Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
Television viewers in Japan saw an extraordinary news broadcast on the morning of July 2, 1987: nine members of the U.S. Congress were smashing a small Toshiba radio with sledgehammers at a press conference on Capitol Hill. The congressmen were expressing their anger at the Toshiba Machine Company of Japan, which had violated regulations of COCOM, the Coordinating Committee for multilateral export controls, by selling eight computer-guided multiaxis milling machines to the Soviet Union. The equipment permitted the Soviets to mass-produce a more silent propeller for their submarines and thus avoid detection by many of the current U.S. methods. One Pentagon official estimated that it would cost the United States some $30 billion to regain the technological superiority lost in the illegal sale. The sledgehammer scene, which was largely ignored by the American media, was shown over and over again in Japan, to the point where it now lodges uneasily in the collective national consciousness.
The anger of the congressmen was understandable. From the facts then available (and neither the Japanese government nor Toshiba Corporation, parent of the Toshiba Machine Company, has denied them), the security breach was considerable, and possibly irreparable. As seen from Capitol Hill, an ungrateful Japan, still spending only about one percent of its GNP for defense, still protected by American forces and a U.S. defense budget which consumes about six percent of GNP, was aiding a potential adversary for profit.
But the event triggered far more complex emotions on both sides, and reflected growing mutual frustrations. For many American leaders, Japan was already guilty of running up a huge trade surplus through questionable tactics while keeping its own market largely closed to American products. Spectacular advances by Japanese engineers in a variety of high technology fields raised the specter of losses in one after another American industry, following the fate of such industries as steel, television, automobiles, machine tools and, most recently, certain kinds of semiconductors.
On the other hand, Japanese reactions included a mixture of shock, anger and embarrassment. A number of industry leaders expressed the view that the entire Japanese nation should not be held responsible for the sins of one private corporation. They noted that no Norwegian products had been smashed, even though a Norwegian state-controlled enterprise, Kongsberg Vaapenfabrikk, had been judged equally guilty of violating the COCOM regulations. (In October 1987 the Norwegian government disclosed that Kongsberg had shipped more than 140 banned computers to the Soviet Union and had cooperated with companies based in France, Italy and West Germany to ship other high-tech equipment to the Russians during the past ten years. Still no Norwegian products were smashed on Capitol Hill.) Many Japanese believed the Americans were venting their frustration over their own inability to restore competitiveness and balance the federal budget. A variety of Japanese viewers found the televised spectacle to be unworthy of elected officials, and some suspected a U.S. conspiracy to hold back Japan’s progress in high technology.
As if to fulfill Japan’s suspicions, and vent its own wrath, the Senate approved by an overwhelming majority in late June a provision in the omnibus trade bill demanding compensation and banning Toshiba imports for two to five years. This action triggered an immediate reaction from American distributors of Toshiba products as well as a number of leading U.S. corporations, who argued that the ban could cause grave economic damage to the dozens of American companies which depend on Toshiba parts. It seemed clear by late autumn that the ban would be significantly watered down or removed altogether before the trade bill became law. But the emotions rubbed raw by the episode lingered on. Dealing with this crisis of confidence will be an immense challenge for Japan’s newly chosen prime minister, Noboru Takeshita.
There is a volatility and an emotional quality to Japanese-American relations that is unique. At the turn of the century the Japanese were viewed sentimentally as America’s favored protégés, a diligent, clean but backward island people who eagerly sought our scientific, technical and even moral insights. But almost overnight, after Japan sank the Russian fleet in 1905, it came to be regarded as part of the "yellow peril"—a threat to our new empire in the Pacific, a scheming predator with designs even on Mexico. In 1906 the San Francisco Board of Education excluded Japanese children from its regular schools, and Congress soon passed laws (aimed especially at Japanese) barring Orientals from immigrating to the United States. Racial hatred was never far from the surface along the long, dreary road to Pearl Harbor. It exploded with a vengeance in World War II.
From the postwar period to the early 1970s, Japanese were content once again to accept vast amounts of American culture, democracy and economic tutelage. Americans were pleased to view Japan once again as an eager, docile and nonthreatening ally in the Pacific.
Since the 1970s we have seen a gradual decline of trust, at least at the government level. As Japanese exports have poured into American markets, Japanese corporations have been accused of conducting "adversarial trade," targeting one American industry after another for destruction. For their part Japanese leaders have become privately critical of American weaknesses. The extraordinary friendship between President Ronald Reagan and Prime Minister Yasuhiro Nakasone tended to obscure the strong undercurrents of hostility within the higher levels of government and the private sectors on both sides.
