indexby Philip Ferguson*


Reviewing the Second World War, we could say with hindsight that it was not only a war between the Allied and Axis powers, but also between the United States and Europe – in particular the old colonial powers of Britain and France – for the position of world hegemon, and between the US and Japan for dominance in the western Pacific and Asia.  In the course of the war Britain was virtually bankrupted, through its purchases and loans from the United States.  At the war’s end, Britain and France had little choice but to open up their colonies to the United States.  With much of Europe in ruin and Japan crushed, the US reigned supreme over the postwar world order and the dollar ruled the world economy.

The Cold War helped give the United States political hegemony to match its economic power.  ‘The West’, which did not really exist before this, and whose components had spent hundreds of years fighting each other for mastery of Europe and then the world, became cohered behind Washington in the common purpose of containing ‘the East’, ie communism.

The end of the Cold War, following the implosion of the Soviet bloc, has unfrozen the international relations fixed in the aftermath of World War II.  At the same time, many of the main Western economies have been bogged down in economic decay and recession since 1973-4, with only short-lived and partial recoveries.  After nearly three decades of a world order based on the Cold War and the long economic expansion and prosperity, the more traditional cycles of boom and bust seem to have reappeared with a vengeance.  (In fact, the cycles now last only a few years, compared to the 15-20 year pattern of the 1800s and early 1900s.)  The end of the Cold War and the long boom have had their most significant effects on the main postwar power, the United States, and on Britain whose position at the top table in the postwar era was artificially maintained through its “special relationship” with the USA, a relationship which, in turn, was a reflection of the Cold War.

Looked at in terms of world systems theory, we appear to have reached a crossroads point in history.  The old certainties, conditioned by the postwar boom and Cold War, are gone; but what is to replace them is not yet clear.  The ‘American Century’ – during which the United States has been unchallenged hegemon – is drawing to a close with US supremacy on the world stage no longer to be taken for granted.

In this essay I will be looking at the changes taking place in international relations, especially in the economic and political spheres, and the ways in which these are impacting upon Japan.  I will be considering the peculiarities of Japanese development in the post-World War ll era in terms of the factors enabling rapid Japanese economic growth and those inhibiting Japan from becoming a ‘normal’ country.  I will also be looking at the limitations to Japanese growth.  Lastly, I will be reviewing how Japan is trying to cope in the new world situation, particularly how its contradictory relationship with the US is being played out in the present context of world economic and political uncertainty and flux.  Methodologically I will be drawing on world systems concepts as essential to helping explain both Japanese success and the economic, domestic-political and foreign affairs problems that Japan now faces.

World systems theory – in particular long-cycle theory, associated with Modelski, Thompson, Gilpin, Wallerstein and Kennedy – broadly speaking involves the concept of a global economic and political system in which a particular country becomes dominant through its control of trade and its armed power.  This hegemon then restructures world economy and politics in its own interests and imposes order to maintain its dominance.  The cycles last roughly one hundred years, opening with a quarter-century of major wars in which a new country emerges as hegemon.  In the second quarter, the new hegemon manages the system, a process which saps it of increasing amounts of resources until its over-reaches itself.  The third quarter – Modelski’s delegitimation stage – opens with the hegemon’s power eroded and new challenges being mounted to its position.  In the final quarter, power becomes deconcentrated and multiple centres, more equal in strength, begin to compete with the result that at the end of the century-long period huge new wars break out as the means by which the next hegemon establishes itself.[1]

In Modelski’s view the United States is in the delegitimation stage.  Kegley summarises ten features characterising this stage – excessive military spending, excessive use of force, entangling alliances, overcommitment, preoccupation with a non-threatening rival, neglect of internal development, capital mismanagement, deteriorating trade imbalances, declining productivity and competitiveness in the world economy, and protectionist trade policies – and shows how each of these can be seen in relation to the United States over the last decade.

He also identifies some of the problems with the long-cycle world systems model: determinism, teleology, and the premise that history repeats itself.  Yet, as he also notes, the parallels between the corresponding quarters in each century-long cycle over the past five hundred years remain striking.  However I think there is another weakness in this model.  By concentrating on what is the same within the cycles, we miss out on what is distinctive about them and, in particular, what is distinctive about today.  In a world of parts which are more interdependent than ever before, we certainly require some form of world analysis, and this inevitably involves identifying both patterns and discontinuities and differences between today and the past.

Here we might note another sort of world systems theory, that of V.I. Lenin.  His analysis grew out of the realisation that economics and politics in the late 1800s and early 1900s had taken on a new, distinct character which he labelled imperialism.  The characteristics of the imperialist epoch were analysed by him as the division of the world into a handful of advanced capitalist countries and a mass of underdeveloped and oppressed nations, generalised stagnation and decay of capitalism, the export of capital, monopolisation of firms, concentration of capital (in particular the merging of industrial and banking capital into finance capital), the end of free trade and growth of protectionism and trade conflicts and an increasing intervention by the state in economic life as the system lost its own dynamism.  These tendencies were viewed as leading to wars and revolutions.[2]

Whilst the remarkable expansion of productivity and wealth after 1945 strongly contradicted the idea of stagnation and decay, that situation grew out of exceptional circumstances – namely a massive war during which huge amounts of capital values were destroyed and workers living standards and wages were driven down.  This, along with the emergence of the United States as unchallenged world hegemon, not only made possible the renewal of the existing capitalist world system but created remarkable possibilities for new rounds of capital accumulation at levels never known before.  Growth rates after WW2 were phenomenal: by 1973 output in the advanced capitalist countries (Western Europe, North America, Japan, Australia, New Zealand, South Africa, Israel) was 180 percent higher than in 1950.[3]

In some parts of the world where capitalism had not taken off, it was overturned from above by the Soviet Army (much of Eastern Europe) or from below by mass insurgency (China, Vietnam, Yugoslavia, Cuba).  Most of the “communist bloc”, primarily concerned with their own development and stability, represented little real threat to the Western powers.  Given their general denial of fundamental democratic political rights, they also remained unattractive to most people in the West.  But they were a blessing for the United States, which succeeded in presenting these countries as the major threat to world peace and united not only its own people but much of the rest of the world behind American power in the name of ‘containing communism’.

That period of history is now over.  But, rather than having reached Fukuyama’s ‘end of history’ – through the triumph of ‘liberal democracy’[4] – what we are actually witnessing is a return to history after an historical detour of nearly fifty years.  The implosion of the Soviet bloc and the end of the long postwar boom mean that the world is re-entering the more ‘classic’ pattern in which we see not only the characteristics pinpointed by Kegley (many of which were also viewed by Lenin as symptomatic of the imperialist era) but also some of the other aspects noted by Lenin, such as the division between advanced and impoverished countries, and regular capitalist crises.  Certainly it is very hard today to find any economy, even rapidly growing ones such as China, which could be viewed as being without major problems.

1. PHOENIX FROM THE ASHES:  Japan After World War 2

In 1945 Japan’s collapse appeared total.  Its military were defeated and disarmed and much of its industry was destroyed.  Twenty-five percent of the country’s wealth and $20billion in overseas assets were wiped out.[5]  Apart from the maintenance of the titular position of emperor, much of its political power structure was also demolished.  How did it manage to recover so quickly and become the second most important economic power in the world?

Takatoshi Ito sees Japan’s phenomenal growth from the perspective of conventional supply side/demand side economics.[6]  For him, “growth can occur through capital accumulation, through increases in working hours and employment, or through technological progress that enhances the productivity of existing capital and labour.”  The relative importance of each of these factors is analysed by measuring how much they grew by and then relating this to overall growth.  Not surprisingly, the conclusion is drawn that in Japan “capital accumulation was more important than labour” and that “More than half of Japan’s growth is attributed to ‘technological progress and residuals’.”[7] At the same time, Ito sees a drawback to this approach, namely, “It does not offer any explanation as to why those factors behaved as they did.”[8] As he notes, it simply raises a series of other questions.  these include the source of finance for the large increase in capital stock, whether the particularly high rate of technological progress is attributable merely to ‘catching up’ with the West, and the role the government played in achieving high levels of growth.  These are certainly important, but they do not by themselves go to the heart of the issue.

For instance, given that the bottom line of capitalist investment is not the production of goods but the making, and usually maximisation, of profit, we need to ask what particular features of postwar Japan made investment worthwhile from the point of view of capital.  What were the general conditions like in the society?  How did these conditions come about?  Essentially, Ito’s explanation is technical rather than social and thus it abstracts certain ‘inputs’ from the actual society which both made them possible and conditioned them.   His evaluation of these ‘inputs’ is debatable too.  By reducing the concept “labour” to hours worked/employment/education/sex-age composition, he separates it from its role in both the formation of capital and development of technology.  Contrary to Ito, technology is not a given; it is itself a product of human labour.  Similarly, capital does not appear out of thin air; it cannot exist, let alone reproduce, without the existence of labour power.[9]

According to John Dower, the graphic nature of Japan’s defeat in 1945 has obscured the fact that the war was “useful” in creating conditions for the subsequent economic miracle.[10]  He sees the period from the depression until 1945 as constituting a “second industrial revolution” in Japan, with profound changes in the basic structures of capital and labour. Important continuities meant “the postwar state rested on organizational pillars that were firmly planted in the past.”[11]  The origins of key state and private enterprise institutions such as the Ministry of International Trade and Industry (MITI), the Economic Planning Agency (EPA) and the Federation of Japanese Economic Organisations (Keidenran) are to be found in the prewar and war period.  Many major companies – including 10 of the 11 largest auto firms – came out of the war.  Nissan, Toyota and Isuzu, for instance, had prospered as the main producers of military trucks when Ford and GM were excluded from Japan in 1936.

