Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
A populist wave is sweeping the Western world. In Austria, Hungary, Italy, Poland, and the United States, populist parties and candidates have entered the government. In France, Germany, Greece, the Netherlands, Sweden, and the United Kingdom, they have won record levels of support and reshaped the political landscape. What makes these victories so disturbing is the characteristic that unites all populists: their rejection of liberal values. If the world once seemed to be moving inexorably toward greater political and economic freedom, human dignity, tolerance, equality, nondiscrimination, open markets, and international cooperation, all are now under threat. That is bad enough, but the decline of liberalism will have consequences beyond a few individual countries. Because the countries that uphold the liberal international order, especially the United States, are turning against liberalism, they risk undermining the order they built, ushering in a more antagonistic and dangerous world.
Politicians and pundits have suggested many different responses to the populist phenomenon: reducing inequality, protecting major industries from international trade, curbing immigration. But these are all indirect solutions. The best way to counter the populist trend is to address the underlying problem head-on, by fostering more liberal attitudes. There is a lot of evidence that the best way to promote liberal values is by giving more people more education. In every place where populism is surging, the main determinant of whether someone holds liberal values is his or her level of education. Higher education emphasizes equality, tolerance, and critical thinking; those without access to it are far more likely to oppose liberal values and practices.
Since the 1990s, American college graduates have held more liberal positions than nongraduates on a wide range of issues. But simply sending more people to college is only the first step. To truly instill liberal values throughout society, universities will also have to live up to those values themselves—rooting out discrimination, overturning traditional academic hierarchies, and breaking up networks of power and patronage that too often keep the connected in and the deserving out.
In the seven decades after World War II, the United States created and then sustained the liberal international order, a system characterized by individual freedom, open markets, and fairly peaceful international relations. It was upheld by an interlocking network of institutions and alliances and undergirded by the United States’ brute military force. All 12 U.S. presidents during this era, from Harry Truman to Barack Obama, supported the order.
The system was built on the principles of economic and political freedom. Secure property rights and unrestricted flows of goods, services, and capital have formed its economic backbone. Its founders wanted to free people from government oppression, coercion, and discrimination. So Western governments have focused on the need to combat human rights abuses and promote democracy. But they have spent far less time worrying about ethnic and religious discrimination, especially in developed countries. That is a mistake. If left to fester, such discrimination poses a serious threat to the liberal international order. It undermines the principle of equality and allows illiberal populists to surf into office, where they weaken democracy and the order itself.
Trump doesn’t just reject liberal values; he rejects the liberal order, too.
No one exemplifies that trend better than U.S. President Donald Trump. Trump’s hostility to liberalism goes way back. Long before he started campaigning, Trump pushed the racist conspiracy theory that Obama was born outside the United States. During his campaign kickoff, in 2015, he called Mexican immigrants “rapists” and promised to build a wall along the United States’ southern border. He later shared inaccurate and racist crime statistics on Twitter and called for a ban on Muslims entering the United States.
Trump doesn’t just reject liberal values; he rejects the liberal order, too. On the campaign trail, he called NATO “obsolete,” suggested he might abandon U.S. allies in East Asia, and threatened to withdraw the United States from the North American Free Trade Agreement, the World Trade Organization, and the Trans-Pacific Partnership. Like his fellow right-wing populists in Europe, Trump looks at the postwar foreign policy consensus with disdain and advocates instead that countries shut their borders to foreign goods, clamp down on press freedom, curb immigration, and preserve traditional ethnic, religious, and gender hierarchies.
Since taking office, Trump has made good on many of his promises. Within his first week, he issued an executive order suspending the entry of people from seven Muslim-majority countries for 90 days. Since then, he has shunned multilateralism by withdrawing the United States from the Trans-Pacific Partnership and the Paris climate agreement, launched a trade war, crippled the World Trade Organization by blocking the appointment of new judges to its Dispute Settlement Body, failed to act after Saudi Arabia murdered the journalist Jamal Khashoggi, and imposed punitive secondary sanctions on European companies doing business with Iran after withdrawing the United States from the Iran nuclear deal. Most worrying for the global economy, the Trump administration has drafted a new trade bill, the United States Fair and Reciprocal Tariff Act, that would allow the president to raise tariffs unilaterally. That would blow up the world trading system by violating two of the World Trade Organization’s basic principles: nondiscrimination (the idea that the same tariffs apply to everyone, unless free-trade agreements supersede them) and tariff binding (the understanding that tariffs will not exceed pre-agreed maximums).
