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The relationship between the world’s two greatest economic powers is in serious trouble. With a frightening momentum economic disputes between Japan and the United States are growing into a political conflict. Still, attempts by both sides to create a situation they can live with are unpromising. The Reagan Administration gives the impression of preferring to avoid thinking about it. Although the "Japan problem," as the fundamental conflict has become known, is already many years old, what must pass for a Japan policy in Washington is so unrealistic that it may make the situation considerably worse.
There is much more at stake than America’s growing trade deficit with Japan. If present trends are allowed to continue they will eventually lead to a gradual loss of industrial capacity in the United States. At some point an irate Congress is likely to apply the brakes to these trends by passing undifferentiated trade legislation that is even tougher than what is being contemplated today. Uncontrollable consequences in Japan, including political instability and a xenophobic reaction, could follow.
What makes conflict between Japan and the United States so menacing is that the two countries do not know how to cope with each other. The United States does not understand the nature of the Japanese political economy and thus cannot accept the way it behaves. Americans can hardly be blamed for this, as the Japanese themselves present their country as simply another member of the community of democratic nations committed to the free market. Japan is largely unaware of the threat posed by America’s unwillingness to accept it for what it is. Never having experienced its wrath, Japan does not believe in the powers of the American legislature. The Japanese make things worse with ritualistic arguments and empty promises that only convince congressmen, businessmen and other Americans that they are being deceived.
I believe that two fictions are central to the outsiders’ inability to come to grips with Japan.
First there is the fiction that Japan is a sovereign state like any other, a state with central organs of government which can both recognize what is good for the country and bear ultimate responsibility for national decision-making. This illusion is very difficult to dispel, since diplomacy must take it for granted.
In fact, statecraft in Japan is quite different from that in the rest of Asia, Europe and the Americas. For centuries it has entailed the preservation of a careful balance between semiautonomous groups that share power. Today, the most powerful components of what I will call the Japanese System are certain groups of bureaucrats, some political cliques and clusters of industrialists. There are lesser ones, such as the agricultural cooperatives, the police, the press and the gangsters. These semiautonomous components, each endowed with great discretionary powers, are not represented in one central ruling body.
It is crucial to distinguish Japan from other nations with governments that are besieged by special interest groups or that cannot make up their minds because of interdepartmental disputes. We are not dealing with lobbies but with a structural phenomenon not encompassed by the categories of accepted political theory. A hierarchy, or rather a complex of overlapping hierarchies, is maintained, but it has no top. There is no supreme institution with ultimate jurisdiction over the others. Thus there is no place where, as Harry Truman would say, the buck stops. The buck keeps circulating.
Senate Majority Leader Robert J. Dole (R-Kan.) has written that he does not accept the excuse that "the career bureaucrats who run the government in Tokyo just listen politely and ignore the instructions of their political superiors." He finds it difficult to imagine "a political system in which the elected officials cannot get something done if it’s sufficiently important." Yet Prime Minister Yasuhiro Nakasone can imagine such a thing very well. He is a victim of it. He regularly finds himself in the classic Japanese situation in which he is ritualistically criticized for not showing enough leadership, and simultaneously rapped over the knuckles by the press and his peers in the ruling Liberal Democratic Party (LDP) for interfering in bureaucratic decision-making. A Japanese prime minister, in fact, has less power than the head of government of any Western country.
Although Japanese history has known experiments with centralized political power, they did not result in lasting patterns of government. The most recent and most important experiment was the famous Meiji Restoration in the second half of the 1800s when, after centuries of nearly total isolation, Japan was suddenly confronted with the turbulent community of world powers. But political power was subsequently dissipated, giving competing military groups the opportunity to hijack the nation and putting Japan on a course that led to Pearl Harbor and from there to Hiroshima and Nagasaki.
General Douglas MacArthur and his team of Occupation reformers arrived in 1945 to dismantle what was widely imagined to be the remnants of a solid dictatorship. The idea that it could have been the absence of strong leadership which had allowed Japan to contemplate its suicidal attack did not occur to anyone at that time.