Nomura Securities and Hitachi received their big breaks during the 1930s and early 1940s.  Cameras, binoculars and watches were grounded in wartime technologies.  Dower also links the existing “big six” enterprise groups and their related financial enterprise groups to three old zaibatsu groupings.  The war experience of the 1930s and 1940s centralised and concentrated capital[12] and made industry far more efficient through consolidating and rationalising production.[13]  Between 1930-37 the index for investment goods rose from 100 to 264, while 1937-44 saw huge growth in sectors such as manufacturing (24%), steel (46%), non-ferrous metals (70%) and machinery (252%).  The postwar practice of MITI in targeting specific industries for development and the controls over trade and foreign exchanges, all of which were crucial to the successful industrial policy, also can be traced to special laws during the war mobilisation of the 1930s.

This period also laid the basis for Japan’s unique employment system.  Wages were driven down, consumption limited and labour highly regulated.  When the postwar reconstruction began, cheap and disciplined labour provided a major stimulus to economic take-off.  As Pyle remarks, “In the early postwar decades, Japan’s comparative advantage was in labor-intensive products that were dependent on cheap but high quality labor.”[14]  Itoh notes the “relatively low wages of young workers, irregular employees and many workers in small and medium firms under subcontracting systems.”[15]  The conditions of workers in these small subcontracting firms allowed the major companies to secure the loyalty of their full-time workers through lifetime employment, along with company unionism and the seniority wage system.  Intense competition between firms in the same sector gave workers both ideological and financial reasons to ensure their firm outdid its rivals in productivity.[16]  Small quality circle and zero defect groups added to efficiency.  Where companies faced problems they could partly solve these through cutting back on subcontracting.

Wartime destruction of plant was also not entirely negative: the skills were preserved, and the possibility was there for new, more efficient plant to be built.

The postwar government directly planned the growth of coal, steel and other key industries, froze many consumer prices and adopted expansionary fiscal and monetary policies using the Reconstruction Bank – established in January 1947 – as the main machine for fiscal stimulation.  By selling bonds, mainly to the Bank of Japan, the Reconstruction Bank provided funds to subsidise coal, electric power, iron machinery and other essential industries.  It also loaned money to public corporations, an arrangement the “equivalent to government finance by the printing of money. . .”[17]  The government also organised substantial funds to invest in economic regulation by freezing assets in February 1946 and converting them into bank deposits of which only a fraction could be withdrawn for living expenses.

All of these factors provided ideal domestic circumstances for capital accumulation after the war, but what made it possible to convert the possibility for growth into a reality was the international situation.  From being Japan’s great problem pre-1945, it now became Japan’s great advantage.  Writing in 1975, former vice-minister of MITI and architect of Japan’s industrial policy Amaya Naohiro, summed up the change: “For Japan before the war, the world seemed very small, almost claustrophobic. . .  The great irony  was that through defeat, Japan gained admission to the IMF-Gatt system, which allowed it to export its products every- where in the world. . .  And it could import as much as its money could buy.  Japan saw a world freer than it had ever been since the Meiji period.”[18]

After the war, the United States expected to be supervising Japan for 25 years.  This was changed by the onset of the Cold War, revolution in Asia (especially the loss of China) and the Korean War.  The United States had to reverse course and help build Japan into both a secure aircraft carrier off the coast of Asia and a model of successful capitalist development in a continent beset by underdevelopment and poverty in which socialist revolution appeared to many as the only way to modernise and overcome their problems.  To a large extent the Americans underwrote Japan.  They took on the task of ensuring the country’s defence, provided technology for industrial development, attempted to modernise the political system and, although originally encouraging a free trade union movement as part of political democratisation, soon restricted labour’s capacity to organise and strike.  The US regulated economic policy through the 1949 Dodge Plan, balancing the budget and halting the increase in the monetary base, thus breaking spiralling inflation.  It also set the exchange rate at Y360 per dollar.  When the Korean War broke out in 1950, the US gave Japan huge procurement orders – $590m in 19950-51 and over $800m for both 1952 and 1953.  The equivalent of 60-70% of total Japanese exports at the time, these orders enabled major Japanese industries to double their output.[19]  Japanese premier Yoshida described the orders, as “a gift of the gods”.[20]

Japanese policy, generally known as the Yoshida Doctrine, centred predominantly on economic development.  The doctrine saw such development as closely linked to co-operation with the United States – including providing bases for the US which would guarantee not only American interests in Asia but also Japan’s security – and avoidance of international conflict (which would also ensure the country was not riven by division, for instance, the way the US was by Vietnam).  Japan traded much of its sovereignty for economic success.  The 1951 Security Treaty essentially made the country a military and political satellite of the United States.  Apart from the bases, the US gained the right to veto any other country having a military presence in Japan, intervene in the case of domestic disorder and use its bases against another country without telling Japan.  No time limit was put on the treaty.  Japan also had to recognise the regime in Taiwan as the legitimate government of China and generally toe the US line in international relations.[21]

Expanding world trade, cheap and abundant raw materials and new, efficient (and relatively cheap) Western technology made, as conservative theorist Kosaka Masataka puts it, “The international environment of the 1960s look as though Heaven had created it for Japan’s economic growth.”[22]  Such a climate encouraged high domestic investment – defined by Ito as gross domestic fixed capital formation – which accounted for 30-35 percent of Japan’s GNP through the 1960s  At the same time, high domestic savings rates meant that Japan did not have to borrow abroad.  Meanwhile, as Chalmers Johnson notes, the state continued to play a key role in the market, “creating incentives, supplying capital and information, lowering risks for approved activities, providing protection from foreign competitors, encouraging competition in strategic industries, and facilitating changes of industrial structure in order to keep as many high-value-added jobs in Japan as possible.”[23] These factors, along with the highly favourable fixed exchange rate and constant productivity gains, cheapening the cost of production, increased Japan’s competitiveness abroad.  From 1955-70, labour productivity quadrupled, with real wages increasing by only 2.3%.

In the late 1960s and early 1970s Japan once again made huge profits from an American war, with the US spending more of its Vietnam military budget in Japan than in Vietnam itself.  (That war, we might note, sent the US government deficit spiralling, caused a wave of inflation and other economic and political problems which substantially helped erode American competitiveness.  At the same time, the US opened up its own economy to large-scale Japanese exports.)  Summing up the ‘mercantilist’ role of Japan at the time, Kosaka commented happily: “A trading nation does not go to war.  Neither does it make supreme efforts to bring peace.  It simply takes advantage of international relations created by stronger nations.”[24]

2. FALLING EAGLE, RISING SUN: Japan and the USA in the 1970s and 1980s

In the early 1970s Japanese premier Kakuei Tanaka, in Building a New Japan, called for a re-modelling of the country.  A five-point programme was elaborated involving a new national land programme, urban redevelopment, focal-point development, land utilisation planning, and the securing of the necessary resources for all this, especially through utilising the savings of the entire population but also through making taxation play more than the “complementary role” it had up until then.[25]  Although much of this programme was not realised, focal point development and use of the substantial savings of the population helped ensure continued economic progress.  But again, the international situation provided ideal conditions for expansion.  As the 1970s recession set in, Japanese personal savings provided a strong basis for glo bal expansion by Japanese corporations and banks.

By the late 1970s processing and assembling, using mass production techniques and medium to high technologies, had come to the fore in Japan and its products were becoming increasingly sophisticated.  Low in cost but good in quality, they began to pose an increasing challenge to their US equivalents.  Auto and memory chip production were outstanding examples. Japanese cars made headway in the 1970s, especially at the time of the oil shocks.  Being cheaper and more fuel efficient put them at a distinct advantage.  By the end of the decade they were also highly regarded for their engineering, lack of mechanical problems and overall high quality and were taking 30% of the passenger car market in the US.  In 1980 fifteen profitable American companies produced most of the world’s memory chips.  In 1986 the US trade balance in hi-tech goods such as computers, scientific and communications equipment went negative for the first time and US chip makers lost $800 million.  By 1987 most of the fifteen had vanished; the three remaining were burdened by debt.  At the end of the 1980s most of these chips were being made in Japan, and it also dominated production of the materials from which they were made.  In this situation, where perhaps 40% of the advanced electronics in US weapons systems were coming from Japan, microelectronics became a focus of major debate in the Pentagon and National security Council.  US concern reached furore levels when Fujitsu announced plans to buy the Fairchild Semiconductor Corporation, and the Japanese firm abandoned its intended purchase.[26]

The dollar value of Japanese exports to the US increased from $31.4bn in 1980 to $65.3bn in 1985, while US exports to Japan moved very modestly from $24.5bn to $25.8bn.  Huge annual US deficits opened up, emphasising US economic decline relative to Japan.

