‘Factory to the World’ : Japan: From the Rubble a Renaissance

In the early days of the American occupation that followed V-J Day 40 years ago, Hiroshi Takeuchi remembers, he was “amazed more than anything by the flavor of chocolate, and chewing gum, and beer in cans.”

“The jeeps, too,” he said, “the size of the wheels and the feeling of strength in the steel--all of it gave me a feeling that we were defeated by economic power. At a time when everyone had lost purpose and felt prostrated, the GIs gave us a goal by showing us those jeeps and that chewing gum. It made us feel we must rush to achieve their level.”

Takeuchi, 54, is now research director for the Long Term Credit Bank of Japan Ltd., a firm with $77 billion in assets. The bank is one of the financial institutions that helped raise Japan from the ashes of World War II and turn its economy into a $1.2-trillion powerhouse that produces 10% of all the world’s goods and services in a territory the size of Montana.

Only Three Dumplings

Isamu Miyazaki, 61, recalls hungry classmates at Tokyo University complaining about receiving only three dumplings in their soup, while others at the school’s cafeteria got four dumplings.

“Those classmates are now running Japan’s biggest companies or serving in Parliament,” said Miyazaki, a former vice minister of the Economic Planning Agency, who now heads the Daiwa Securities Economic Research Institute.

Former Prime Minister Takeo Fukuda, 80, recalls struggling in the latter half of 1945 and early 1946 to secure American help to avert what loomed as possible starvation for as many as 30% of the Japanese people. He headed the secretariat of the Finance Ministry at that time.

All three men are counted among America’s strongest supporters in Japan, a country that the United States made the target of the world’s first atomic attack 40 years ago today. Japan now considers its former enemy to be its best friend and the ultimate guarantor of its security.

The breathtaking turnabout from enemy to ally, from weakling to giant, has produced what President Reagan has twice called “the most important bilateral relationship the United States has with any country in the world.”

The nation that accepted Emperor Hirohito’s order of Aug. 15, 1945, to “endure the unendurable and suffer the insufferable” of an American occupation also has become America’s most formidable global economic competitor.

Heading toward its 21st consecutive annual trade surplus with the United States--more than $45 billion this year--Japan now attracts almost as much fury and frustration in Washington for its economic policies as it did in the 1930s and 1940s for its military policies.

Yet, at the same time, the one-time military giant of Asia, with prewar colonies that gave it twice the territory it controls today, continues to cling to its chosen role as a military dwarf.

Defense Costs Debated

Even as Japan this year is expected to accumulate the largest net overseas assets of any advanced nation, controversy rages over whether to allow defense spending to exceed 1% of the gross national product.

Japanese nowadays manage to laugh at the bad old days of the poverty and disillusionment after the war.

At a bar in the Shinbashi section of Tokyo the other night, the proprietress asked her female bartender-entertainers to sing what she called “a happy song.” It was entitled “The Shoeshine Boy Under the Railroad Tracks,” a 1955 tear-jerker describing the grinding poverty that persisted even 10 years after the war. It was only in that year that the gross national product recovered to the level of 1939, the prewar peak year.

As performed in Shinbashi these days, the plaintive cries of the shoeshine boy are exaggerated for humorous effect.

Land Values Inflated

Today, the average Japanese possesses about $160,000 in assets, slightly more than the average American, Takeuchi said. Such possessions, even though padded by inflated land values, make Japanese feel rich, he said.

Although per capita national income ($9,714 in 1983) falls below that in the United States ($13,994 in the same year), many economists, such as Miyazaki, predict that Japan will “definitely” surpass the United States in this category, too, by the turn of the century.

Visitors to Japan often comment on how happy the Japanese people seem to be. And, in reality, never in the nation’s history has there been such a carefree era.

An Asahi newspaper poll taken in June found 77% of the people satisfied with their standards of living and 48% convinced that Japan had caught up with the United States, the country which the Asahi said had been Japan’s postwar benchmark. If those who replied “Caught up in part” are included, the percentage putting Japan and United States on the same level would rise to 81%.

