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During Asia's economic crisis, U.S. policy toward Japan is based on disdain for its overweening bureaucrats. But Japan is hardly unique. Bureaucracies dominate most countries; it is the United States that is the exception. Such elites can hold power for decades, despite repeated blunders, because even developed countries fear social disintegration without their leadership. In Japan, where society's stability takes precedence over the economy, the bureaucrats' caution, bred by past traumas, is not as foolish as many Westerners think. Defending the bureaucrats is wiser than trashing them.
Doubters dating back to Immanuel Kant have predicted the demise of the nation-state. And globalization has staged an assault on state sovereignty, exploiting its vulnerabilities in financial markets and elsewhere. But the nation-state has shown amazing resilience. It will persist, albeit in a greatly changed form, especially in its control of domestic fiscal and monetary policies, foreign economic polices, international business, and war.
The world economy is changing profoundly due to the enormous growth of services exports, the forging of new kinds of business alliances and the merging of transactions of different types. Effective policies will recognize the deficiencies of both managed trade and outright protectionism. Needed is a deliberate and active policy that gives the demands of the external economy priority over domestic policy demands and problems. Integration is the only basis for an international trade policy that can work and the only way to rapidly revive a domestic economy.
Japan's successful government-guided economic policy is in disarray and unlikely to be revived. In place of consensus policy and administration guidance, individual companies will set their own course and be tougher competitors on the world market.
Japan's low wage and high productivity economy, which has depended on an export boom, is being challenged by other economies, and forced to adopt new strategies. One of these is 'going multi-national'. This is economically right but presents a social and psychological dilemma. It threatens the social harmony represented by life-long employments and circumscribes the ability of the Japanese to control their cultural destiny.
The talk today is of the "changing world economy." I wish to argue that the world economy is not "changing"; it has already changed--in its foundations and in its structure--and in all probability the change is irreversible.
Everyone I met in Japan last fall, during my tenth long trip to that country in 18 years, talked economics and only economics. Even the theoretical mathematician and the elderly abbot of the famous Zen temple were obsessed with the dollar/yen exchange rate, the export surplus, and the cost of petroleum. Japan is indeed undergoing traumatic economic changes. Yet the basic issues facing Japan are not economic. They are changes in social structure and social values.
Four assumptions are commonly made in the discussion of multinationals and the developing countries-by friends and enemies alike of the multinational company. These assumptions largely inform the policies both of the developing countries and of the multinational companies. Yet, all four assumptions are false, which explains in large measure both the acrimony of the debate and the sterility of so many development policies.