Liberalisation of banking and finance in the 1970s and 1980s helped promote rapid growth and Tokyo became a leading financial centre in the world along with London, New York and Frankfurt.  Japan’s finance markets became more integrated into the world system and the country became a net exporter of capital.  In 1985 Japan became the world’s largest creditor nation.  At the same time the United States under Reagan went from the world’s largest creditor nation to its largest debtor nation, with Japan crucial to seeing the United States through recession, financing much of the US deficit through buying up  government bonds.  In California a quarter of all banking assets were owned by Japanese by 1990.[27]  Japan also took advantage of yen appreciation to buy large amounts of US property.

Japan’s economic strength allowed it to expand into Asia and Europe, both as an exporter of capital and goods and as a builder of factories.  By the end of the 1980s Japan provided the largest amount of new investment in what remained of the British manufacturing sector and was using its British car plants and other factories as a road into the EC.  It also played a key role in the reorganisation of third world debt through the Miyazawa plan.  At the same time increased overseas aid put Japan at the top of aid givers in dollar disbursements.  Yusahiro Nakasone (premier 1982-87) sought to bring Japan’s role in international politics more into line with this economic power, but conservative opponents were reluctant to break with the more timid political policies which had proven so successful in the past and his successors were more cautious.  In effect, while Japan was playing an essential international role, not only as the world’s most dynamic economy but also in keeping the world economy afloat, Tokyo not only continued to follow Washington in foreign policy but also acquiesced in bringing in voluntary export restraints and market-opening measures.

US policy officially aimed at encouraging Japan to share more in its own defence and play a greater role in international relations, but there was always an ambivalence about this.  American fears were revealed by some of their less candid officials.  For instance, according to US Under-Secretary of State George Ball in mid-1972, rearming Japan would be dangerous as “you never know when the Japanese will go ape”.[28]  Thirteen years later, Theodore White was warning, “Today the Japanese are on the move again in one of history’s most brilliant commercial offensives, as they go about dismantling American industry.”[29]  For the Americans’ top Marine general in Japan during this period, Major-General Henry C. Stackpole III, “no-one wants a rearmed, resurgent Japan”, and US troops there act as “a cap in the bottle”.  He also claimed the Japanese “have achieved the Greater Asia Co-prosperity Sphere economically, without guns.”[30]

The worry in the West is not just that Japan’s success poses a threat to their own industries and position in the world, but is also racial.  As Robert Gilpin sees it, the West finds “Japanese economic success particularly threatening because it is the first non-Western and non-liberal society to outcompete them.”[31]

But Japan’s success is far from unqualified.  Although, by 1991 its GNP per capita of $27,000 put it at the top of the table of countries with over 10 million people, Sakaiya sees Japan as “a hell for consumers” in which “material affluence is offset by a drab way of life.  The cost of living is high; working hours are long; and though wealth is abundant, most of it is in land, which sells at astronomical prices.”  He also claims that even after the collapse of the ‘bubble economy’ aggregate market value of Japanese land is four times that of all land in the US.[32]  With high consumer prices, per capita consumption is only 63% that of the US.  Regulations on land development put an extra $47,000 on house-building costs whilst sewage and plumbing installation in homes cost eight times as much as in the US.[33]  And, as E.J. Lincoln has noted, industrial and infrastructure investment took place at the expense of sidewalks, streets, sewers, sewers and other social facilities.[34]

A process of diminishing returns has also set in, with Japan, like the US and Britain before it, facing economic problems arising from its own success.  It is also stuck with a political set-up belonging to another era, one whose success makes it reluctant to carry out the reforms necessary to take Japan into a complicated new world situation.  In the next section I shall explore these problems and their ramifications for both Japanese-US relations and for Japan’s place in the world.


3. NEW HEGEMONS FOR OLD?  Japan and the US in the new world order

Becoming a ‘normal’ power

The new Japan “needs a constitution giving it unambiguous sovereignty and legitimizing its armed forces”.[35]  It also has an “ardent desire to be given permanent membership of the UN Security Council.”[36]  This desire does not just reflect a new sense of Japan’s importance, however.  As the old order comes apart, and everyone is forced to jockey for the best possible position in the evolution of the new world order, it is important for Japan to be able to exercise some degree of political power at the global level and prevent others, especially the United States, from being able to set the terms of international relations.

In order to expand its influence and act like a “normal” power, Japan has to overcome its association with wartime atrocities in mainland Asia.  As Charles Smith puts it, “the way that Japan chooses to view its past will be a key factor in determining whether and when the country can begin to play a role in world politics commensurate with its burgeoning economic clout.”[37]

The Japanese elite is divided over tactics on this question.[38]  One section holds a traditionalist view that great powers do not apologise for their actions, while the other section feels that apologising, especially to Asia, for Japan’s record in those years will allow Tokyo to begin with a new slate.

In 1993, shortly after his election, Morihiro Hosokawa became the first leader of postwar Japan to state that the country had committed aggression.  At the August 1994 ceremonies on the 49th anniversary of Japan’s surrender, Premier Tomiichi Murayama offered “heartfelt condolences” and “deep repentance” to Asia.  Yet at the same time, six cabinet ministers attended ceremonies at the Yasukuni Shrine.  A few days earlier another minister had to resign – the second in three months – over comments playing down Japanese war guilt.  One of the resigned ministers, Shin Sakurai, had claimed that Japanese occupation of Asian countries had led to “independence, the popularisation of democracy and increased literacy.”[39]

The battle over textbook history also reflects differing assessments of how to proceed, with Ministry of Education censorship, which from the 1950s to the 1980s prevented school texts covering Japan’s war record in Asia, receiving some setbacks.  The “Nanjing Incident” and other atrocities have finally appeared, although the numbers killed in them is still played down.[40]  While some of the anti-apologist camp are traditionalists such as the Japan Bereaved Families Association, which has two (LDP) representatives in the Upper House who proselytise for the “war party” and encourage politicians to visit the Yasukini Shrine, others simply feel that it is time to adopt a detached, historical perspective on the past and cease being immersed in the mentality of a defeated nation and American client state.  For instance, Takeo Nishioka, then Education Minister, said in March 1989 that since Japan had “improved its national strength and upgraded its position in the international community” it was important to give children “a proper awareness of their own country” by teaching them about “historical facts”.  These “facts” were to be ones which would lead children to “foster a love for their own country.”[41]

While many commentators see a cleansing of the past as essential if Japan is to get support sufficient to become a permanent member of the UN Security Council, some important Japanese figures see it as more of a financial issue.  “We’ll be raising our contribution to the UN budget soon from 12.4 percent to 15 percent – and that should give us a right of entry,” a senior Foreign Ministry official recently told the Far Eastern Economic Review.[42]

The end of the old order hit Japan very suddenly.  The Berlin Wall came down, marking the end of the Cold War; Hirohito died; during the mourning rites for him the Recruit scandal exploded, bringing down the government and ending the LDP’s unchallenged reign of three-and-a-half decades; then the bubble economy burst and a generalised recession set in.  The March 1992 package of emergency measures – cutting interest rates and increasing government expenditure – proved unable to lift the country out of recession.  The Nikkei Index which had already fallen from a 39,000 peak to 23,000 slumped to below 15,000 at the end of July 1992.  On top of this, the United States went to war in the Persian Gulf – as much as anything to assert its leadership of the West and force its rivals in behind – and demanded that Japan, which actually had nothing to gain from the conflict, foot much of the bill.[43]  Japan was also to show its inferior and subordinate position to the United States’ hi-tech war machine by providing some medics and supply ships.[44]  It was a traumatic two years or so.

The Gulf War emphasised the overwhelmingly dominant position of the US in the military field.  Many of Japan’s actions could be interpreted as trying to offset such US power.  This helps explain Japan’s enthusiasm for strengthening international institutions such as the UN and for the establishment of some sort of Asian peacekeeping alliance.  A Japanese place on the Security Council, especially if the Council were enlarged, could act as a brake on US power.  Another way the Japanese have been trying to restrict the US from being able to use its vast military superiority as a powerful political lever in the new world order is through taking the moral high ground.

Thus Japan emphasises its status as a ‘victim’, the only country to have had nuclear weapons used against it, and therefore having a special commitment to international peace and humanitarianism.  Carol Gluck, for instance, has noted that in decreeing a change of name for Japan’s war of 1931-45 from Greater East Asian War to Pacific War, ie the less than four years of war experienced by the United States, The Occupation also created a “tidy moral equation of Pearl Harbour to Hiroshima”.  This “acknowledged the attack at the same time that it gave Japan its bona fides as victim of nuclear war in a new postwar mission of preserving peace.”[45]  Today, Japan’s moral high ground of victimhood is buttressed by its status as the world’s leading aid donor, although several US commentators have suggested that Japanese aid primarily serves its business interests.