Despite the hostility at this leadership level, at the grass roots Japanese and Americans continue to be fascinated with each other. As emotions have waxed and waned over the years, neither trade wars nor a shooting war have dampened the mutual enthusiasm for learning from each other at the grass roots. Japanese admire American creativity, optimism, openness, egalitarianism, self-confidence and enthusiasm for free enterprise. Americans are impressed with Japan’s sense of history, aesthetics, reserve and, most recently, its managerial, scientific and technological genius, and its growing wealth.
There is, however, a continuing penchant among leaders on both sides of the Pacific to misunderstand and usually to underestimate each other. Woodrow Wilson dismissed Japanese requests for a racial equality clause in the Covenant of the League of Nations, though he had studied at Johns Hopkins University with Inazo Nitobe, Japan’s great internationalist who later served as deputy secretary of the League of Nations from 1919 to 1926. Franklin D. Roosevelt turned down Prime Minister Fumimaro Konoye’s request for a meeting on the eve of World War II on the advice of the U.S. ambassador, Joseph Grew, who spent ten years in Tokyo without bothering to learn the Japanese language or to cultivate Japan’s real leaders.
Japan’s military leaders attacked Pearl Harbor in the conviction that Americans were too weak and preoccupied in Europe to fight back. Then in 1954 John Foster Dulles told a congressional committee that Japan lacked the skills to export much of anything to the United States, but might find a few markets in Southeast Asia. As for Japan, although Prime Minister Nakasone stood as an exception, most Japanese postwar government and business leaders have preferred to entrust direct contacts with American counterparts to a trained corps of "barbarian handlers."
In sum, only a tiny and fragile network of personal friendships cushions the shock of conflicting interests in the manner, for instance, that enables British and American leaders to settle their differences.
In 1987 one could observe this legacy at work. Japan, having risen from protected protégé to leading creditor nation of the world, challenged America’s lead in technology and supplied an eager U.S. market with high-quality manufactured goods. The Japanese government announced a breathtaking trade surplus of $101 billion for the fiscal year ending March 31, 1987. Meanwhile, the American trade deficit climbed to an unprecedented $167 billion, of which nearly $58 billion was with Japan.
The U.S. Congress made trade legislation its highest priority and aimed several protectionist measures squarely at Japan. The 2,000-plus pages of the trade bill contained an enormous variety of measures aimed at protecting the domestic market and forcing open markets abroad. Some provisions sought to limit investment by other nations whose own economies were closed to U.S. investment. Reciprocity and "a level playing field" were the central themes. Congressman Richard Gephardt (D-Mo.) anchored his presidential ambitions to an amendment aimed at forcing down Japan’s trade surplus and limiting presidential discretion to negotiate. An appreciation of the yen versus the dollar by more than 60 percent since the September 1985 Plaza Agreement on monetary exchange rates had failed to stem the rising tide of Japanese exports.
In March of this year Fujitsu Ltd. was discouraged from acquiring the Fairchild Semiconductor Corporation on competitive and national security grounds, although Fairchild was already in the hands of the French-owned company Schlumberger Ltd. In April President Reagan ordered the first trade sanctions against Japan since World War II—a 100-percent tariff against some $300 million worth of Japanese exports containing chips—in retaliation for Japan’s alleged violation of a 1986 semiconductor agreement.
Even before the revelation of Toshiba Machine Company’s illicit sales to the Soviet Union, the media on both sides became strident, even belligerent. Japanese charged that the American budget deficit lay at the heart of the problem. Why couldn’t the president and Congress balance the budget and restore American industrial competitiveness instead of making scapegoats of the Japanese? The American media, while generally opposing protectionism, carried charges by U.S. business and government leaders that the Japanese were engaging in unfair trade practices, targeting U.S. industries for annihilation, dumping products in an open American market and closing the Japanese market to outsiders through a variety of non-tariff barriers. "Japan-bashing" took on a new kind of respectability.
Two widely quoted articles captured the essence of American grievances. The late Theodore White, in an emotional New York Times Magazine article in July 1985, argued that a relentless Japanese economic juggernaut aimed at deindustrializing America was seeking to win the "War of the Pacific" through unfair economic tactics, having lost the opening battle of conventional military forces.
More recently, Karel G. van Wolferen, a Dutch journalist, contended in an article in Foreign Affairs that the Japanese do not accept free enterprise and free trade as it is understood in the West, that the Japanese business-government alliance is out to "systematically undermine Western industries" through "adversarial trade," and that there is no political or decision-making center in Tokyo capable of shifting gears.