Trump has also followed through on his rejection of liberal values. He has expressed a wish that the United States take in more immigrants from countries such as Norway rather than from Africa; pushed Congress to build a wall on the southern border; failed to distance himself from white nationalist protesters in Charlottesville, Virginia; and instituted, and then reversed, a policy of separating immigrant children from their parents.
In area after area, the United States has started to abandon the liberal values it once touted. If this continues, the liberal international order will face a grim future. Openness to foreign goods and people will be replaced by discriminatory trade and immigration practices. If the Trump administration continues to undermine the global trading system, American workers will be the biggest losers. More expensive imports will hurt household budgets, and as sales fall, companies will lay off workers. Retaliatory tariffs on U.S. goods will hurt exporters, too. If a trade war gets out of control, the dollar could lose its position as the global reserve currency. That would cost the United States the vast benefits in trade, finance, and security it currently derives from its status as the world’s banker. As the U.S. economy suffers, Washington will have to spend a larger share of GDP on the military. And if the Trump administration continues to alienate U.S. allies, they may form rival power blocs to compete with the United States rather than cooperate with it. That would usher in a more unpredictable, treacherous world order.
Making matters worse, other countries are following Trump’s lead in turning their backs on liberalism. They are moving away from an emphasis on identities people can achieve through ingenuity and hard work to ones they can’t or won’t change, such as skin color or religion. The result will be a less meritocratic, more discriminatory world. That will have profound consequences for the liberal international order, because a country that is preoccupied with racial and religious hierarchies is more likely to close its borders to foreign capital, goods, and people and to downplay the role of collective action in achieving national security. Such countries are more likely to think in zero-sum terms.
Trump’s attacks on the liberal order have centered on economic globalization. Because in his campaign, Trump so effectively harnessed the resentment Americans felt toward foreign goods and workers, many commentators have explained his success—and the broader populist phenomenon—as a backlash against globalization. But the populist trend is not easily accounted for by economics. In the United States, the gap between rich and poor has been rising since the 1970s without a populist backlash until now.
Economic dislocation did account for some of Trump’s appeal, but his support can be much better explained by education and race. Nationally, voters without college degrees backed Trump by eight points, while those with degrees voted for his opponent, Hillary Clinton, by nine points. That was a major change from the previous presidential election, when there was little difference between the two groups. Among white voters, the gap was even wider: whites without a college education went for Trump by a 39-point margin; those with a college education voted for him by just a four-point margin.
The populist trend is not easily accounted for by economics.
The only demographic factor that mattered more than education was race. White voters went for Trump by a 20-point margin. Nonwhites went for Clinton by 53 points. Income did not have the same predictive power as education. Lower-income voters (those with annual incomes below $50,000) favored Clinton by a 12-point margin. Middle-income voters (those who earned between $50,000 and $99,999) favored Trump by a three-point margin. And upper-income voters split evenly between the two.
Even in places that were struggling economically, identity often overrode economics. In the Rust Belt, for example, where voters had every reason to revolt over their economic lot, it was white Americans who voted for Trump, not poor Americans. Lower-income voters in the Midwest chose Clinton over Trump by a six-point margin. Middle-income voters and upper-income voters favored Trump by a 12-point margin and an eight-point margin, respectively. Although in recent years, the median income among whites in the Midwest has grown slightly faster than the median income of all other ethnic groups in the region (except Asians), white voters supported Trump over Clinton by an 18-point margin, while nonwhite voters supported Clinton over Trump by a 54-point margin. Midwestern white voters were slightly more likely to support Trump than whites in the country as a whole (by two points), and Midwestern nonwhite voters were slightly more likely to support Clinton than their national counterparts (by one point). Moreover, financial hardship is difficult to disentangle from concerns about identity. A salary cut or a job loss can cause someone to cling more tightly to other forms of social differentiation, such as race or nationality.