At the same time Japan has been developing its own armed forces and now has the fourth or fifth largest military establishment in the world.  Malcolm McIntosh has noted that while building American equipment under licence in Japan has increased per unit costs by 30-50 percent, it also means that the Japanese have been able to improve the reliability and performance of the equipment.  A key factor in the high cost of production is its small scale.  Since Japan is constitutionally forbidden from exporting arms it can only produce small amounts for its own defence (and even this could be seen as in contravention of the Constitution).[46]  It is interesting to note here that the Social Democratic Party convention in September this year adopted a document which, for the first time, accepted the flag  and the legitimacy of the Japanese ‘defence forces’.  This removed the largest single bloc of opposition to Japanese rearmament. In a world marked by trade war and militarisation, Japan cannot afford to remain bound by Cold War limits on its armed forces.[47]  Moreover, arms production could, if the Constitution were to be amended, become a highly profitable source of exports – especially with large-scale production reducing unit costs.  Japan has acquired the American global position system NAVSTAR and is developing military electronics, stealth technology, anti-submarine warfare, over-the-horizon radar technologies and introducing the Aegis and AWAC systems.  While there is some debate about the degree to which Japan remains dependent on US technology transfers, there are certainly important political limits to Japanese military development.[48]

The political logjam

Another project essential to Japan becoming a “normal” power is reform on the political, social and economic fronts.  The Tanaka programme represented the fact that Japan had caught up with the West and needed to alter both its goals and the means for carrying them out.  At the same time it involved some proven elements of success, such as mobilising the population – or certainly their savings – and using the state as a tool of co-ordination.  Tanaka’s programme did not really get carried out however.  The urban problems which he sought to address are probably worse than ever; the financial institutions which were so important to Japan’s development and to its expansion overseas, became bloated to the point of an explosion – the collapse of “the bubble economy” – from which, according to Christopher Wood, Japan will spend much of the 1990s recovering.[49]

A political reform finally got through both houses of the Diet in January 1994, after four previous attempts had stalled.  The reform has undone much of the gerrymandering which had given rural areas a 3:1 voting advantage over urban areas.  However business interests can continue to finance political parties and factions.  The limits of the reform point up the problem how the success of the old order makes the sort of changes now needed very difficult.

Like the Christian Democrats in Italy, the LDP was brought into existence because of the threat of the left in a period of social instability following World War II.  None of the conservative groupings in Italy or Japan were strong enough on their own to form a government, so they were brought together in one large party, with the US playing an important role in this process.  Also like the CDs, the LDP comprised different factions with links with big business, organised crime and conservative farmers.  From the first two groups they received funds for political favours, while the latter gave them a mass rural base and thus a substantial vote.  With the Cold War gone and the communists and socialists embracing the market economy, the underpinnings of the success and endurance of both these parties were gone and they began disintegrating.  In Japan the reformers see the need to break the monopoly of the LDP and to have a political house-cleaning.  However they themselves are hardly new or pure.  “Reformers” Ichiro Ozawa and Tsutomo Hata, of the Japan Renaissance Party, were members of the biggest LDP faction – led by Shin Kanemaru – which was mired in corruption.[50]  Morihiro Hosakawa, who formed the Japan New Party in 1992, is also a veteran of the LDP.  As the Economist has noted, “Japan, riddled with corruption scandals and on its fourth government since the trade talks began last year, seems politically chaotic.”[51]

The end of high-speed growth, the onset of substantial government deficits and the grip of recession mean that the bureaucracy can no longer give something to everyone.  These features, alongside the end of the cold war, have shown up the worn-out nature of the post-1945 political establishment in Japan.  But while the LDP’s fracturing, the rise of new parties and parliamentary crises are, as Karel van Wolferen notes, “symptoms of a disorientation without precedent in postwar Japan”[52], it is proving no easy task to break the logjam created by the domination of old guard bureaucrats and traditional politicians.

Problems of economic reform and recession

Some of the problems reformers face, given the intermeshing of business, state-bureaucratic and political interests, and the way in which this tends to lead towards catastrophe, are evident in the construction sector.  One of the effects of the “bubble economy” was the astronomical increases in property prices, especially in Tokyo.  This impacted on a building industry which had long relied on government contracts, at hugely inflated rates, thanks to the connections between the industry and a layer of LDP politicians and state bureaucrats.  The prices reached levels where eventually people stopped buying and renting and, when the bubble burst, firms were left with huge debt overhangs.  Four years on, the construction industry is still in a state of slump, with orders for commercial buildings having plummeted to almost zero and some parts of Tokyo having 10-20 percent vacancies, compared to a mere one percent five years ago.[53]

This intermeshing of interests takes place right across the board, and is epitomised in amakudari or ‘descent from heaven’, a term which denotes the way in which retiring civil servants move into high posts made available to them in the private sector.  This is not simply a reward for past favours since, as Fumitoshi Takahashi notes, “In a business world where operations depend on securing licences and obeying the regulators, former public officials can serve a company usefully.  Such back-scratching between the public and private sectors is well known to all Japanese.”[54]  A typical example of the way in which the state protects private concerns, says Takahashi is the way state bureaucrats from the Ministry of Finance step in and take over the operation of any bank which is in grave danger of collapse. (Annual reports by the National Personnel Authority, which show amakudari trends, usually feature the Ministry of Finance and the Ministry of Construction as first and second respectively for the number of officials placed in outside jobs.)[55]

Japan’s industrial and technological successes have also carried the seeds of crisis.  Productivity and efficiency gains do not just increase competitiveness; prices are also reduced.  Although the wage bill may decline as less workers are employed, the need to reinvest constantly in new technology in order to remain competitive means that greater and greater amounts are spent on this technology and plant in relation to overall profits.  The rate of profit therefore tends to decline over time, eventually leading to a situation where it is either not possible – or simply not very profitable – to carry out new rounds of investment.  Lay-offs take place and plant is left idle.  This tendency toward falling profitability has been discernible throughout the G7 countries since the 1960s and has been looked into by both OECD economic studies and left-wing economists.[56]  This problem has hit Japan too.  It is observable, for instance, in key industries such as auto production where robots, once hailed as revolutionising production and doing away with human labour, are proving non-cost effective.  In its new $1.4bn factory on Kyushu, Toyota has had to rely less on automatics and robots and give part of this work back to humans.[57]

Japan has still not come out of recession.  Japanese banks, which once helped finance the world economy through recession, now face huge debt overhangs.  1993 saw the first closure of a Japanese car plant since 1945, when Nissan shut down its Zama plant, the Economist noting “as high labour costs and a rising yen make it less profitable to manufacture in Japan, more industrial plant is being left idle.”[58]  Japanese share of the US car market has declined from 29% in 1991 to 25% this year.  Yen appreciation is now making US cars $2000 cheaper; at the luxury end of the market Toyota’s Lexus LS400 sells at $47,000, compared to GM’s Cadillac De Ville’s $36,000.  In 1992 Ford’s Taurus replaced the Honda Accord as the best-selling car in the US.  Although figures for the first quarter of 1994 put the Accord well ahead again, US car manufacturers are far less worried about being displaced than they were in the late 1980s.  In the area of product quality the gap is also closing, while in electric cars the US is ahead.  Given that the auto industry accounts for 60% of Japan’s surplus with the US, this is an important change.  Not surprisingly, Washington has included car parts as part of its trade grievances, wanting actual US manufacturers (rather than Japanese-owned factories in the US or in Japan) to make the parts.

The big consumer electronics firms – Matsushita, Toshiba, Sony – have posted back-to-back current loses and are having to restructure, with Matsushita planning to shed 30% of its workforce over the next three years.  Major electronics retailers have gone bust or seen sharp drops in earnings.[59]  In industry in general, the Industrial Bank of Japan estimates that manufacturers have excess capital stock worth $208bn on their books.  This situation has led to a sell-off of excess plant to countries such as Oman and Uzbekistan.  Meanwhile, a maze of regulations hamstrings not only imports but makes it difficult for important industries such as telecoms to catch up with their US rivals.  In 1985 the giant Nippon Telephone and Telegraph seemed poised to lead Asia’s multimedia industry, for instance, but has been handicapped by regulations.[60]

The 1993-94 fiscal year saw zero GDP growth while industrial output at October 1993 was 10 percent below 1990 levels; the 1994-95 projection is only 1.2 percent growth.  Given the stagnation of the last four years, this is not much of a recovery.  An important factor in stimulating what growth there has been was the February 1994 income tax cuts of around Y6 trillion ($US60 billion).  While imports have grown, the trade surplus has still expanded.  For June 1993-94, it was $US71.8bn, a four percent increase over the previous year, although this is   probably more a reflection of the high yen than general economic vitality.  At the same time, the high yen undercuts the competitiveness of Japanese exports.

The situation almost mid-way into the 1990s is significantly different from that a decade ago.  With Japan “in the grips of a kind of recession that we have never before experienced”,[61] its “global presence is a shadow of its former self.”[62]

The recession points up the fact that Japan’s highly-regulated economy is at the end of the road.  In December 1993, the Hiraiwa Report on restructuring the economy through deregulation and trade liberalisation was released.  It laid down five principles for reform: massive deregulation; formation of a domestic-demand-led economy with intellectual and creative vitality; comprehensive welfare; a free and large market to the world; and reform of the fiscal structure, including activation of financial and capital markets.[63]  Yet the powerful interests which benefited from the old set-up remain a major obstacle to such changes.  On February 15, 1994 the Cabinet adopted a resolution on reform.  It decided that, in principle, economic regulations were to be removed, social regulations were to be kept to a minimum and a five-year deregulation programme would be formulated by the end of March 1995.  New regulations were to be kept to  minimum and reviewed after a set time, a white paper on regulation was to be written (in layman’s language) and a committee was to be set up to monitor the progress of deregulation and reform.[64]

One of the difficulties that the economic reformers face is that the tradition of state regulation is not simply a product of the 1955 political system, but goes back at least to the war period and in many ways to the very origins of industrialisation in the Meiji period.  As advocates of reform such as Yukio Nogichi note, “while the 1955 set up has collapsed, from an economic viewpoint nothing has changed because the 1940 set up continues unaltered.”[65]  Yet deregulation would be an exceedingly painful process.