After the postwar industrial reconstruction, which as an obvious choice for the nation hardly required strong centralized political control, the political assumption emerged that unlimited industrial expansion must be Japan’s first priority. No politician made an issue out of this. The bureaucracy, which had been left almost entirely intact during the Occupation, was to administer this policy. The de facto one-party system of Japan, dominated by the LDP, guaranteed that there would be no disturbing confusion from messy parliamentary processes. But it also meant that the politicians abdicated responsibilities that in the Western democracies are crucial for major policy adjustments.
No essential political decisions to change the priority of unlimited industrial expansion have been made since this period. Indeed, the political mechanism for such a momentous decision does not exist. The bureaucrats tinker with the economy by making adjustments that enable its further growth. Even though the Diet technically controls the national budget and finances, most of the time the politicians and everyone else keep out of the bureaucrats’ way. The industrialists carry on expanding their market shares, enter new markets with the help of the bureaucrats, and are kept in line by their peers. As these different components make sure that none of the others become too powerful, this system guarantees an orderly state of affairs in Japan. The problem, however, is that looked at from an international perspective it is an anachronism, for its finely meshed all-Japanese components are glaringly deficient in providing the country with an effective foreign policy.
One major reason for nations to create and accept relatively strong central ruling bodies is that these are needed to deal with other nations. But after 1945, foreign policy requirements were no longer felt in Japan. In the late 1940s and the 1950s, Tokyo discovered that all those activities by which a state is known and recognized externally could be carried out by American proxy. Japan is not only totally dependent on the United States for its defense, but also ultimately for its diplomacy in all its problematic international relationships. In effect, the United States provided the diplomatic shield behind which Japan could build its economy by neomercantilistic trade practices. Japan’s so-called omnidirectional diplomacy (which, before Yasuhiro Nakasone became prime minister, was presented to the world as an idealistic peaceful innovation in diplomacy) was an attempt to be all things to all men who bought Japan’s products and sold it raw materials—that is, to the extent that America would tolerate.
So far there has been no reason to speculate about a Japanese "Gaullism" in foreign policy. Although it seemed that independent approaches to Beijing and Moscow were developing, these also were soon enough shown to be waiting for cues from Washington. This is not because the Japanese have an overriding desire to coordinate their foreign policy with that of their American ally, but because the bureaucrats in the Ministry of Foreign Affairs and other Japanese institutions are not in a position to accept the consequences of genuine shifts in policy or to deliver on promises made. Nakasone’s rise to the prime ministership in 1982 has not led to any dramatic change. If Japan were ever to go it alone, it would first have to create a political center, and that would require the overhaul, if not the overturning, of its entire political-economic system.
The second fiction that hampers the formulation of an effective policy toward Japan is the premise maintained by the United States and Europe that Japan belongs with them in that loose category known as capitalist free-market economies. Although the Japanese economy is very extensively commented upon in the West, it still causes tremendous conceptual difficulties for foreigners and Japanese alike. Japanese officials usually bristle with indignation at the suggestion that their country is something other than advertised. Yet Japanese economists I talk with often remind me that Westerners writing on Japan commonly exaggerate the function of the market mechanism. On the other hand Western academic economists, including current presidential advisers, appear horrified at the suggestion that Japan does not in fact belong in the club of capitalist free-market nations. For many of them, the idea that there can be a successful economy which is not based on the free play of market forces is tantamount to heresy.
As Japan also clearly does not belong in the category of the centrally controlled Soviet-type economies, does it then belong to a category of its own, as quite a few commentators have implied? The rapid rise of South Korea and Taiwan as industrial states suggests that this is not the case: even when shorn of its cultural and psychological specifics, the Japanese "economic miracle" constitutes a model that can be pursued by at least some others. South Korea and, to a lesser extent, Taiwan—both states having a strong central government—have economies that appear to be driven by a phenomenal force similar to that of Japan, even in the absence of Japanese-style "harmony," lifelong employment, management techniques—all of which are often cited as reasons for the Japanese success. Analysis shows that a third category of political economies can exist, besides the Western type and that of the communist world. Chalmers Johnson of the University of California, Berkeley, has isolated this category of industrial nations and has labeled the type Capitalist Developmental State.