Closed Markets

Fukuda is now worried that Japan has become so competitive that even a complete opening of its market to foreign goods would make no dent at all in Japan’s growing trade surplus with the United States.

Miyazaki, expressing a similar view, said: “Two points make the growth of black ink in Japan’s trade unavoidable. One is the growth of the economy. The other is the continuing progress of Japan’s technology, which produces an import-conserving effect while strengthening the competitiveness of exports.”

Right now, some leaders of the ruling Liberal Democratic Party are talking about imposing a surcharge on Japan’s own exports as a desperation measure to reduce friction with the United States.

Today, Japan’s market is far more open than it was until 1972, when liberalization measures started in earnest. But the challenge to America has not subsided.

Sophisticated Goods

The sophistication of Japanese goods--textiles, steel, cars, computers, semiconductors, robots--has continued to increase inexorably. Only in space and airplane manufacture does the United States still hold a comfortable edge over Japan, and in those areas, too, the Japanese have made clear their intention to join the ranks of industry leaders as soon as they can.

Ironically, the 1973-74 oil crisis, which then-Secretary of State Henry A. Kissinger thought would “finish” Japan, as he later confessed publicly, has made the nation’s industry leaner and meaner than ever.

Before the oil crisis, the non-Communist world was buying about 7% of all its imports from Japan. Today, it relies upon Japan for 9% of its imports. Japan’s share of non-Communist world industrial production also rose from 6.8% before the oil crisis to 12% as a result of energy-saving and production-streamlining efforts by its enterprises, Fukuda pointed out.

Higher Growth Foreseen

Most Japanese economists foresee higher real growth here through the end of the century--between 5% and 6% a year--than in the United States. Even Takeuchi, who rates America’s strengths as far greater than those of Japan, expects Japan to grow at about 4% a year, compared with 3% for the United States, between now and the year 2000.

In many areas, the dimensions of America’s new “Japan problem” are just beginning to make themselves felt on Americans.

In the semiconductor field, for example, Japan surpassed the United States in 1983 in the absolute size of investment in manufacturing facilities, although its economy is only one-third the size of the American economy. Japan is also producing more electrical engineers than the United States, in absolute numbers.

And this country is graduating a greater proportion of its young people from high school than is the United States (90% in Japan to 75% in the United States) and at least as many (24%) from four-year colleges.

By 1990, Japan may be spending as much as the United States in absolute amounts on commercially relevant research and development, Harvard Prof. Ezra F. Vogel said in May, even with a population half the size of that of the United States.

‘Factory to the World’

Now, the nation that already has established firmly its position as “factory to the world” is becoming “banker to the world.”

Last year, $54.4 billion in long-term capital--more than double the 1983 total--flowed out of Japan, much of it into U.S. Treasury bonds. The funds originated from Japan’s growing current accounts surpluses--the combination of trade, service and tourism payments.

As the Industrial Bank of Japan analyzed it in 1983, Japan will accumulate a total of $400 billion in current accounts surpluses in the eight years between 1983 and 1990. That is the same amount accumulated by the nations of the Organization of Petroleum Exporting Countries in the eight years after the first oil crisis.

Surpluses Growing

The experience since 1983 indicates that the bank’s prediction will come true. In 1983 and 1984, Japan registered current accounts surpluses of $20.8 billion and $35 billion and this year is heading toward a surplus of nearly $47 billion. All three surpluses are larger than the Industrial Bank foresaw in 1983.

“Whether we like it or not, we undoubtedly will be forced to develop Tokyo into a major international financial center,” Masataka Okura, president of the Japan Export-Import Bank, said.

Already, according to the authoritative British magazine “Banker,” five of the world’s 10 largest banks, in terms of assets, are now Japanese.