A report by the Japan Research Institute estimates that the flood of cheap foreign goods into the country would wipe out 4.1 million jobs and cause a Y33 trillion drop in demand.[66]  Although the report also estimates that such deregulation would also create Y45 trillion in demand and generate 5.1 million new jobs, there would presumably be a time-lag between the two periods.  In addition, the experience of sweeping deregulation in other countries – such as Britain and New Zealand – simply does not show such an increase in jobs or even in consumer demand.  In fact, fifteen years after deregulation started in Britain, and a decade on in New Zealand, unemployment in both countries is higher than when the reforms began.  Moreover, the most noticeable result of deregulation in both countries was huge speculative sprees which resulted in widespread collapse: in New Zealand almost half the companies and assets registered on the stock exchange were wiped out in the October 1987 crash.

While the pressure for economic deregulation and lessening the power of the state bureaucracy is growing, the return to government of the LDP and SDP – the two parties with the most to lose in a fundamental shake-up – the process of reform has stalled.

The present US-Japan trade relationship: co-operation or conflict

In the early 1970s, Tanaka wrote, “The world has begun its turn away from the long years of division and confrontation and toward a new era of co-existence and international co-operation.”[67]  Twenty years on, while co-operation is far from dead, it is under severe strain and there is little sign that the strain can be eradicated.  The decay of US economic supremacy and deepening social and political malaise at home undermine American authority on the world stage.  Now the West is without the menace of communism to hold it together, it is dividing into regional trade blocs and even within these national tensions are barely suppressed.[68]

The dilemma is summarised by Saburo Zushi: “Europe’s economies are struggling through a period of zero growth; Japan’s economy has yet to break out of a complex recession; and while the US economy has resumed an expansion, it is unable to pull the rest along with it.”  Moreover while “Policy co-ordination among the leading industrial countries is a prerequisite for ending the global slump. . . the G7 nations seem to have little leeway these days and have begun going their respective ways.”[69]

One major commentator, Lester C. Thurow, says of trade conflict between America, Europe and Japan, the “decisive war of the century has begun.”[70]  This three-cornered fight, he believes, has now replaced the long Cold War between ‘East’ and ‘West’.

Along with car parts, the present trade dispute has involved insurance, window glass, telecoms and medical equipment.  Washington has also attacked the way in which bids for government contracts are presently evaluated and calling for the lowering of the minimum size of contract for which transparent, competitive bidding should be required.[71]  On October 1 Japan and the US announced a new deal which “resolved disputes over window glass, government procurement, insurance and the criteria on which Japan’s progress in opening its markets may be judged”,[72] but the battle over auto parts has just begun.  The United States is now beginning a year-long investigation of Japan’s imports of auto parts and also scrutinising rules which block sales of US information technology.  In this, they are using Section 301 and Super 301, clauses which can be dated back to the 1974 Trade and Tariff Act which was Gatt-consistent.  Changes to that Act in 1984 plus sections 301-310 of the 1988 Omnibus Trade and Competitiveness Act, however, involved imposing timetables and ‘benchmarks’ for certain countries – Japan, India, Brazil – to remove ‘restrictions’ on US trade or face sanctions, an overall policy which Jagdish Bhagwati sees as violating Gatt. [73]

Japan’s Chief Cabinet Secretary has responded that this is “totally inconsistent with. . . free trade” while Minister of International Trade and Industry Ryutaro Hashimoto says they are reserving “all rights to take every measure if the US takes unilateral action against us.”[74]  Given that the Americans are saying there will be no let-up in talks on market access, relations between the two countries are not likely to improve.

Moreover, the American obsession with gaining a guaranteed market in Japan goes beyond economic matters.  (As the Far Eastern Economic Review has noted, even if the US gained a 10 percent share overnight of the Japanese markets affected by the October 1 deal, it would only cut the US deficit by about 1.5 percent.)[75]  Forcing Japan to guarantee a share of its market to US products, as it had to do in the agreement on semiconductors, is a reminder to the Japanese of their subordinate place.  They can be number two in the world, they can finance the US government deficit and US-controlled military adventures such as the Gulf War, but they can never be number one.

According to US Treasury Deputy Secretary Roger C. Altman, “Japan’s import and investment penetration problem reflects a series of longstanding visible and invisible trade barriers that have proved impervious to sectoral negotiations; structural impediment initiatives and investment access agreements.”[76]  Backing this up, he states that Japan’s imports of manufactured goods equal only 3.1 percent of its GNP, compared to an average of 7.4 percent for other Group of Seven countries, while Japan’s incoming foreign direct investment is a mere O.7 percent of GDP, compared to 28.6 percent in the USA and 38.5 percent in Europe.  Yet the relatively low foreign investment figure is basically a reflection of the fact that the USA in the 1980s became the world’s largest debtor nation and would not have had huge amounts of capital to invest in Japan anyway.  This is also partly true of Europe.[77]  Jagdish Bhagwati, among others, disputes the idea that Japan underimports and has a closed market, pointing out that half of Japanese imports are now manufactured goods.[78]  He also argues that Japan’s multilateral surplus “reflects its excess of domestic savings over investment and is generally to be applauded as a contribution to world net savings at a time of huge demand for investible funds. . .”[79]  Trade surplus growth is a reflection of yen appreciation; the real trade flow surplus is falling.[80]  The trade surplus itself is misleading also, since a substantial portion of payments are invisible.  Among these are payments for patents and licences, which favour the US by five to one, and exports to the US by US companies in Japan whose revenues total over 4% of Japanese GNP as compared with the equivalent Japanese companies in the US which account for only 1% of American GNP.  In the mid-1980s, one of the highpoints of US trade deficits, production and sales within Japan by American companies based there outweighed by 7:2 equivalent production and sales in the US by Japanese companies there ($43.9bn to $12.8bn).[81]

While there is a certain belligerence about the Americans’ dealings with Japan in this area, relations remain some distance from a critical point.  Both sides, especially Japan, still stress common interests and the need for compromise and negotiation.  The US certainly wants to see measurable results, and therefore favours quotas, but, Altman says, US decisions “will be taken in a calm deliberate manner”, emphasising, “This is not a trade war, nor will it spin out of control.”[82]  The stress is laid on global convergence, with Japan having to fit in with international accounts and market openness.  In the next century, “economics will be at the center of international affairs, and the US-Japan relationship will play a key role in determining the course of global events.”[83]  In fact, this could be seen as a disingenuous ignoring of how “global convergence” comes about; in the world of Realpolitik it is actually presided over by someone, namely the hegemon, and at present that is still the United States.  A more realistic evaluation of international relations by Gaishi Hiraiwa notes, “the dramatic reduction in external threats has diminished the urgency of political solidarity among the nations of the West.  As a result, national interests in the economic arena are taking on far greater significance, leading to heightened global friction.  Left to itself, this development may not only weaken the framework for bilateral and multilateral political co-operation but could also ultimately undermine the foundations of international organizations.”[84]

Saying that the US wants protectionism – a guarantee of a share of a foreign market, just as import protectionism guarantees a share of your domestic market – Bhagwati argues that US policy “fails to grasp the significant changes that make both the style and the substance of these demands unacceptable to the new Japan.”[85]  In the changing world situation he notes that the Japanese have learnt from the Americans how to put their feet on the table in the classroom instead of simply bowing to authority.  US policy-makers and advisers, “mainly Wall Street luminaries and high-profile lawyer-lobbyists”, plus the “Silicon Valley entrepreneurs” who backed Clinton and whose views he’s adopted, fail to understand, says Bhagwati, the transformation going on in Japan.  While this is probably true, it only explains half the picture.  The other half is that the United States, in the context of the erosion of both its industrial competivity and its political dominance of the world, is forced to continually reassert its interests and try to force challengers to its position to continue to fall  in behind.

Pressurising Japan is not simply a Clintonite policy option: however much they may falsify the actual trade imbalance with Japan, the Clintonites are dealing with real problems – those of US political and economic decline in the world.[86]  This reality adds an element of uncertainty to trade and other conflicts between the two countries; at this point in time nobody may favour a trade or currency war, but the tensions mean that there is a growing danger that things may indeed “spin out of control…”[87]  We might also note a further destabilising element:  the Clinton administration is having a noticeable lack of success on the domestic front – its reforms in the areas of health, gays in the military, and gun control, have all stalled.  At the same time the administration has been hit by financial and sexual scandal.  Unable to solve domestic problems or establish its authority on the home front, the Clinton regime may well be compensating by waving the big stick overseas.  Being bellicose with Japan, invading Somalia and Haiti, or bombing Baghdad, are a lot easier than sorting out economic decline, urban decay and all the other problems which beset the United States.