The strength of the CDS is a partnership between central bureaucrats and entrepreneurs. The bureaucrats never attempt to gain absolute power over the nongovernmental corporations. They guide the economy while using the entrepreneurs as antennae. The central planners of the CDS know what is happening at the periphery through constant monitoring of the experiences of capitalists trying to find new ways of making money. The mistakes the planners undoubtedly make are more than compensated for by the unified forces they bring to bear on industrial development. The economy prospers because promising areas of industry are stimulated by central policies favoring investment. Those that appear to have reached a dead end are more easily abandoned through policies forcing reorganization. In other words, it is a partnership that has an industrial policy and a trade strategy. Freedom of the market is not considered a desirable goal in itself, but only one of several instruments for achieving predetermined effects that are totally subordinated to the ultimate goal of industrial expansion.
The CDS is structurally protectionist in the sense that all kinds of informal, if not official, barriers to imports must ensure that foreign competition will not undermine its aims. It has to remain so if it wants to continue enjoying the proven benefits of this model. But, as is becoming abundantly clear, in the long run this causes political problems in its relations with other states. The question is whether the bureaucratic-entrepreneurial partnership will continue to flourish after its industries face market saturation at home and inhospitable markets overseas. Related to this is the even more important question of whether the international free trade system, made up of countries without a trade strategy, can survive as it struggles to accommodate the CDS.
It is not likely that the partnership between the state and private enterprise in Japan will break up. The official line is that the various forms of governmental guidance (if acknowledged at all) now carry much less weight with the private sector than in the past. This contention is habitually accompanied by a demonstration that current tariff regulations make Japan about the freest market in the world. In Japan, quite often—and always more frequently than in the West—what is true on paper is not true in practice. Japanese spokesmen widely advertise the fact that a number of foreign firms that have tried hard enough have been successful in their market. These firms are well known because they belong to the same small sample always mentioned in this context. A select few foreign firms receive assistance to serve as fresh examples of Japanese openness. What we should look at, however, are distribution systems in a few controlling hands, regulations dictated by Japanese competitors, new product standards, and other barriers that a potentially powerful foreign competitor faces in the Japanese market. The bureaucrats in Tokyo are extremely inventive when it comes to subtle controls and euphemisms for rendering them more palatable to foreigners.
Moreover, what has given the Japanese CDS system durability is the obliteration of the line dividing private and public sectors. Japanese power relationships have evolved into something far more intricate than a "bureaucrats-businessmen partnership." In South Korea one can distinguish the government from the entrepreneurs; in Japan, however, it is not only impossible to locate a center, it is also not possible to separate the realms of public and private business. In the higher reaches of Japanese economic activity, bureaucrats, former bureaucrats in top business positions, and bureaucratically inclined leaders at the top of the business hierarchies are as one as they mingle with each other busily monitoring the economy. Antagonisms exist in the higher reaches of the system—quite a lot in fact—but they rarely, if ever, pit the formal organs of state against the industrial organizations. The great rivalries and territorial wars between the different ministries are significant and publicized, whereas genuine confrontations between the bureaucrats and recalcitrant corporations are almost never heard of. Only much lower down, among the newer firms and especially the vitally important sectors of small subcontracting firms, can one find more traditional entrepreneurs without strong ties to the bureaucracy.
Because it is impossible in Japan to extricate the state from the socioeconomic system, monumental communication problems arise when foreign businessmen or government representatives at the higher levels attempt to negotiate with what they think are their Japanese counterparts. The confusion is made even worse by the peculiarly Japanese institution of the "buffer," the person who is entrusted with the task of making contacts with foreigners as smooth as possible. Resident foreign diplomats and businessmen usually deal with the Japanese through an intermediary community of English-speaking, "internationalized" Japanese who absorb the shocks that an unpredictable outside world might deliver to their institutions. These buffers can be amazingly frank, can convey genuine understanding of the foreigner’s difficulties and create the impression of willingness to cater to his wishes.
