The Boomerang Effect in U.S.-Japan Relations

Japan is in crisis. Drastic measures are needed to cure the ailing economy. The remedy is U.S.-style capitalism: open markets and a radical downsizing of inefficient corporations.

This is the message President Bill Clinton, coached by Treasury Secretary Robert E. Rubin, preached during his visit to Japan last week. On the eve of his journey, Clinton sent a blistering letter to Japanese Prime Minister Keizo Obuchi demanding faster reform. Even the new Japanese plan to pump-prime the economy with a $197-billion stimulus package hasn’t been enough to satisfy Washington. Instead, the Clinton administration is steadily upping the pressure on Japan to adopt the Anglo-Saxon model of free markets.

But nothing could be more mistaken. Japan is unprepared to overturn its social and economic system at the behest of the United States, nor should it. Far from being in a depression, Japan is experiencing a normal recession. The free-market panacea being marketed by the United States would aggravate Japan’s woes by sending the country into social turmoil. It’s no accident that at last week’s Asia-Pacific Economic Cooperation conference in Malaysia, the members considered denouncing the effects of rampant globalization on the Asian economies and environment. Anti-Americanism and nationalism are on the rise in Asia as a response to American triumphalism.

Nowhere is this more apparent than in Japan. Unlike the United States and Britain, Japan never embraced a free-market economy. Despite its defeat in World War II, it retained its old economic system: massive industrial development directed by government ministries. Instead of the Western approach of focusing on short-term profits, the Japanese government carefully allocated credits to industry. The negative side is apparent today: This interlocking system had no real protections against corruption. Hence: the spate of failed banks that had extended bad credits.

But the positive side was that it created the Japanese miracle. After only a few decades, Japan became an economic powerhouse. Despite Japan’s problems, those benefits are still clear today, and most Japanese believe there is no need to change fundamentally their economic system. Why should they? Shunji Taoka, a prominent commentator, says the notion of a Japanese crisis is overblown: “Japan is the world’s No. 1 status-quo power, enjoying more than $1 trillion in personal savings--over 50% of the global total of savings--and some $700 billion in overseas assets.”

Glen S. Fukushima, president of the American Chamber of Commerce in Tokyo, also says his American counterparts are bent on engaging in triumphalism and ignoring Japan’s real strengths. He notes that Japan enjoys a $130-billion current-account surplus and its manufacturing sector is in excellent shape.

What about the effects of the recession on Japanese society? Crime rates, the unemployment level and the numbers of homeless still remain far below those of the United States and other Western countries. Walking around Tokyo or other cities, it is almost impossible to detect signs of an economic slump, let alone depression. Sure, there are more taxicabs idling in front of the swank Imperial Hotel, teenage prostitution is on the rise and youth crime is increasing. But those indicators of social ferment don’t begin to approach U.S. ones. Overall, Japanese society seems to be bearing up under its economic difficulties quite nicely. The surprising thing is not how difficult it has been for Japan to handle the economy, but how few societal problems have emerged.

But the approach the United States is urging on Japan to pull itself out of recession would lead to a radical upsurge in precisely those problems. The consensus society that exists in Japan would be overturned by adopting the U.S. model. In Japan, the economy functions as a buffer against the kinds of social forces the U.S. takes for granted. The last thing most Japanese want is massive layoffs or large pockets of inner-city poverty.

While the United States has increasingly large gaps between rich and poor, Japan remains an egalitarian society, if an ethnically exclusive one. The highest salary for a Japanese corporate head hovers around $600,000 a year; the kind of sums someone like Disney Chairman Michael D. Eisner can command leave the Japanese stupefied. The neoliberal economics touted by the administration would widen the gap between Japan’s rich and poor, something no government here can afford to contemplate.

In fact, the Clinton administration’s badgering of Japan is boomeranging. The prominent novelist and parliamentarian Shintaro Ishihara has just published a new book declaring that Japan is becoming “America’s financial slave.” Pro-U.S. members of the Japanese Diet, such as Shingo Nishimura, explained to me that U.S. attempts to tell Japan how to run its economy are becoming harder to swallow. They also have noticed that the United States is paying more attention to China than to Japan. Nishimura calls the Clinton administration “a Cabinet of stockbrokers.” As a result, members of the Democratic Party, led by parliamentarian Yukio Hatoyama, are calling for a more independent Japan, one that dispenses with the U.S. military and seeks to decrease its economic dependence on the United States.

This may not be entirely unrealistic. One hope harbored by Japanese politicians is that the European Union’s new single currency will provide an alternative to buying U.S. dollars, which has helped to fund the U.S. national debt. Already, government agencies are studying the prospect of shifting Japanese assets toward Europe.

Obviously, Japan and the United States have too much invested to go down separate paths. But the U.S. attempt to mold Japan into a mirror image of itself says more about American insecurities than Japanese ones. The one thing that could send Japan into crisis would be to follow U.S. injunctions about globalization. Instead of engaging in arrogant American triumphalism, which is stirring up nationalistic sentiments in Japan, Clinton should realize that the U.S. needs Japan as much as Japan needs the U.S.