Media criticism led to shifts in public opinion polls. A New York Times/CBS-Tokyo Broadcasting System survey taken in May 1987 showed that 55 percent of those Japanese polled viewed Japan-U.S. relations as "unfriendly," up dramatically from less than one third who held that view a year earlier. And a Washington Post/ABC poll taken the same month showed that 63 percent of Americans supported higher trade barriers, as against 49 percent in 1985. (Still, 77 percent of Americans viewed relations with Japan as "friendly.") Finally, and astoundingly, an Asahi Shimbun poll of April 1987 showed that the People’s Republic of China was now the favorite foreign nation of the Japanese people, bumping the United States into second place for the first time since the Vietnam War days. Ironically, this fondness did not seem reciprocal; Chinese criticisms of Japan increased sharply in 1987.
What was new in all this was the suspicion both in Washington and Tokyo that the other nation was pursuing divergent goals for the first time since World War II. High-level officials in Washington have come to wonder whether Japan would again become a military rival in the Pacific. Officials in Tokyo worried that the West was once again ganging up on Japan—a worry that goes back at least as far as the Triple Intervention of 1897, when France, Russia and Germany pressured Japan into giving up a piece of Chinese territory it had won in the Sino-Japanese War of 1894-95.
Underlying the harsh rhetoric of the trade dispute is the often forgotten reality that the two nations are more tightly intertwined economically and militarily than ever before.
Export industries have led Japan’s economic growth in the past decade. Japan depends on the American market to absorb nearly 40 percent of its exports, and this dependence will not change soon. Conversely, during the past five years of massive U.S. budget deficits, the flow of Japanese capital into U.S. Treasury bonds and corporate securities has kept U.S. interest rates low and sustained an economic recovery. The cumulative impact of Japanese investment in the United States has given Japan a huge stake in sustaining the value of its dollar investments and avoiding a serious U.S. recession that would decrease that value. In short, the Japanese need a healthy American economy as much as Americans do, and most Japanese government and industry leaders are quick to recognize this fact both publicly and privately.
A commission chaired by the former governor of the Bank of Japan, Haruo Maekawa, offered a blueprint for structural reform of the Japanese economy that recognized this growing interdependence. The Maekawa report, issued in April 1986 and elaborated upon in April 1987, called for an urgent effort to stimulate domestic demand, reduce dependence on exports, cope with outrageously high land prices, improve housing, shorten working hours, spur competition in the distribution of rice, and lower trade barriers to other agricultural products—all within two to three years. The report recommended that taxes be reduced, imports of manufactured goods increased, foreign investment in Japan encouraged, remaining trade barriers reduced, and domestic capital markets liberalized. The government of Japan was urged to play a greater role in resolving the Third World debt crisis, furnish more overseas development assistance and increase imports from the less developed countries.
While skeptics inside and outside Japan tended to dismiss the Maekawa report as more of the same old empty promises, the truth was that important elements of Japan’s ruling elite had recognized that Japan’s mercantilist policies could not continue without disrupting the entire system of free trade on which Japan’s prosperity depends. Whether these elements would ultimately prevail hung in the balance in the autumn of 1987. Clearly Japan has entered a great national debate. So far, at least, a general consensus is moving toward acceptance of the Maekawa recommendations. The greatest danger is that a new surge of nationalism, stimulated by Japan-bashing from abroad, could block the forces of healthy change.
Opening Japan’s markets will cause more than the usual amount of pain. The obvious place to begin is in the agricultural sector. Japan has protected its inefficient farmers to the point where Japanese consumers must pay five or six times the world price for rice and three or four times the American price for beef. The system perpetuates itself, first, because successive Liberal Democratic Party (LDP) governments have relied on the farm vote and still do—although to a lesser extent now than in earlier years. Second, Japanese have revered for centuries the ideal of farming and the culture of rice. Even today most urban Japanese maintain close ties with relatives in some remote rural area, and many formal ceremonies involve rice wine (sake), rice paper, rice straw or baskets. Finally, the outside world has always seemed alien, hostile or even threatening, which has created an age-old disposition among Japanese to avoid dependence on any foreign power for such basics as food.
A number of leading opinion-makers in Japan, such as commentator and author Kenichi Omae, have recently come forward with land reform plans aimed at turning rice paddies into housing developments. Farmers would lose their low-property-tax status and would be forced from the cultivation of fields in the urban and suburban areas. Land prices, which have skyrocketed in the past several years, would ease downward. Credit would flow to home-builders and buyers, who would quickly seize the chance to escape from their cramped apartments. The resulting boom in construction, home appliance sales, suburban infrastructure and leisure activities could fuel a new era of growth that would be less dependent on exports and might even increase imports.
