace policies, at a time when the Japanese government has become more assertive about its interests and suspicious of US dealings with China.

Thus there are several models of capitalism, with an interesting potential convergence between Japan and Europe. Keikichi Honda, chairman of Sun Microsystems, described Japan's as a capitalism based on human resources and added value, not capital and shareholders' value. He defended systems such as cross-shareholding between banks and industry and the Ministry of Finance regulation of credit which look like cosy cartels to outsiders. He did not see a rapid transition to a system based on genuine markets in credit and corporate control - there are far fewer lawyers, accountants and commercial courts in the Japanese system.

JAPAN faces major changes, he agreed. They are as important as the Meiji Restoration of 1869 when Japan's rulers adopted westernisation to pre-empt and avoid being colonised, or the 1945-51 period, when under US tutelage they added parliamentary institutions to the forced industrial development policy of catching up and passing out the west after the defeat of Japanese imperialism. But a wholesale change of model or associated community values is not on. Japan's rulers will await the emergence of a consensus and then act on it.

Tadashi Yamamoto, an adviser to the Prime Minister, Keizo Obuchi, on Japan's goals for the 21st century, spoke of the new values needed. They include greater individualisation, more engagement with world society (including more immigration), less egalitarianism and limited "disintermediation" (bypassing of middlemen in the retail chain through e-commerce).

These three great historical periods of change in Japan have been organised from the top down, to resist foreign takeover and preserve a unique social order whose governing class has survived for 800 years. Making this point, another economic commentator based in Tokyo also cautions against a facile rush to judgment on the policies and tactics of Japan's rulers***.

Yes, they face grave problems with a banking system and flat growth, but the one has been successfully contained while the other is typical of a highly matured industrial economy which has achieved the catch-up objective all too well and is now saddled with huge overcapacity.

Were the Anglo-American policy prescriptions followed to the letter the system would collapse into recession and social conflict, repatriating the dollar-denominated assets that underwrite the US consumer boom and probably driving the rest of the world - Ireland certainly included - into depression. Confronted with this exquisite policy conundrum, Murphy writes, US and Japanese policy-makers have prudently muddled through and avoided being entrapped in rhetoric.

* Eamonn Fingleton, In Praise of Hard Industries, Orion, 1999.

** Ulrich Beck, What is Globalisation?, Polity, 2000.

*** R. Taggart Murphy, "Japan's Economic Crisis", New Left Review, Jan-Feb 2000.