Japan has a handful of super buffers who spend much time traveling the globe, troubleshooting and explaining the Japanese case at international conferences. Two of them, Saburo Okita and the late Nobuhiko Ushiba, were even made ministers for external economic affairs. This increased the confusion further because they had no actual mandate to decide or negotiate anything. Ministers more influential than these two, or leaders of economic federations, and even the prime minister himself, often play the buffer role when speaking with foreign trade envoys. The foreign negotiator who arrives home yet again with the news that this time he has really talked with the proper authorities, who have impressed him with their readiness to take effective action, is deceiving himself. Such persons with the necessary broad authority simply do not exist in Japan.
Thus the communication gap appears as unbridgeable as ever, and the Japan problem grows worse all the time. It is generally summed up by record-breaking trade surpluses: $45 billion in 1984 and $61 billion in 1985. For 1986, the Organization for Economic Cooperation and Development has projected a Japanese surplus of up to $85 billion; more than $50 billion of that will show up as a bilateral trade deficit with the United States. Japanese competitiveness and the inhospitality of its own market to foreign products are helping to bring about further de-industrialization in the United States and Europe. After the virtual loss of the motorcycle and consumer electronics sectors in the United States, the Japanese are gaining leverage over such crucial industries as semiconductors, machinery and telecommunications equipment.
The number of trade bills introduced in Congress demonstrates that Americans think this is intolerable and that patience is wearing thin. But protestations from Washington, accompanied by demands that the Japanese market be opened wider, are met by little more than Japanese rhetorical assurances of their commitment to free trade. Efforts by the bureaucracy to ameliorate the situation are designed to keep the Americans quiet. They do not get to the root of the problem, for as things stand nothing can. As far as the politicians are concerned, many, if not most, have a stake in what is euphemistically known as boeki masatsu, or trade friction. They want to keep it from doing too much damage, and they instruct bureaucrats accordingly, but if boeki masatsu disappeared so would a lucrative source of income. This is because the sectors of the business community that most fear foreign competition at home through liberalization measures urged by the United States are also the most generous with political donations. As the various ministries involved in "liberalizing" blame each other for being the bigger obstacle to effective measures, they come up with minute compromises, presented together as "market-opening packages." The effect of the half dozen of these presented thus far has been practically nil. In mid-1985 much propaganda accompanied a so-called Action Program, but the nature of that effort was succinctly characterized by Foreign Affairs Minister Shintaro Abe, who called it a table of contents without contents.
To be sure, Nakasone has made quite a difference when compared to his four predecessors. He has continued a campaign, begun by former Prime Minister Kakuei Tanaka, to increase the leverage of the LDP politicians over the bureaucrats. For this, he has utilized the talents of the experts whom Tanaka had collected in his group, the largest and unquestionably the most powerful of the habatsu, or political cliques, of which the ruling party is a coalition. He has been helped by the circumstance that bureaucratic territorial wars over newly developing industrial sectors, like telecommunications, have given the politicians a relatively new function as arbiters. Nakasone has also found a new use of the shingikai—advisory committees expected to present high-minded schemes, long on abstract ideals and short on concrete proposals, which previous prime ministers could pass off as policy. He has handpicked shingikai chairmen and key members and does not leave it to their imagination as to how he expects to be "advised." But all this falls very much short of what Japan needs in the way of centralized power to cope with the problem of its economic relations with Europe and the United States.
Increased congressional pressure on the Reagan Administration has brought to the fore a double formula to help reduce the trade imbalance: push up the value of the yen and make Japan stimulate its economy.
Nakasone has shown his willingness to cooperate by directing an advisory committee under the chairmanship of former Bank of Japan Governor Haruo Maekawa to present guidelines for making domestic demand, rather than exports, the main engine for economic growth. However, the final version of the Maekawa report has been picked clean of the originally suggested concrete proposals by éminences grises from the important ministries, notwithstanding the fact that an angry Nakasone had ordered it rewritten in order to reflect an awareness of the hostile international situation that the Japanese economy was faced with.