All of this will probably come to pass, but the process will be slow and painful, and the results will not greatly ameliorate U.S.-Japan trade relations within the next five years, when the danger of combustion is the greatest. In any event, it is certain that Japan will never entirely abandon its farming. Imports of California rice will be grudging and incremental.
Despite trade frictions the U.S.-Japan military relationship is working better than at any time since the revised Treaty of Mutual Cooperation and Security took effect in 1960. Japan still views the Soviet threat more calmly than the United States, but it has taken substantial steps to build up its defensive capabilities and to integrate its forces with those of the United States.
There are still critics in Congress and the Pentagon who argue that Japan is not doing its fair share. The Nakasone cabinet breached the self-imposed one-percent-of-GNP limit on defense spending set ten years earlier by another conservative cabinet (but not by much; in the current budget year defense spending will amount to 1.004 percent of GNP). This will presumably remove some of the political and psychological restraints against even greater defense spending. But Japanese leaders were shocked by harsh criticism from China over this step, and they continue to face strong domestic opposition to a more rapid military buildup. Thus it seems clear that American advocates of faster Japanese rearmament will be disappointed for some years to come.
An astonishing episode, however, may give these same critics second thoughts about the wisdom of pushing the Japanese defense capabilities. Having urged the Japanese since 1953 to ignore Article IX of their own constitution, which prohibits the maintenance of offensive war-waging potential, the Pentagon was greatly disturbed to learn that the Japanese in early 1987 were considering a plan to design and build their own jet fighter, the FSX, for the 1990s. This sent shockwaves through the American aerospace industry, which correctly viewed the plan as an effort by Japan to build up a more competitive aircraft industry. It also signaled the coming of age of a significant new military-industrial complex in Japan that would exert a great deal of clout over domestic and foreign policy in the years ahead.
From the time of Secretary of Defense Caspar Weinberger’s visit to Tokyo in June 1987 until last October, the issue was argued behind the scenes among Japanese politicians and business leaders. None of them doubted Japan’s ability to make a better fighter plane than any that could be produced in American industry, though the unit cost might be higher. All of them agreed on the economic and political benefits of developing Japan’s independent aerospace industry. And most of them viewed the issue as one of national pride: Japan should move forward in every area of high technology, regardless of American displeasure. Weren’t the Americans again trying to hold down Japanese technological progress on all fronts?
It took the Toshiba incident and the pending American trade legislation to induce Prime Minister Nakasone and Defense Agency Minister Yuko Kurihara to stand up to the forces of "techno-nationalism" in Tokyo. After much agonizing and quiet pressure from Washington, Minister Kurihara announced on October 2, 1987, that Japan would use either the General Dynamics Corporation’s F-16 or the McDonnell Douglas Corporation’s F-15 as the basic model, with some modifications, for 100 aircraft to be used in the 1990s. While the plane will be built largely in Japan, the licensing agreement will ensure that at least $1 billion and several thousand jobs come to the United States. Later in October Japan appeared to have chosen to produce 130 F-16 aircraft under license from General Dynamics.
It was significant that Senator John Danforth (R-Mo.), a leading advocate of tougher trade measures against Japan, also hails from the state which is home to both McDonnell Douglas and General Dynamics. The Japanese understood, correctly, that a decision to go it alone would have produced a firestorm on Capitol Hill. They would have been charged with exacerbating the U.S. trade deficit. The political and military alliance would have become hopelessly entangled with economic questions. The forces for Japan-bashing would have been strengthened, and the Toshiba sanctions would almost certainly have become law.
The whole Toshiba-FSX affair may in the end produce two perversely beneficial results. First, to ward off further sanctions against Toshiba, Defense Minister Kurihara also announced on October 2 a new research program intended to improve both nations’ ability to detect submarines, as well as a Defense Agency plan to take other long-overdue steps to build up its antisubmarine warfare capabilities. Second, the episode may bring new caution to those who have been pushing Japan to do more rearming. It should now be clear to them that there are forces in Japan ready and willing to go much farther and faster down the road to an independent military force—with or without U.S. approval. Prime Minister Takeshita could be more responsive to their pressure.
With its massive economic strength, Japan should most certainly do more to defend the security arrangements from which it has benefited. By every lesson of history and common sense, however, its contribution should come in the form of development assistance to nations of critical importance in the strategic balance. The good news is that Japan has been moving steadily in this direction. The bad news is that the movement has always been too little and too late, and always in response to American pressure.