Education has proved important in elections outside the United States, as well. In the 2018 Swedish election, for example, 35 percent of voters without a high school degree and 27 percent of those with only a high school degree supported the populist right-wing Sweden Democrats, compared with just nine percent of those with a college degree. The political scientist Anders Sannerstedt has shown that the link between education and populism persists even when income is accounted for. In France, President Emmanuel Macron defeated the far-right candidate Marine Le Pen in 2017 by winning in highly educated districts. He won 84 percent of the vote in the top ten percent of townships by education level. In the bottom decile, he won only 53 percent. After the 2017 Dutch general election, a survey by the Financial Times showed that education levels correlated negatively with support for Geert Wilders’ far-right Party for Freedom. A separate Financial Times survey showed the same was true of support for Brexit in the United Kingdom. A similar trend is emerging in Germany, although education is a less clear predictor of populist support there.
Some academics have argued that the populist wave reflects voters’ concerns about eroding national sovereignty. In Trump’s case, this shows up in his opposition to illegal immigration. In the United Kingdom, supporters of Brexit wanted to “take back control” of their country. But concerns about sovereignty are often really about race or nationality. Just as Europeans’ discontent with the EU often manifests itself in xenophobia—think of the stereotypes of spendthrift Greeks and austere Germans—it is impossible to miss the racial overtones in the U.S. immigration debate. When destitute emigrants from Scandinavian countries moved to the United States in the late nineteenth century, the blue-eyed visitors were largely welcomed. Today, Trump rejects Mexican immigrants as dangerous and sneers at African immigrants from what he reportedly called “shithole countries.”
In short, the best way to understand the rise of right-wing populism is as a rejection of liberal values. And the best way to fight it is not to search for economic answers or to try to assuage voters’ concerns about sovereignty but to instill those liberal values as widely as possible throughout society.
That means focusing on education. Although the educational divide started to matter in national politics only recently, researchers have long found that the more educated a person is, the more likely he or she is to adopt liberal social views.
What accounts for that correlation is less apparent. Some argue that more liberals go to college in the first place, although there isn’t much evidence for that. Others emphasize education’s direct role in teaching rational thinking and changing attitudes. What’s clear is that higher education militates against simplistic thinking, undermines stereotypes, opens people up to other points of view, and encourages them to tolerate social differences.
In the United States, according to polls by the Pew Research Center, a college education increasingly correlates with sympathy for the Democratic Party. According to those polls, in 1994, 39 percent of those with a four-year college degree identified with or leaned toward the Democratic Party, and 54 percent identified with or leaned toward the Republican Party. Today, those figures are reversed. Given the Democratic Party’s growing association with liberal values, the partisan effect of education goes some way toward demonstrating universities’ liberalizing effect.
Attending college does more than increase people’s tendency to affiliate with the Democratic Party. It also makes people more likely to tolerate different political views. College-educated liberals have warmer attitudes toward conservatives than non-college-educated liberals do. The same is true of conservatives’ attitudes toward liberals. More education could possibly ease the current crisis of polarization.
On top of its liberalizing effect, higher education also seems to lead people to support the economic policies, such as free trade and high levels of immigration, that form the foundation of the global economic order. There’s also some evidence of a correlation between higher education and direct support for the liberal international order. In a 2013 survey of nine countries (not including the United States), people with college educations were between 24 percentage points (in Turkey) and ten percentage points (in the United Kingdom) more likely to support the UN than those without college degrees. Regardless of whether overall support was high, as in Germany, or low, as in Pakistan, the educational divide persisted.
It’s possible that’s in part because a college education equips people for jobs that aren’t subject to competition from foreign workers, immigrants, or robots, so college graduates have less reason to oppose international flows of goods and people. But that would not explain why graduates hold more liberal positions in areas unrelated to the financial benefits of the liberal international order, such as freedom of speech, which, according to polling by Gallup, is supported by 73 percent of American college students but only 56 percent of all American adults.