In the magazine’s annual rankings, published July 2, Citicorp of the United States remained No. 1, but both the Daiichi Kangyo Bank and the Fuji Bank surpassed the Bank of America, No. 2 last year, to become the world’s second- and third-largest banks.

Investing in America

Direct Japanese investment in the United States in the fiscal year that ended March 31 reached a cumulative total of $19.9 billion. By comparison, Americans had invested $8 billion in Japan.

Americans still take comfort in the belief that U.S. creativity gives it a strength Japan does not possess. And the opinion is shared by many Japanese.

Banker Takeuchi, for example, said that “among Japanese, there are no idiots; but there are also no geniuses. In the United States, there are some idiots, but there are also extraordinary geniuses.”

Yet, just as the American-invented transistor found its mass-production home in Japan, the American-created video cassette recorder has disappeared from production in the United States. Japanese produce more then 90% of the world’s VCRs.

Technological Turnaround

In 1973, Japan was importing technology worth nine times its technology exports. In 1983, the ratio was down to 2-1 and, in new technology-licensing arrangements carried out during the year, Japan enjoyed a surplus of $135.4 million. Exports of newly licensed technology were running at 1.8 times the imports.

In 1982, Japanese applied for 36,866 patents in foreign countries, while 26,591 foreigners--only 42% of them Americans--applied for patents here.

Of course the United States, through its postwar reforms here, made a major contribution to Japan’s economic renaissance.

Benevolent Occupation

Many Japanese still volunteer comments to Americans that Japan owes its present-day prosperity to the United States and its benevolent occupation.

There was no Marshall Plan for Japan. The only material aid the United States gave was food, which was sold to the Japanese government at reduced rates. The biggest gift, perhaps, was freedom.

Takashi Hosomi, 65, a retired Finance Ministry civil servant who now heads the government’s Overseas Economic Cooperation Fund, cited freedom of speech at the head of his list of improvements that Gen. Douglas MacArthur and his occupation forces brought to Japan.

“Getting rid of the prewar and wartime taboos was a huge accomplishment. It eliminated a great amount of stress,” Hosomi said.

Freedom Welcomed

Former Prime Minister Fukuda said the freedom the Americans brought was “overwhelmingly welcomed” by the masses of the Japanese people.

And that freedom unleashed powerful new economic forces.

If Japan had not gone to war or if it had negotiated an end to the war, thus avoiding an occupation, Takeuchi said, Japan’s economy today might have reached the level of, perhaps, South Korea’s. Japan’s workers, like those in South Korea under authoritarian rule, most likely would still be diligently putting in six-day, 66-hour workweeks, earning low wages, he said.

Japan’s economy grew by only 4% to 5% from the mid-19th Century to the beginning of World War II but exploded into a growth of between 8% and 14%, in real terms, every year from 1959 to 1974, Miyazaki said.

“The postwar democratic reforms released enterprises to utilize their abilities in an unrestricted fashion,” he said.

Cliques Dissolved

Many of the American reforms--the dissolution of the zaibatsu (financial cliques), for example--were at least partially wiped out after the occupation ended. All of the major zaibatsu, such as Mitsubishi, Mitsui and Sumitomo, reamalgamated into “business groups” with interlocking directorates as soon as the Americans left. But today, they are run by employed managers, not by aristocratic families.

The dissolution of the zaibatsu, however, allowed the entry into big business of a host of what, at the war’s end, were mere workshops.

Matsushita, which now enjoys annual sales of nearly $14 billion, was one of them. Last month, it celebrated the production of its 100 millionth television set, more than 10% of all television sets manufactured throughout the world to date.

Other infants--like Honda and Sony--also were nurtured and allowed to flourish.

Land Reform Instituted

MacArthur’s land reform, which gave ownership of farmland to the tillers, not only helped raise agricultural productivity but also gave farmers--whose impoverished prewar ranks had spawned many of the most radical militarists--purchasing power they had never dreamed of. Farmers as consumers became a major prop of the postwar industrial boom.