It is still true, nevertheless, that the U.S.-Japan security treaty is working better today than ever before. As further evidence of the growing military interdependence of the two nations, the Pentagon has requested, and since 1985 Japan has agreed to transfer, certain dual-use technologies—the first such transfer of Asian military technology to a Western power in recent memory. We can expect that Japan will develop new technologies which will be of interest to the United States, including those flowing from its participation in the Strategic Defense Initiative. Mr. Nakasone considerably broadened the interpretation of Article IX when he declared in September in the Diet that Japanese minesweepers could legally operate in the Persian Gulf.
Despite these objective conditions—or perhaps to some extent because neither side can see a happy way out of depending on the other—the American-Japanese dialogue has become increasingly acrimonious. For Japanese leaders, America has become a clumsy ally—almost an embarrassment. The president and Congress seem unable to balance the budget. This, plus a general loss of competitiveness, has led to the huge American trade deficits and the dramatic stock market declines of October. American politicians once again became mired in a Watergate-like scandal in the Iran-contra affair. One after another candidate on the Democratic side is wounded or eliminated by affairs that seem inscrutable. Meanwhile, Japan serves as scapegoat. "What is wrong with making good products?" an official protested privately last summer. "Nobody is forcing the American people to buy our goods."
As Japan’s prosperity grows, albeit at a pace slower than in the 1970s, as its cities and rural areas flourish, Japanese leaders who visit the United States see its urban squalor, bankrupt farmers, shoddy transportation systems and its widespread problems of crime, drugs and racial animosity, and tend to believe that the United States is finished as a great power. Prime Minister Nakasone’s remark of September 1986, that America’s racial minorities tend to keep its educational level low, reflected a widely held but normally unstated view among Japanese leaders.
Japanese leaders look over their shoulders and see South Korea and other newly industrialized countries challenging them and forcing them into higher value-added advanced technology industries. For centuries Japanese leaders have felt vulnerable to external shocks, from tsunami and earthquakes to Commodore Matthew Perry’s Black Ships and atomic weapons. They have devised various ways of coping with insecurity, including playing on their isolation and insularity and exalting the superiority of certain national characteristics.
As recently as in the 1930s and during World War II the Japanese people were told they were a divine race, descended from the Sun Goddess, possessed of a unique purity and virtue. It should not be forgotten that all of Japan’s leaders who are over 55 today were formally educated to accept this myth, though most educated Japanese did not.
The national virtue currently being exalted is Japan’s genius for high technology and its progress toward a new utopia—an Information Society. Japan will make its mark, assure itself of security and prosperity, and give vent to its special kind of nationalism by being first on the frontiers of science and technology. Yet everywhere they look, long shadows play upon the success of the Japanese. Protectionism threatens to close markets abroad. Warfare in the Persian Gulf threatens their oil supply, on which all else depends. And at home demands are growing that Japan’s newly acquired wealth should be more widely shared among ordinary citizens. Former U.S. Ambassador to Japan Edwin O. Reischauer believes Japan has fostered "unhealthy economic growth." "Among the developed countries," he wrote to me recently, "Japan stands out as the worst example of poor housing, poor public facilities such as sewage disposal, hospitals, school buildings, parks, roads and space for amusements." Japan’s leaders are coming belatedly to the realization that wrenching change lies ahead. A great national debate is raging beneath the surface, not about whether change will come, but rather about how and when it will come and how it will be managed.
Japanese opinion leaders and decision-makers are tending in this debate toward the old error of underestimating American vitality and resilience. If dependence on America hurts their national pride, they are also frustrated by the lack of attractive alternatives. To abandon the security treaty with the United States would require unacceptably high defense costs—and a crippling domestic struggle over whether to possess nuclear weapons. It might also result in a loss of U.S. market share and severe restrictions on future direct and indirect investments in the United States. There is a Soviet card to play, but Japanese leaders long ago weighed the advantages of joining in the development of Siberia, with its possibilities for investment, exports, access to raw materials and profits from joint enterprises, and concluded that partnership with the United States was safer, more profitable and more congenial in general than dealing with the Soviets, who have ever appeared threatening and untrustworthy.
