The End of Japan, Inc.?

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Japan, Inc. is in disarray. Individual Japanese companies compete just as aggressively as before on the world market. But no distinctive Japanese policy exists any more, least of all in economics. Instead short-term fixes and panicky reactions to the unexpected are the norm. As in the West, these are no substitutes for policy, and they are having little, if any, success. Part of the problem is that none of Japan's available choices looks attractive: none would produce consensus. They would instead divide the nation's major groups--bureaucrats, politicians, business leaders, academia and labor. Japanese newspapers are full of plaints about "weak leadership." But that is only a symptom. The root problem is that the four pillars on which Japanese policy has been based for over thirty years have collapsed or are tottering.

The first pillar of Japanese policy was the belief that Japan was sufficiently important as a bulwark against Soviet communism that the United States would subordinate economic interests to the maintenance of Tokyo's political stability and to the U.S.-Japanese strategic alliance. During the 1970s and 1980s U.S. Ambassador Mike Mansfield repeatedly asserted the priority of the U.S.-Japanese political relationship over all other considerations. The same priorities clearly existed in the Bush administration. The Japanese assumed, correctly, that no matter how loud the American bark, the bite would be only a nip and draw no blood.

Japan must now question this assumption. Will the Clinton administration subordinate U.S. economic interests, real or perceived, to alliance politics? To be sure, America declares itself committed to the defense of Japan, were the country attacked by armed force. However, the Japanese are beginning to realize that the United States will increasingly exact a substantial economic price for this political support--and just at a time when China, Japan's big neighbor, has become the world's one major power that is increasing its military strength. The Europeans, who never subscribed to the Mansfield thesis, are less encumbered. In the next few years, Europe will be deciding not only how many Japanese-made goods to let in, but also whether goods made within Europe by Japanese companies can be sold freely and in large quantities on European markets...