While Nakasone was presenting this most recent token of Japanese goodwill in Washington last April, his countrymen were pulling the rug out from under him. LDP politicians said that they could not accept the Maekawa report. Top bureaucrats leaked their worries that Nakasone was misleading Reagan. The Nihon Keizai Shimbun (Japan’s version of The Wall Street Journal) tore the report to pieces. And the Asahi Shimbun commented in an editorial, "Every time a political leader says one thing abroad and something else at home, distrust of Japan in the world community grows. It is ironic that Nakasone, who is proud of his diplomatic prowess, now repeats the same mistake." Finally, the Ministry of Foreign Affairs weighed in with a statement that the report did not represent Japanese policy.
All this did not deter President Reagan, Secretary of State George P. Shultz, The New York Times and others from praising it. But suppose the Maekawa report were a truly serious blueprint for a campaign to stimulate the domestic economy of Japan, what good would it do America? The idea that Japan can help tow the world’s less powerful economies has become untenable after all the years in which its domestic growth has not had any significant influence on the level of imports from the United States or Europe. When things are booming, raw materials find their way to Japan, of course, but not the finished products that America wants to sell there.
Perhaps in no other area is the inapplicability of conventional economic theory as blatantly obvious as in the case of the yen-dollar exchange rate. The current Administration in Washington is probably like no other recent government in its firm conviction of the healing powers of the free market. It is therefore no wonder that its favorite theory as to why Japan is competitive in America but America is not competitive in Japan revolves around prices. If only those Japanese goods in American shops could be made expensive enough, and American goods in Japanese shops cheap enough, everything would fall back into place again. Or at least the incredibly lopsided trade balance could be brought to proportions that one could live with.
Japanese officials and economic commentators had for years been pleased enough with the conclusion that the yen was undervalued, as this meant that the dollar was worth too much, which put the ball in America’s court. Thus it was difficult for the Japanese monetary authorities to object when, in September 1985, the finance ministers and central bank governors of the five largest economies of the Western community agreed in New York to manage a decline in the value of the dollar. Nine months later the Japanese currency had appreciated by roughly 40 percent against the dollar, much more than either side had anticipated. This currency realignment is said to be a better reflection of fundamental economic realities.
Is achievement of American aims in sight with more expensive Japanese goods in American shops? Only in the cases where the higher prices will not endanger the market share that Japanese firms have in the United States. In some areas there is no longer any competition. In others, it is possible for Japanese exporters to subsidize vulnerable items with surplus funds from highly profitable company divisions.
Or, if need be, domestic prices will go up in order to offset losses in the overseas market. Cheaper American goods in Japanese shops? Japan’s newspapers and magazines have been searching for months for instances where the benefit of the strong yen has been passed on to the consumer. Their findings all show that the effect is marginal at best and that in some cases prices of imported goods have actually gone up. Nakasone has repeatedly told his ministers to instruct those below them to see to it that not only the importers but the whole nation profits from the lower import prices. But the bureaucracy itself sets a bad example: officials who administer the government import programs of beef and wheat use their exchange gains to help subsidize the highly inefficient domestic agricultural sector.
In some industries the high yen is causing an acceleration of the shrinking that has been going on for years. In others, plans to move simpler production lines to the much cheaper labor markets in other parts of Asia have been accelerated.
But from the viewpoint of Japan’s Western trade partners the most important thing that is happening is that the subcontracting firms are being forced to streamline. These are the hardworking, often tiny, outfits that occupy a key position in Japan’s dual economy. They form a shock-absorbing cushion underneath the large conglomerates. They are currently being asked to absorb much of the exchange rate losses, and are therefore trimming their costs as never before. While more automation is introduced in these small- and medium-sized subcontracting firms, the larger Japanese manufacturers are buying parts in South Korea and Taiwan. Both measures enable them to continue exporting to the United States at roughly the old dollar prices.