The resulting paralysis will not come from any lack of central organs of government which can recognize what is good for Japan and bear ultimate responsibility for national decision-making, as Mr. van Wolferen suggested in his Foreign Affairs article. On the contrary, since World War II the Japanese have demonstrated in crises an extraordinary capacity to set a national course based on achievable goals and take whatever action was required to follow it. Their decision to shift abruptly from encouraging population growth before the end of World War II to discouraging such growth at the end of the war was taken at the highest levels of government and propagated efficiently, resulting in an almost immediate decline in the birthrate.
Similarly, as shown in a recent Harvard Business School study, Japanese government and business leaders adopted a well-planned economic strategy in the 1950s aimed at raising Japan’s standard of living to that of Europe and America through intensive and carefully staged employment of capital and technology. Japan entered into a revised security treaty with the United States in 1960 despite massive protests in the streets of Tokyo. In 1979-80, after the second oil shock, it joined with other Western nations to attempt to limit OPEC’s power. After the Soviet invasion of Afghanistan in 1980, Japan, unlike most U.S. allies, joined in a boycott of the Moscow Olympics.
Decisions are made differently in Japan, through seemingly endless discussions, meetings, reports and exchanges ending in consensus. Yet this should not blind us to the fact that rational decisions have been made on the basis of both extraordinary vision and common sense and, further, that implementation can be extraordinarily rapid once consensus has been achieved. To contend, as Mr. van Wolferen does, that Japan "has no top" is to miss the point entirely. The "top" in an advanced democracy, whether Japan, the United States or Western Europe, is where you find it in any given political season.
Rather, the problem today is that Japan’s foreign economic policy has been far too successful. Now it must change. Japan cannot continue to protect its home market while piling up record surpluses year after year. The current dilemma is that the internationalists such as Mr. Nakasone and Haruo Maekawa are attempting to convince a highly successful democracy that it must voluntarily change the very strategies that have led to unprecedented prosperity. What politician will have the courage to openly come out for policies that would ruin Japan’s traditional farming communities, destroy leading exporters, allow foreign corporations to own a portion of its most technologically advanced industries, or let foreign banks influence interest rates? What business leader will stand up and say that Japan’s current export-led consumption and spending spree must yield to slower growth? Merely to ask these questions is to point to the unlikelihood that change will come soon or easily.
On the other hand, few nations have managed wrenching change as well as Japan over the past century, and many signs suggest that the Japanese are once again girding themselves for a new era. The challenge facing both America and Japan is to manage the coming change without reviving an unhealthy Japanese nationalism that could destroy a mutually beneficial economic and security relationship. American diplomacy must exert steady, quiet pressure aimed at supporting Japan’s internationalists and avoiding the kind of emotional bashing that strengthens the nationalists.
If one examines closely the existing governmental agencies for managing the U.S.-Japan relationship, the situation appears nearly hopeless.
In Washington it is hard to discover a "Japan policy." There is no part of the executive branch whose mission it is to oversee all aspects of the relationship. The State and Defense Departments, which in the 1960s exerted dominant influence in creating political and military policies toward Japan, have seen their power eroded by new claims from Commerce, Treasury, Agriculture and the Office of the U.S. Trade Representative as economic issues have risen to the fore. Today a welter of intergovernmental working groups, task forces and coordinating bodies share bits of the action, but no one department or agency can be said to be in charge.
To this disarray one must add the growing power and interest of Congress or, more precisely, of individual members, committees and staff members concerned with particular aspects of the relationship, such as protecting an industry against Japanese imports or gaining access to the Japanese market for a constituent. To the mix must also be added an ever-increasing army of lobbyists and special interest groups, some representing Japanese interests and some working for American corporations. These lobbyists often turn out to be former officials from the very U.S. government agencies they are now trying to influence. It has even been charged by some congressional staff members that current U.S. government officials lean one way or another on issues in hopes of jumping subsequently to a lucrative lobbying position with one of the special interest groups.
None of this is particularly new to Washington nor unique to the U.S.-Japan relationship, but the result of all the tugging and pulling is that U.S. behavior toward Japan is eccentric, episodic and devoid of any long-term vision of where this important relationship should be headed and how it will get there. Japanese negotiators have learned to wait patiently until today’s issue gives way to tomorrow’s. They cannot be blamed for failing to understand or act upon American priorities, for no one can say at any moment what these priorities are.
One might argue that wiser leadership and better management could bring order from this chaos. Indeed it is possible to cite other relationships where sound policy and effective diplomacy have combined to advance the U.S. national interest in spectacular ways, such as in the Nixon-Kissinger reopening of relations with the People’s Republic of China. In Washington’s China policy, as in its Soviet policy, there is, for better or worse, a conceptual framework within which specific policies can be developed. Americans who specialize in Chinese or Soviet affairs generally have a voice in policy formulation. There is also a widely shared presumption that serious U.S. national interests are at stake.
