Criticism of Japan Has Gone Too Far : U.S., Europe Demands Go Beyond Economic Change
As businessmen, trade unions and legislators in the United States and Europe step up their demands for retaliatory action to curb Japan’s mounting trade surplus, there has been a disturbing shift in the pressure being applied on Japan by its trading partners.
The United States and Europe have widened significantly the scope of their demands on the Tokyo government. Letting the yen rise in value, removing barriers to imports and liberalizing financial markets are no longer enough.
What the Reagan Administration and its politically pressed counterparts in Europe want are much more sweeping changes in Japan’s economic, social and even political structure in the supposed interests of balanced economic growth for the industrialized world.
The new demands are wrong-headed and an affront to Japanese sovereignty. Their proponents, as one European economic commentator has put it, are behaving like a class of dunces presuming to lecture their professor.
Economic policy-makers outside Japan have decided that the country’s trade surplus, though partly attributable to an undervalued yen, relatively sluggish domestic growth and a mass of non-tariff barriers that keep out their exports, is also linked to a number of more fundamental characteristics of its economy.
At the heart of the present world imbalance, the argument goes, is the Japanese propensity to save and the U.S. propensity to spend.
That leaves the Japanese with a huge surplus of savings to export and the United States with a parallel need to import those savings to finance both government and consumer borrowing. There is a similar, though much less severe, imbalance between Japan and Europe.
The linkages between trade and capital flows in a country’s overall balance of payments position are complex, and it is frequently impossible to discern which is driving which at any particular time.
But the consensus among economists is that as long as Japanese savings far exceed domestic investment opportunities, there will be a comparable surplus on its current account. Countries such as the United States, which need to import capital to finance government or consumer spending, will face a parallel deficit on the current account.
That conclusion is implicit in the argument by the United States and Europe that the Tokyo government should expand domestic demand by widening its budget deficit. The aim is for Japan’s domestic public sector to absorb more of the savings accumulated by its citizens, thus leaving less capital to export.
But a higher government deficit is just one of a shopping list of measures being urged on the government of Prime Minister Yasuhiro Nakasone by its economic allies.
Japanese workers, he is told, should be encouraged to take much longer holidays. They should consume more, and in particular spend a greater proportion of their income on housing. Tax incentives should be geared to encourage borrowing rather than saving.
Asked to Discard Virtues
In short, Japanese citizens should throw away the virtues of hard work and thrift nurtured by the country’s postwar reconstruction to ease the pressures that they have so irresponsibly created by producing high-quality and competitively priced goods.
At the same time, the government should borrow more while virtually every other industrial country is trying to cut its public-sector deficit.
When was there a better example of the lazy and spendthrift telling the diligent and prudent how they should behave?
One can imagine the outcry if the positions were reversed and Japanese politicians began urging U.S. or European policy-makers to tell their citizens to work harder, save more and put a cap on their credit card spending.
Some of the demands on Tokyo can be justified in isolation. The present tax breaks in Japan on savings, for example, are more suited to a country trying to rebuild itself after the devastation of war than to one of the most powerful economies in the world.
European officials have sought in their own economies to remove the distortions caused by fiscal incentives for borrowers but have been blocked by political interest groups.
Now those same European officials are urging Japan to introduce the same incentives that they seek to eliminate.
Nigel Lawson, Britain’s Chancellor of the Exchequer and one of Japan’s most vocal critics, would, for example, dearly love to abolish tax breaks on mortgages in Britain if he could do so without a political backlash. Yet he would like Japan to introduce tax breaks on mortgages.
Wants New Boundaries
One senior European official at last month’s Tokyo economic summit intimated that the next stage in the campaign could be a demand that the Japanese redraw the constituency boundaries for parliamentary seats to shift political power from the rural to urban areas.
The boundaries were last drawn just after World War II, when the bulk of the population were farmers, and the official suggested that they acted as a serious political barrier to the sort of reforms that Japan’s trading partners were seeking.
Such meddling in Japan’s social and political system is neither desirable nor justified. Its economy is the great success story of the postwar era.
It has achieved rapid growth, a strong rise in living standards and low unemployment. At the same time, it has maintained many of the social values so dismally lacking in the United States and Europe.
Equally important, the world as a whole needs at least one major country prepared to save for the future. Don’t savings mean investment--and investment faster growth?
If the United States and Europe are not prepared to save enough to sustain a decent pace of economic growth, they should thank Japan for doing it for them and for then transferring those savings to its allies.
Consumers meanwhile can continue to reap the benefits of the productivity and inventiveness of Japanese workers.
It is time for the United States and Europe, with their low investment and productivity growth, high unemployment and severe social problems, to stop lecturing Japan and to start emulating it.
