Profile: Japan's Invisible Leviathan
Article Summary and Author Biography
The West often ascribes mystery and chaos to political and economic power in Japan. Yet Japanese power is actually a carefully structured hierarchy, and the capstone is neither big business nor the Ministry of International Trade and Industry but the little-understood and low-profile Ministry of Finance. The MOF controls Japan's equivalents of the U.S. Federal Reserve, Treasury Department, Internal Revenue Service, and Federal Deposit Insurance Corporation. It is the prime mover behind Japan's savings rate, distribution of overseas aid, and regulation of monopolies. However obscure, it may well be the most powerful bureaucracy in the world.
Eamonn Fingleton is the author of Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000, forthcoming in March from Houghton Mifflin, from which this article is adapted.
THE MINISTRY OF FINANCE
Perceptive Westerners may be forgiven a touch of cognitive dissonance in looking at the Japanese economy. They read daily that Japan has been badly damaged by a terrible economic slump, yet the evidence tells a different story. What are they to make, for instance, of the yen's conspicuous strength? In the last five years, it has risen nearly 40 percent against the U.S. dollar. Meanwhile, Japan's exports have risen 41 percent, giving Japan a current account surplus of $127 billion in 1994. The export surge is even more remarkable because for more than three years the Jeremiahs of the Western press have been predicting disastrous scenarios on the assumption that a high yen would soon price Japanese exports out of world markets. Yet how can a country be an economic has-been if it boasts one of the strongest currencies in the world while it racks up the largest trade surpluses ever recorded?
The truth is that Japan did not collapse in the early 1990s. Far from it. In the five years to the end of 1994, Japan's total output at current exchange rates shot from 55 percent of U.S. GNP to nearly 70 percent. In other words, while the Western press has talked of collapse, Japan has quietly remained on track toward its reputed goal of surpassing the United States to become the world's biggest economy by 2000.
This is not to say everything has gone smoothly in recent years. In particular, Japan's financial markets have had a bumpy ride. After peaking at the end of 1989, the Tokyo stock market plunged 63 percent over the next two and a half years. In any other advanced nation, such a financial crash probably would have triggered massive damage throughout the economy. Not surprisingly, therefore, when the Tokyo market fell, Western economic commentators gloomily described the Japanese economy as "out of control." But the Japanese economy was never out of control. The Japanese economy does not follow Western logic, whatever Western forecasters say, for the simple reason that it is not a Western free-market economy. The Japanese have discovered that basic changes in the way wealth is created in the twentieth century -- specifically the rise of information as a critical factor of production -- require a radically different approach to economic management. Thus they have invented a type of economics that behaves in ways that confound the predictive powers of Western observers.
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