None of this is true for Washington’s Japan policy. No referee oversees the tug-of-war politics among competing agencies and interest groups. No one seems able to draw conclusions about the proper balance between Japan as a trusted ally in East Asia and Japan as a tough economic competitor. Japan specialists, with occasional exceptions, are not considered a vital part of the policymaking process, and are sometimes excluded entirely on the grounds that they may be too sympathetic toward Japan. The economic issues have become so complex in any case that no specialist can be expert in all matters ranging from soybeans to semiconductors. Yet our relations with Japan are at least as important as those with China and the Soviet Union.
The Japanese government, with fewer personnel in the relevant agencies and fewer bureaucrats in the decision-making process, is better equipped to negotiate complex issues and manage the relationship according to an overall strategy. The Finance Ministry, the Ministry of International Trade and Industry (MITI) and the Foreign Ministry all have well-trained and competent America specialists who tend to remain longer or return more often to the same issues, giving Tokyo a major advantage in international knowledge and expertise. It is doubtful that any politician—even a prime minister—could assert a special interest over the general national interest as defined by senior bureaucrats in these ministries.
Yet Tokyo will find it increasingly difficult to resolve economic issues with the United States for a different set of reasons. First, many senior bureaucrats are wedded to outdated policies under which Japan must forever concentrate on exporting manufactured goods, even though these exports produce a flood of protectionist measures in Japan’s best overseas markets.
Second, to the extent that Liberal Democratic Party members are gradually entering into policymaking roles, evidence so far suggests they will represent single-interest groups in their constituencies rather than Japan’s national interest, and that these interests overwhelmingly favor an untenable status quo. And Japan today lacks a cadre of genro (senior statesmen) who can successfully assert the national interest over various special interest groups.
Third, Prime Minister Takeshita, though equally committed to maintaining the U.S.-Japan partnership, is a far more cautious politician than Mr. Nakasone. The former finance minister’s strength lies in his long experience in domestic political maneuvering. The fact that he leads the largest LDP faction in the Diet will encourage Americans to expect quick reforms in Japan. Barring some new "shock" to Japan’s economy, however, it is likely that he will move so slowly in forming a consensus that American policymakers and politicians will find fresh cause for outrage.
Fourth, Japan is already challenging the United States with a major new drive toward creativity and leadership in advanced technology. This drive is neither sinister nor secret. MITI announced as long ago as 1980 its plan to create a series of 19 "Silicon Valleys"—to be known as "technopolises"—throughout 16 prefectures of Japan. This bold public-private initiative will bring together new, advanced-technology plants in industrial parks with universities and the needed infrastructure of airports, roads and recreational facilities. All of this is based on the premise that Japan has largely caught up with Western science and technology and that any new advances must come from the creative genius of the Japanese people themselves. The government is also considering ways to reform the Japanese education system from top to bottom to foster greater creativity.
Given Japan’s record to date, it would be foolish to doubt that this strategy will result in spectacular advances and growing supremacy in a variety of fields such as industrial ceramics, lasers, semiconductors, biotechnology, solar energy, robotics, superconductors and possibly in space exploration. These advances, in turn, will be largely used in consumer products and will lead to increasing exports, rising "techno-nationalism," and deepening fears among Americans that we can no longer compete. Japanese bureaucrats and politicians will be sorely tempted to seek new avenues for national advancement. American officials will find it harder than ever to ward off self-defeating protectionist measures. The media will have a field day publishing the charges and countercharges of angry politicians. Public opinion in both nations could take an ugly turn. Traditional diplomacy will fail.
Trade issues are inherently boring or incomprehensible to most senior policymakers, who would much rather deal with grand strategy than beef or semiconductors. This situation allows the dialogue between the United States and Japan to be dominated by a cacaphony of those lawyers, lobbyists and businessmen who have a direct personal stake in the outcome of legislation that will never become known even to those Americans generally knowledgeable about international affairs. It is for this reason that traditional bureaucratic and diplomatic methods cannot solve our current crisis with Japan.
Instead of leaving economic problems to the politicians, bureaucrats, lobbyists and media on both sides, consideration should be given to the establishment of a permanent "Wisemen’s Commission" of four or five experienced statesmen on each side. The idea is not new, but the current tensions give it a new urgency.