Given education’s liberalizing effect, the first step in promoting liberal values should be expanding access to education. Countries should dedicate more resources to their universities and give more people access to them. The U.S. government spends less than one percent of GDP on higher education, putting the United States 21st on that score within the Organization for Economic Cooperation and Development in 2015. It lagged behind not only European countries, such as Norway (1.7 percent), but also emerging economies, such as Costa Rica (1.6 percent) and Turkey (1.2 percent). The United States makes up for its lack of public spending by having the highest level of private spending on higher education. But it still ranks only fifth in terms of the share of adults with college degrees. (Canada, where in 2017, 57 percent of adults had attended college, ranks first.)
Sending more people to college is important, but the influence of higher education matters beyond the raw number of students. Since elites in almost every section of society have college degrees, universities have an outsize effect on culture, politics, the economy, science, and public policy.
Throughout history, education has promoted liberal attitudes, but it hasn’t done so consistently. Independent thought and deference to authority have always coexisted uneasily in higher learning. From Plato’s philosopher kings, to the emergence of higher education under the influence of Christianity in the eleventh century, to the Enlightenment of the seventeenth and eighteenth centuries, to today, entrenched hierarchies and stale dogmas have always interfered with the search for truth.
To cultivate an enlightened society, higher education needs to get serious about upholding liberal values. Many institutions of higher learning pledge to act as vanguards of liberalism in their mission statements. Beneath the surface, however, they look very different.
For starters, although almost all universities in Canada and the United States commit themselves to nondiscrimination, the academy is rummaging in the dark when it comes to understanding and fighting for it. Explicit racism and religious intolerance are now thankfully rare. But many people with higher levels of education show other racist tendencies, particularly toward blacks, such as making negative assumptions about them, discounting their expertise, excluding them from professional opportunities, and retaliating against them. Even when universities recognize the problem, rigid hierarchies can prevent them from holding people accountable. In some ways, the system is set up for failure. Universities and professional associations rely on fellow academics to adjudicate grievances. But it’s absurd to ask peers who may be seeking a research connection, publishing opportunities, or a job with the alleged perpetrator to determine wrongdoing.
Problems also arise because discrimination is rarely public; rather, it takes place behind the scenes, making it hard to document. Most administrative activities in academic departments, such as assessments of scholarly work and the decisions of hiring and promotion committees, operate under codes of strict confidentiality, further complicating efforts to document bias. If academics truly want to fight discrimination, they shouldn’t look for a smoking gun; they should ask whether a similar person from a different race or religion would have suffered similarly.
Universities are also stiflingly hierarchical. Senior administrators reflexively stand by those below them, so academics who allow discrimination to persist are usually supported all the way up the chain. And they can easily take cover under the principle of academic freedom, which often comes into conflict with that of freedom from discrimination. There’s an easy fix for this: hold senior administrators accountable whenever lower-level officials fail to prevent discrimination.
Finally, universities must put an end to the clubby attitude that excludes far too many people from professional opportunities. Exclusive networks, especially those within predominantly ethnically or religiously homogeneous groups, subvert norms of equal treatment and opportunity. They encourage their members to close ranks when challenged, making it nearly impossible to end discriminatory practices. Even scholars who are not trying to circle the wagons have a hard time imagining someone they know, like, and respect acting in a discriminatory way.
Things are moving in the right direction. Within the American Political Science Association, the leading professional organization of academic political scientists, for example, minority representation is far higher among those under 24 (34 percent) than it is among those over 75 (five percent). But there is still a long way to go. Lack of inclusion is not just a generational problem, and institutions cannot police diversity into existence. Academics, senior administrators, professional associations, and journal editors, however, can all do more to encourage it, by holding minorities to the same standards as everyone else.
By broadening access to higher education and living up to the liberal values in which they claim to believe, universities have a chance to help save those values in society at large. That will play a crucial role in preserving the liberal international order. It’s not enough for citizens and policymakers to defend democracy and economic openness. The order cannot survive in societies that allow discrimination to go unchecked.