William Pfaff has noted that “national power rests on a triad: military power; economic power, incorporating technological leadership or competitiveness; and finally social cohesion and public consensus on national goals.”[88]  Like most US commentators he reveals an acute sense of US decline, seeing in Japan’s financing of the  US deficit and in the bilateral trade deficit “a colonial aspect” by which “Japan buys low-value-added food and raw materials from the United States while selling it increasingly high-value-added high technology manufactures.”  This relationship “multiplies Japan’s advantage greatly; hence the United States risks falling further and further behind.”[89]  Japan’s role in financing the US deficit is also seen as being based on self-interest since it “sustains a still-rich market important to them.”[90]

The problem for the United States – which Pfaff like many other American commentators does not really come to grips with – is that, with the postwar boom and the social glue of anti-communism gone, the country lacks social cohesion as well as economic dynamism.  No amount of criticism of Japan can make up for this.  What the United States is still strong in, however – especially its military capability – will be resorted to more and more both to assert US authority and to attempt to bind together American public opinion.  The US is increasingly forced to find – or, usually, invent – new enemies, in particular new threats to world peace.  By portraying countries in this way, the US can continue its Cold War role of world policeman.[91]

In February 1994 Japan said no for the first time to US trade demands. Japan has a trump card in its massive amount of US government bonds, which are dollar-denominated and whose dumping would send the dollar further plummeting and also force up American interest rates.  Japan’s reluctance to give in to US demands could be seen as a sign of strength, and it is true that the possession of huge amounts of dollar-denominated US government bonds is an important weapon.  Large-scale dumping of these bonds could send the dollar plummeting and also hit US interest rates.  However, a downturn in the US economy would inevitably rebound on Japan since its huge assets there would be eroded by further decline of the dollar.  Demand for Japanese goods would decrease.  As the world’s largest economy with huge domestic demand and less dependency on exports than Japan, the US is probably less vulnerable in a trade conflict than Japan.  Hisahiko Okazawi, an ex-ambassador to Thailand has warned that if Japan angers the West retaliatory protectionist measures could cause the collapse of the Japanese economy.  Special care needs to be taken, he argues, to avert the US-Japanese alliance falling apart.

According to Masaaki Sato Japan’s position as hi-tech leader is rather fragile.  Although it can produce goods inexpensively and reliably, “it is less adept at achieving technological breakthroughs.”[92]  Apple and other US manufacturers still hold a decisive lead in developing the underlying operation system for multimedia computers requiring image- and voice-processing devices.  Japanese computer manufacturers trying to compete in the US market, where compatibility is important, have to use US logic chips.  Sony, for instance, is the biggest buyer of chips made by Motorola.  Being unable to compete in some areas, such as DRAMS, American companies focus on logic devices such as central processors which command high prices.  Intel, for example, now have 80% of the world market in CPUs.  In fact, even in DRAMS a US company, Texas Instruments, holds the key patent and Japanese makers have to pay substantial royalties.

The US has a further advantage in that having been through recession in the 1980s and early 1990s, it has already shaken out chunks of old industry, leaving a leaner, more efficient and competitive sector.  According to a new Swiss study, for instance, the United States now has the world’s most competitive economy whilst Japan has slipped back to third place.  With the shaking out process scarcely having begun in Japan, it may be that Tokyo simply cannot give in to US demands without opening a floodgate which would undermine some core economic sectors and bring down the postwar political set-up.  Not surprisingly, there is formidable opposition to US demands from important sections of the government, state bureaucracy and private business.

With its dependence on exports, Japan certainly remains vulnerable to US pressure.  By the end of the 1980s exports accounted for 15% of Japanese GNP.  North America was taking almost one-third of these exports, while Europe and North America combined accounted for almost 55%.  For forty years the United States had “secured for Japan the resources it required and provided access to the foreign markets it needed” and freed it “from the burdens of statecraft”.[93]  The Cold War ensured that the increasingly serious trade and economic conflicts between the US and Japan were contained.  Today, Japan is forced to find the means to secure its own prosperity and to fend off American pressure.  As Friedman and LeBard note, at present Japan is no real match for the United States – militarily and in terms of dependency upon both exports and imported resources – so Tokyo’s task is “to make certain that this is not the case a generation from now.”[94]

An important aspect of lessening dependence on the West is the opening up of new markets – especially in Asia.[95]  Asia is also essential for Japan being able to reduce its production costs through utilising local cheap labour and raw materials.  Not only would Japan have access to cheap labour on the Asian mainland and an expanding market for its goods, but in the case of Siberia it has a potential source of oil and other essential raw materials for which it presently is overwhelmingly dependent on the Persian Gulf and Australia, both of which are closely connected with the US.  In 1988 an Economic Planning Agency study suggested a comprehensive integration of the Asian economy with Japan serving as the directing brain.  The same year the Ministry of Finance set up the Committee for Asia-Pacific Economic Research.  Investment has expanded in India, Malaya, Thailand, Indonesia and other Asian countries.  Aid has also grown; Japanese annual aid to Thailand ($500m) runs at 25 times the rate of US aid.  Hiraiwa sees expansion of Asian imports into Japan and accelerated Asian growth through increased Japanese investment and technology transfer as necessary measures for the health of the Japanese economy.[96]  Von Wolferen sees it leading to the transformation of other Asian countries into subcontracted economies of Japan.[97]  Yet even in the case of Asia there are important Japanese voices stressing partnership with the United States.  Hiraiwa, for instance, believes “The US presence in this global growth center is indispensable for the security of the region and of critical importance to the American economy.”[98]

A half-century ago Japan probably knew it could not win a war with the United States but, in order to ensure its own lifeline of raw materials, had little option but to fight.  Today, Japan has little desire to be forced into a trade war and this explains the enormous emphasis put on co-operation with the US and the need to strengthen international bodies.  As Hiraiwa puts it, “We have to create an international economic community that is truly global and open”, while “Japan and the United States must be linked not by a common threat but by common aspirations and dreams.  Let both of us ask what we can do for the world.  Then, let us join forces and work to reach our goals.”[99]

Hisahiko Okazawi, a former ambassador to Thailand, also recognises Japan’s continuing dependence on the United States, arguing that the country should not anger the West since retaliatory protectionist measures would cause the Japanese economy to collapse.  He urges special care to be taken to prevent the Japanese-US alliance falling apart.  Okazawi sees the new world order as still essentially based upon Pax America since “there is simply no country other than the United States capable of holding the world order together, and anarchy would result if any other country were to try to take charge.”[100]  Yoichi Funabashi, noting the reorganising of world leadership structures, favours closely working with the United Nations.[101]  Makoto Utsumi also argues for a cautious and co-operative approach, noting the G7’s indecision in the face of a “new world disorder” in which “the actors have become unsure of their identities”.[102] 

In this new world disorder, “By some means, Japan must secure for itself the resources necessary for its prosperity as well as access to the markets in which it must sell its exports.”[103]  A newer generation of political leaders, who have seen Japan arrive in the first division and no longer harbour feelings of insecurity or indebtedness in relation to the United States are emerging.[104]  Among economists, Ryutaro Komiya has put the case against the United States, noting that Washington had no problems with trade imbalances when they were in the Americans’ favour.  He argues that US trade policy violates the line consistently pursued by the IMF since World War II, namely that countries with balance of payments problems have been encouraged to improve their own macroeconomics rather than demand that trading partners step up their consumption and lower import barriers.  Calling on it to “undergo a Copernican revolution in how it sees itself and the world”, he says “It must outgrow its geocentric view of the universe, in which other countries seem to exist primarily to serve US interests”.  He argues that the US needs to take some of its own medicine rather than “act with the arrogance of a hegemon”, saying, “Physician, heal thyself”.[105]

In this context, a new politics is emerging in Japan.  Calls for a more open economy come not only from those who continue to see Japan’s future as being subordinate to the United States but also from voices more assertive of Japan’s interests.  This process is still at a relatively early stage and much of the discussion is phrased in very mild terms – certainly far milder than much of the discussion about Japan that goes on in the US.  What is clear is that with the dissolution of the old world order and intense contestation over places in the new pecking order, Japan has little alternative but to, as Bhagwati phrases it, put its feet on the table.  And the US has little alternative but to try to knock them off.

As the new millennium approaches, crises and conflict seem more likely than any brave new age of international co-operation, peace and shared prosperity.  As Friedman and LeBard put it, common interests are disintegrating and all that is being left is “the common conflict between nations. . . falling to the depths of economic frictions and power politics, as in 1914.”[106] The world described by Lenin in Imperialism seems to be returning.