The commissioners would meet once a month and direct a permanent staff to get the facts and recommend fair solutions. Commissioners would include, but not be limited to, individuals with experience in Japanese-American affairs. They would represent a broad cross-section of each nation with representatives of the interests of business and labor, agriculture, science and technology, education and culture, and would include women and minorities. They would vote as individuals from the private sector rather than as government delegates. Unlike the previous two Wisemen’s Commissions under Presidents Carter and Reagan, which had only short lifetimes of 18 months, the fact that this commission would be permanent could result in more follow-through and oversight. The two governments could, of course, ignore the commission’s recommendations, but only at a cost. The media could be counted on to publicize those recommendations for dispute resolution that were deemed "fair" by respected private-sector individuals in each country.
The commissioners should have five-year renewable terms and a skilled permanent staff able to deal with language, cultural, economic and technological problems. Let each government pay up to half the expenses of the commission, with the private sector paying the other half on each side. Let each government agree in advance to accept the findings of the commission and, in specific instances, let it mediate trade disputes. In this way issues could be settled in an atmosphere which is free from emotional nationalism, where the facts are not in dispute, and in accordance with the overriding interest of each nation in maintaining a cooperative relationship.
All kinds of objections would immediately arise: it will be hard to find truly wise individuals who are acceptable to both sides; other nations would view this as exclusive binationalism, a roadblock to multilateral freedom of trade. Politicians in both countries would cry out against allowing national decisions to come under the influence of an international body. Bureaucrats would correctly see this as a curb on their power and would fight tooth and nail against it.
But wise and decisive leadership on each side could prevail. A future U.S. president and Japanese prime minister could use the Wisemen’s Commission as a building block toward freer international trade. It could defuse protectionist sentiment and relieve congressmen and Diet members of the burden of making unpopular decisions. It could be an inclusive body, aimed at eventually bringing others such as Canada or the United Kingdom into the arrangement.
The commission would recognize that the sum of all the special interest groups on each side of the Pacific is not equivalent to the national interest of either country, that the special interest groups may legitimately pursue their profits and loudly lobby their legislatures, but that transcending goals must prevail. Harmonious relations between the United States and Japan are, and will be in the future, in the vital interests of both democracies. Or, to put it the other way around, a breach leading to open hostility would undermine the entire balance-of-power system which has brought, and continues to bring, stability and dramatic economic growth to East Asia in the postwar era. It would be irrational for each nation to risk such a course, but rationality has not been our hallmark over the past century.
The commission could be charged with the task of developing a plan for complete freedom of trade between the United States and Japan by the end of the next decade, along the lines of the free trade agreement reached by the United States and Canada in October 1987. It could save thousands of hours of bureaucratic bickering every day and allow leaders on both sides to work toward grander visions. They would address the basic insecurities and vulnerabilities of each nation and try to find long-range solutions to these questions. Obviously its work would ultimately require the approval of both governments through their normal processes. But the negotiations aimed at reaching intergovernmental accords could be conducted by the "wisemen" in an atmosphere free of emotion and lobbying by special interests, since the negotiators would have neither bureaucratic turf to defend nor an election to face every two years.
Both Japan and America entertain serious doubts about their national security over the long run. Japan worries about access to food, oil and other raw materials; America worries about the Japanese threat to its high-tech industries. The Wisemen’s Commission could be charged with drawing up plans for a "mutual economic security treaty" between the United States and Japan. In such a treaty, Japan would be guaranteed access to American (including Alaskan) oil, food and raw materials. The United States would be guaranteed access to Japan’s leading-edge technologies and markets through licensing, direct investment, joint enterprises and a variety of other means. If such a treaty could provide freedom from anxieties and paranoia, the entire relationship could move away from the prevailing acrimony toward closer collaboration.
If all this sounds visionary and difficult to implement, consider the alternative. The U.S. bilateral deficit with Japan would continue to grow, leading to further calls for protectionist legislation. This, in turn, would lead to retaliation, recrimination and a search for different partnerships. Each side would seek to gain technological superiority in a zero-sum game. Industrial espionage would run rampant. Japan would turn toward markets and raw materials from the Chinese and Soviets. Japan would find it necessary to protect a widening economic sphere in Asia and the Pacific, placing it in direct confrontation with the United States and upsetting the balance of power.
No rational person would hope for such an outcome. But that is where we are headed today in the absence of a serious decision by leaders on both sides to change course. The scheme above is ambitious and unprecedented, but so are the size and interdependence of our two economies. No lesser goal can be worthy of the two leading democracies of the world than to resolve their differences and discharge the responsibilities toward the entire planet which greatness has thrust upon them. They must face together the problem of their mutual success—lest they be destroyed by it.