Tamio Kawakami, 60, head of the international bureau of the often anti-American Socialist Party of Japan, said land reform “changed the course of Japan.”

Farmers were the first Japanese to be able to buy such household appliances as washing machines after the war. They also became a major political prop of the conservatives who have ruled Japan for all but 10 months of the postwar era, Kawakami said.

Occupation orders transforming an elitist educational system into a populist one gave birth to “ekiben universities,” so-called because they became as common as railway stations (eki) selling box lunches (bento). The spurt in the educational level provided the manpower for Japan’s high growth, Takeuchi said.

Dissent From Nissan

Not all Japanese are total admirers of the U.S.-mandated reforms. One strong dissenter is Takashi Ishihara, 73, chairman of Nissan Motor Co.

He said occupation authorities carried out “a kind of revolution,” bringing “socialistic-like things into Japan . . . completely changing the distribution of wealth.” Japanese companies were engulfed “in a sea of red flags” as Communist-led unions sprang up everywhere. Until the 1950-53 Korean War began--and occupation authorities “changed to a normal capitalistic policy--it was a dark period,” Ishihara said.

After the occupation, which ended in 1952, the United States provided much of the technology, management techniques and capital that helped upgrade Japanese industry.

And, until 1966, the United States tolerated without public complaint from a single high official the protectionism that enabled Japanese industries to grow into global giants. Not until two years before Japan surpassed West Germany to achieve the non-Communist world’s second-largest gross national product did then-Commerce Secretary John T. Connor bang the first fist on the closed doors of Japan’s markets.

A Letter From Dulles

Much of the tolerance stemmed from America’s failure to understand Japan. The classic example was a letter that Secretary of State John Foster Dulles sent to Prime Minister Shigeru Yoshida in 1954.

Dulles advised Yoshida that Japan should seek its primary overseas markets in Southeast Asia. “Japan doesn’t make the products Americans want,” Dulles wrote.

Now, as American criticism of Japan’s “closed market” grows louder and louder, more and more Japanese businessmen are speaking out about what they call the “shoddy” workmanship of American goods. And they accuse U.S. businessmen of not making enough effort to penetrate Japan’s market and of not providing adequate service for their products that are sold here.

‘Dogmatic and Unilateral’

Even Miyazaki, the mild-mannered former government economist, complained that Americans are becoming “somewhat dogmatic and unilateral.”

Particularly irritating to Japanese are American charges that Japan is “unfair.”

U.S. Ambassador Mike Mansfield last month urged Americans to remove “the motes from our eyes” and to recognize America’s own shortcomings--in labor productivity and budget deficits and in its efforts to sell to Japan.

The Japanese are harshly criticized in the United States for working the equivalent of 35 more days a year than most Americans, but the universal response here, from people in the street and political leaders alike, remains, “Japanese must work hard to survive because we have no natural resources.”

Continuous Consultations

Except for trade--and somewhat muted American complaints about what is called Japan’s inadequate defense effort--officials of both countries agree that U.S.-Japanese ties today constitute one of the most tightly knit relationships in the world. Consultations and exchanges in virtually every field of human endeavor occur continuously.

Yet the future of the friendship, because of the economic competition, is clouded. Mansfield, in fact, warns that Americans and Japanese must learn to live with virtually eternal economic friction.

“If Japan opened its markets completely, all the way across the board, it would still have a sizable surplus with us. . . , “ he said. “Our two-way trade is just too huge to expect it to go off smoothly. So we’ll have to accustom ourselves, I think, not for just years but for decades to come, to anticipate and expect difficulties between our two countries in the trade area.”

Hosomi was more pessimistic.

“There may be some measures taken against us,” he said. “Although we may be punished, Japanese must understand that the cause (closed sectors of Japan’s market) lies in Japan, and not get emotional or chauvinistic about it.

“Whether that much self-restraint will be possible in Japan will, indeed, be the watershed of the 40 years of the postwar era.”