[1]See George Modelski, Exploring Long Cycles, Boulder, Colorado, Lynne Rienner, 1987; William R. Thompson, On Global War: Historical-Structural Approaches to World Politics, Columbia, University of South Carolina Press, 1988; Immanuel Wallerstein, The Modern World System II, New York, Academic Press, 1988 and Paul Kennedy, The Rise and Fall of the Great Powers, New York, Random House, 1988.  A summary of methodologies, including world systems theory, by which US foreign policy can be analysed is contained in Charles Kegley Jr’s “The Long-Term Future of American Foreign Policy: Three Projections”, Jerusalem Journal of International Relations, Vol 12, no 2, 1990.
[2]V.I. Lenin, Imperialism: The Highest Stage of Capitalism, in Lenin Collected Works vol 22, Moscow, Progress Publishers, 1964, pp185-305.
[3]Philip Armstrong, Andrew Glyn, John Harrison, Capitalism Since 1945, London, Basil Blackwell, 1991, p117.  See also appendix, table 1.
[4]See, for example, Francis Fukuyama, The End of History and the Last Man, New York, MacMillan Inc, 1992.
[5]John W. Dower, “The Useful War”, Daedalus, vol 119, no 3, 1990, p52.
[6]Takatoshi Ito, The Japanese Economy, Cambridge (USA) and London, MIT Press, 1992.
[7]ibid, p50.
[9]In other words, capital is not simply a thing but a social relation.
[10]See Dower, op cit, pp49-70.
[11]ibid, p51.
[12]For instance, before 1927 there were 1400 ordinary commercial banks in Japan; in 1931, 683; 1936, 418; 1945, 61.  There has not been much change since.  He also shows how several important postwar financial practices have their origins in the war economy, and how the ratio of direct(equity) to indirect (bank loan) financing of industry changed dramatically from 9:1 in 1931 to 1:9 in 1945, a figure similar to that of the high growth 1960s.  Ibid, pp57-58.
[13]“The common base for most of these ‘second stage’ (heavy and chemical) breakthrough industries was laid in the long period in the 1930s to the early 1940s, when virtually the whole of Japan’s industrial effort (and thus a very large part of its very low national income) was devoted to building up or serving its capacity for war.”  Norman MacRae, Economist, September 8, 1962.  Cited in Masataka Kosaka, “The Showa Era (1926-89)”, Daedalus, Vol 119, no 3, 1990, p42.
[14]Kenneth B. Pyle, The Japanese Question: Power and Purpose in a New Era, AEI Press, 1992, p76.
[15]Makoto Itoh, The World Economic Crisis and Japanese Capitalism, New York, St Martins Press, 1990, p148.
[16]On intense competition and quality circles, see, for instance, Muto Ichiyo, “Class Struggle and Technological Innovation in Japan Since 1945”, Notebooks for Study and Research no 5, Amsterdam, 1987.
[17]Ito, op cit, p58.
[18]Cited in Kosaka, op cit, p43.
[19]Figures cited in Itoh, p142.
[20]Cited in Pyle, op cit, p25.
[21]In the 1960s, Yoshida would express regret over the degree of subservience.  Ibid, p27-28.
[22]Ibid, p44.
[23]Chalmers Johnson, “The People Who Invented the Mechanical Nightingale”, Daedalus vol 119, no 3, Summer 1990.
[24]Cited, ibid, pp36-37.  Japan also benefited on the moral high ground with premier Eisaku Sato being awarded the Nobel Peace Prize, partly for staying out of the Vietnam War.
[25]Kakuei Tanaka, Building a New Japan: a plan for remodelling the Japanese archipelago, Tokyo, Simul Press, 1973.
[26]See Robert Reich, “The Rise of Techno-Nationalism”, Atlantic Monthly, May 1987.
[27]Economist, February 17, 1990.
[28]Ball in the New York Times Magazine, June 25, 1972.  Cited in Pyle, op cit, p11-12.
[29]New York Times Magazine, July 29, 1985.  Cited ibid, p12.
[30]Quoted by Fred Hiatt, Washington Post, March 27, 1990.  Cited ibid, p16.
[31]Robert Gilpin, The Political Economy of International Relations, Princeton, New Jersey, Princeton University Press, 1987, p319.
[32]Taichi Sakaiya, “Lifting the Heavy Hand of Bureaucratic Guidance”, Economic Eye, Vol 14, no 2, Summer 1993, pp29-32.
[33]Far Eastern Economic Review, September 29, 1994, p60.
[34]E.J. Lincoln, “The Showa Experience”, Daedalus, Vol 119, no 3, Summer 1990, p202.
[35]Karel Van Wolferen, “Japan’s Non-Revolution”, Foreign Affairs, vol 72, no 4, September/October 1993, p65.
[36]ibid, p64.
[37]Charles Smith, “War and Remembrance”, Far Eastern Economic Review, August 25, 1994, p22.
[38]According to Ivan Hall, an American professor of Japanese history at Keio University, “the leaders of the establishment of the postwar period do not really represent a change of heart or a real break in motivation and outlook.”  Cited in Frank Furedi, Mythical Past, Elusive Future: History and Society in an Anxious Age, London, Pluto, 1991, p52.  For a Japanese nationalist perspective see Yoshihisa Komori, “The re-writing of war history: a Japanese view”, Independent, February 23, 1989.
[39]Smith, op cit.
[40]The highest Japanese textbook figure for the “Nanjing Incident” is 100,00, about a third the Chinese figure.  In 1982 the Ministry was unsuccessful in trying to get “aggression” replaced by “advance” as the suitable word to describe Japanese military intervention in mainland Asia.
[41]Cited in Furedi, op cit, p30.  What impact this is having on Japanese students is not clear.  A high school teacher, quoted by Smith (op cit) said much of his time was taken up “stopping them from dying their hair orange or smoking in family restaurants.”
[42]Smith, op cit.
[43]Japan, importing 60 percent of its oil from the Hormuz Straits area was not keen on any disruption to the oil flow; it could do business with Saddam Hussein just as well as with the absolutist monarchy in Kuwait.  Moreover, japan could not be expected to be keen about the prospect of the United States being in control of the area and its oil flows.
[44]Originally the Kaifu government had put forward a bill in the Diet proposing that Japan advocate the establishment of a UN Peace Co-operation Corps in which Self-Defence Forces personnel could hold joint status and assist in UN peace-keeping operations not involving force.  The bill was withdrawn after 22 days of heated debate.  Next, a 100-person medical team was promised, but the government could only find 20 volunteers and even these ended up returning home early.  The, civilian aircraft and ships for transporting food, water and medical supplies were promised but never materialised due to widespread opposition, including from the workers needed to service them.  See Pyle, op cit, pp127-129, for an American view critical of Japan’s role in the Gulf War.
[45]Carol Gluck, “The Idea of Showa”, Daedalus, Vol 119, no 3, Summer 1990, p14.  We might add that, in the new world order, Japan is trying to make the most of its victim status, using this as a moral argument to buttress its desire to act as “peace-keeper”.  It is in this role that Japanese troops have served overseas for the first time since 1945, namely as part of the UN forces in Kampuchea.
[46]See Malcolm McIntosh, Japan Rearmed, New York, St Martins Press, 1986.
[47]Charles Smith, “Right Turn: socialists move away from pacifist ideology”, Far Eastern Economic Review, September 14, 1994, p24.
[48]See Andrew K. Hanami, “The Emerging Military-Industrial Relationship in Japan and the US Connection”, Asian Survey, Vol 33, June 1993, for the argument that Japan remains significantly dependent on the US for these transfers.  For alternative views see George Friedman and Meredith LeBard, The Coming War With Japan, New York, St Martins Press, 1991, chaps 12-14; Shintaro Ishihara, The Japan That Can Say No, London, Simon and Schuster, 1991, chap 6.
[49]For an account of the weaknesses of the Japanese banking and finance systems see especially Christopher Wood, The Bubble Economy, London, Sidgwick and Jackson, 1992.
[50]For an account of the splits in the LDP and the backgrounds of key political figures in the realignments see, for example, Ian Buruma, “Japan Against Itself”, New York Review of Books, May 12, 1994, pp18-22.
[51]Economist, August 6, 1994, p25.
[52] Van Wolferen, op cit, p54.
[53]This has an important overall economic effect, as before the crash the industry accounted for 18 percent of GNP and 10 percent of the workforce.  It is estimated that 1996 incomes for leading firms such as Taisei and Kajima will only be 25-33 percent of what they were during their best years.  Not only do they have huge domestic debts, but several billion dollars more went down the drain in overseas ventures.  For a recent account see Henny Sender’s “No Going Back; recovery eludes Japan’s construction sector”, Far Easter Economic Review, September 14, 1994.
[54]Fumitoshi Takahashi, “Overview: Relaxing the Mandarins’ Grip”, Economic Eye, Vol 15, no 3, Autumn 1994, p2.
[56]See for instance, T.P. Hill, Profits and Rates of Return, Paris, OECD, 1979.  Diagrams from Hill (pp128-129) appear in appendix .  For a Marxian account of both the tendency of the rate of profit to fall and the counter-acting tendencies see David Yaffe, “The Marxian Theory of crisis, Capital and the State”, Economy and Society, Vol2, no 2, May 1973, London, Routledge and Kegan Paul, pp186-233.  For a selection of views see Immanuel Wallerstein, Ernest Mandel and Alfred Kleinknecht eds, Long Wave Cycles, New York, St Martins Press, 1992.
[57]See “Toyota sacks some robots”, Bulletin With Newsweek, June 28, 1994, p66.  See Economist, January 22, 1994, p68 for a discussion of some of the problems relating to the role of computers in improving productivity.
[58]Economist, August 6, 1994, p52.
[59]See Tadaishi Saito, “Totally Rewired”, Look Japan, July 1994, pp14-15.
[60]Far Eastern Economic Review, September 29, 1994, p60.
[61]Gaishi Hiraiwa, “Challenges for Japan and the United States”, Economic Eye, Vol 14, no 2, Summer 1993, p5.
[62]Makoto Utsumi, “Policy Co-ordination in an Unsettled Era”, Economic Eye, vol 14, no 2,Summer 1993, p12.
[63]Articles on both the Hiraiwa Group and the report, along with a summary of its recommendations, appear in Economic Eye, Vol 15, no 1, Spring 1994, pp26-32.
[64]See, Toshimasa Tsuruta, “End of the Road for a Regulatory tradition”, Economic Eye, Vol 15, no 3, Autumn 1994, pp16-20.
[65]Yukio Noguchi, “Dismantle the 1940 Setup to restructure the Economy”, Economic Eye, Vol 15, no 3, Autumn 1994, pp25-29.
[66]“Why Japan Must Launch a Deregulation Drive”, an interview with Yoshio Suzuki and Iwao Nakatani, Economic Eye, Vol 15, no 3, Winter 1994, pp20-25.  Nakatani estimates that 10 million jobs would be lost, but 11 million new ones created.
[67]Tanaka, op cit, pii.
[68]Much of the EC, for instance, is less than happy with German power.  Britain, in particular, has a fraught relationship with the EC, especially German predominance within it.
[69]Saburo Zushi, “Japan and World Economy”, Economic Eye, Summer 1993, Vol 14, no 2.  Both quotes p2.
[70]The quote appears on the dust jacket of Lester C. Thurow, Head to Head: the coming battle among Japan, Europe and America, New York, Morrow, 1992.  For a discussion of some of the issues at stake see the debate, “The Fight over Competitiveness”, Foreign Affairs, vol 3, no 4, July/August 1994, pp186-203, and the article which began the debate, Paul Krugman, “Competitiveness: A Dangerous Obsession”, Foreign Affairs, vol 3, no 2, March/April 1994.
[71]Economist, August 6, 1994, p25.
[72]Nigel Holloway and Charles Smith, “To Fight Another Day: US-Japan ties survive yet another trade clash”, Far Eastern Economic Review, October 13, 1994, p18.
[73] For a discussion of the issues at stake see Jagdish Bhagwati and Hugh T. Patrick (eds), Aggressive Unilateralism: America’s 301 Trade Policy and the World trading System, London, Harvester Wheatsheaf, 1991 and Bhagwati, The World Trading System at Risk, Princeton, Princeton University Press, 1991.
[74]Holloway and Smith, op cit, p18.
[75]“Cars Hold the Key”, Far Eastern Economic Review, October 13, 1994, p20.
[76]Roger C. Altman, “Why Pressure Tokyo?”, Foreign Affairs, vol 73, no 3, May/June 1994, p3.
[77] In Britain, for instance, Japan has become the major  source of new investment in industry.
[78]Jagdish Bhagwati, “Samurais no More”, Foreign Affairs, vol 73, no 3, May/June 1994, p11.
[80]Economist, August 6, 1994, p25.
[81]See Kenichi Ohmae, Beyond National Borders: reflections on Japan and the world, Homewood, Illinois, Dow Jones-Irwin, 1987, especially pp26-35.
[82]Altman, op cit, p6.
[84]Hiraiwa, op cit, p4.
[85]Bhagwati, op cit, p8.
[86]Bhagwati does note that the United States is trying to overcome its lack of economic competitiveness in world markets by “flirtation with industrial policy, embrace of demands for managed trade, and (as in the president’s announcement of the Saudi purchase of US aircraft) unabashed use of political muscle. . .”, ibid, p9.
[87]This is emphasised in Friedman and LeBard.  As they put it, “Without the binding element of the Soviet Union, the economic dispute between the United States and Japan will inevitably become political” (p11).  The dissolution of common interests are likely, they argue, to bring conflicts to “the depths of economic friction and power politics, as in 1914.” (p244).
[88]William Pfaff, “Redefining World Power”, Foreign Affairs, Vol 70, no 1, 1991, p36.  Strangely, he goes on to say, “history suggests that democracies do not go to war with one another” (p47).
[89] Ibid, pp37-38.
[90] Ibid, p37.
[91] Who the enemy is can change with alarming rapidity: one day it is a previously US-backed dictator in Panama, the next Qadaffi in Libya, then Saddam Hussein, then Somalia, then North Korea, then Haiti.  “Terrorist States”, or “Weapons States” as they are sometimes called, Islamic fundamentalism and the rump remains of communism (Cuba, North Korea) remain useful to this end.  For a classic piece of American paranoia on the subject, see Charles Krauthammer’s “The Unipolar Moment”, Foreign Affairs, Vol 70, no 1, 1991, pp34-48.  Krauthammer sees the alternative to unipolarity (ie US hegemony) not as multipolarity but “chaos”.  His favoured enemy is the “Terrorist State” of which there is, apparently, quite an abundant supply.
[92]Masaaki Sato, “The Dulling of Japan’s Competitive Edge”, Economic Eye, Vol 14, no 4, Winter 1993, p27.
[93] Friedman and LeBard, op cit, p259-60.
[94]  Ibid, p13.
[95] For an account of Japan’s evolving policy in Asia see, for instance, Sueo Sudo, The Fukuda Doctrine and Asean, Singapore, Institute of South East Asian Studies, 1992.
[96] Hiraiwa, op cit, p6.
[97] Van Wolferen, op cit, p63.
[98] Hiraiwa, op cit, p6
[99] Ibid, p7.
[100] Hisahiko Okazaki, “Security Options for the Coming Age”, Economic Eye, Vol 14, no 2, Summer 1993, p20.
[101] Yoichi Funabashi, “Structural Defects in Tokyo’s Foreign Policy”, Economic Eye, Vol 14, no 2, Summer 1993, pp25-29.
[102] Makoto Utsumi, “Policy Co-ordination in an Unsettled Era”, Economic Eye, vol 14, no 2, Summer 1993.  Quotes from p 12 and p11 respectively.
[103] Friedman and LeBard, op cit, p261.
[104] See Hiroshi Fujita, “Overview: Japan-US Relationship”, Economic Eye, vol 14, no 4, Winter 1993.  Fujita views Hosokawa in this light.  In a more nationalist vein are Shintaro Ishihara and intellectuals such as Ryutaro Komiya.
[105] Ryutaro Komiya, “Wrong prescriptions for unbalanced trade flows”, Economic Eye, vol 14, no 4, Winter 1993.  Komiya is economics professor at Aoyama Gakuin University and a member of the Japan Academy.[105] Friedman and LeBard, op cit, p244.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             TABLES/GRAPHS:

International Trends


2. Tendency of the rate of profit to fall:

Japan 2This appears in James H. Chan-Lee and Helen Sutch, Profits and Rates of Return, Paris, OECD, 1985, p143.  The Chan-Lee & Sutch working paper updates T.P. Hill’s 1978 OECD study, where a table of rates of profit appears on p129.


Japanese statistics

1. Index of real wages in manufacturing, 1934-1955:

1934-36           100

1947                  30

1950                  85

1952                102

1955                115

These figures appear as part of table XXX111, covering 1934-1979 in G.C. Allen, A Short Economic History of Japan, Fourth Edition, London, MacMillan, 1981, p281.


2. Wholesale price index, 1934-1955:

1934-36           100

1947                  48

1950                247

1952                349

1955                343

Taken from Allen, op cit, Table XXX1C, p279.  The book states 1934-36 as “1”, but presumably this is a misprint and it should be 100.


3. Changes in real national income, 1934-1955

1934-36           100

1946                  57

1950                  97

1951                107

1955                142

Taken from ibid, Table XXXV1B, p284.

These tables show that in the postwar era wages lagged well behind price increases and growth in total national income.  They also lagged behind GNP growth.  In other words, the living standards of ordinary workers were driven down substantially in the “total war” period up to 1945, and continued to be held down in the recovery period after the war.  In this, lies an important aspect of the Japanese economic miracle.




6. Comparison of utility prices (from Far Eastern Economic Review, June 2, 1994)


7. Japan’s rate of profit

Japan10Taken from Robert Brenner, The Economics of Global Turbulence, London, Verso, 2006.

japan-rate-of-profitTaken from Michael Roberts, The Next Recession blog (2013)

8. US-Japan trade balance, 1960-1993 (from Far Eastern Economic Review, October 13, 1994)

photoWikipedia notes, “From the mid-1960s, the trade balance has been in Japan’s favor. According to Japanese data, its surplus with the United States grew from US$380 million in 1970 to nearly US$48 billion in 1988, declining to approximately US$38 billion in 1990.  United States data on the trade relationship (which differ slightly because each nation includes transportation costs on the import side but not the export side) also show a rapid deterioration of the imbalance in the 1980s, from a Japanese surplus of US$10 billion in 1980 to one of US$60 billion in 1987, with an improvement to one of US$37.7 billion in 1990.”

9. Japan trade statistics

JapantradeSource: Japan Ministry of Finance: Trade Statistics of Japan


 10. External value of the yen to US dollar:

1949 (Dodge Plan)                                        360

1970 (Smithsonian agreement)                 308

Dec 1975                                                         305

Dec 1980                                                        203

Dec 1985                                                        200.6

Dec 1987                                                        122

Dec 1990                                                       134.4

Dec 1994                                                       111.85

My original figures for 1985-91 came from the Economist Intelligence Unit’s Country Profile Japan reports of 1992-93 and 1993-94, (published London, 1992 and 1993 respectively).  The figures for 1949 and 1970 appear in several books, including Takatoshi.  When getting this ready for Redline, however, I used the Chinese University of Hong Kong’s International Economics here.

* The article above was originally written in late 1994 as a History honours paper

  1. Karim says:

    A very useful analysis and an informative hard work about Japan that I personally knew little about, particularly the question of how Japan emerged as an economic giant after WWII.
    This work deserve to be a journal article in ‘structuralist’ studies.