In short, the Japanese System continues to shield the home market against imports, and Japanese firms are going to extremes in order to hang on to overseas market shares. There is a good chance that when the American effort to "talk the yen upwards" runs out of steam, the value of the yen will drop to the lower, fluctuating levels desired by the system. At that point the workers who were dismissed from the subcontracting firms, who have spent some time in the parasitic distribution system (which is a large reservoir of the would-be unemployed) or who have cultivated a few square yards of heavily subsidized rice paddy, will return to help make new cheap export products. With more efficient subcontractors, Japan will be commercially more battle-ready than ever. An intensification of the conflict appears inevitable as many billions of dollars are added to the bilateral trade deficit, as expectations in connection with new unrealized Japanese plans are frustrated, as Japanese attitudes begin to grate on members of Congress, and as new moral shortcomings are discovered of the kind conveyed by Nakasone’s recent remark that America’s minorities have lowered the nation’s average intelligence level.
Anti-Japanese sentiment in the United States could conceivably surge, not the least because a great deal of criticism today is defused by the artificial means of Japanese money. No country has ever spent as much on officially recorded lobbying as Japan spends in Washington today. The Japanese government and corporations hire the best lawyers and former Administration officials to defend their position. A large proportion of academic research by American scholars of Japan is funded by Japanese institutions. For many real and supposed specialists who hold forth at seminars or conferences organized to improve "mutual understanding," defending Japan is their bread and butter. A large number of foreign businessmen and consultants in Japan, who have had to become part of the system in order to function in it, cannot risk alienating themselves from it by critical analysis.
In this context it is useful to know what in Japan is meant by "understanding." The Japanese connotation of this term is acceptance or tolerance. You show true understanding of people or things by accepting them the way they are if you are not strong enough to change them. If you have strength, the other party will show understanding by a certain degree of adaptation to your wishes. Foreigners who keep on protesting about Japanese trade methods in spite of the many Japanese explanations demonstrate their lack of understanding. Europeans, who are less powerful than Americans, are also considered less capable of understanding Japan.
It has often been pointed out that Japanese are uncomfortable with the idea that they might actually be understood. The uniqueness and the spiritual dimension of being Japanese, which by definition cannot be grasped by foreigners (as Japanese constantly persuade themselves in schools and via the media), is too important an ingredient of Japanese self-esteem. In practice, therefore, "mutual understanding" implies that foreigners should accept the picture of Japan presented by its spokesmen.
With regard to the Japan problem, the bureaucracy, the business world, some politicians and many editorial writers routinely confirm the need for structural adjustments, for breaking through the traditional isolation and for a more responsible global role. On the other hand these same groups wage a rather successful campaign to portray Japan as the victim of unreasonable demands and criticism by less hardworking foreigners.
Some respected authors see an alleged American racism at the root of the problem, an interpretation that finds takers in the United States as well. There are echoes, too, of Japanese wartime imagery in which an American loss of will is contrasted with the strength and dynamism of a Japan where collective hard work is still valued. The United States is chastised for believing that its norms are universal by authors who may be oblivious to European protests (or indeed, those of China, Southeast Asia, Pakistan, and nearly everyone else). America is even taken to task for not appreciating the Japanese contributions to world peace.
Official American remarks are not always helpful in sorting out the Japanese confusion. It is hard for an observer in Tokyo to assess praise from Washington for measures that informed Japanese understand to be ineffective from the start. The Reagan Administration has eagerly presented Japanese financial "liberalization" measures as a fundamental breakthrough, when in fact they were designed to make Japanese financial institutions more internationally competitive rather than to give foreign financial institutions a larger share of the Japanese market. In the area of market-opening packages, Washington announced success in sector-specific trade talks in the field of communications equipment while its negotiator on the spot was telling me that he had not yet finished negotiating. The Departments of State and Defense still appear to believe that trade sanctions would endanger the status of American military bases in Japan. The different departments in Washington speak with different voices, not unlike the Japanese ministries.
Taking a longer view of the conflict, it seems pointless to apportion blame. In the eyes of the Japanese, it is the United States that wants to change things. As far as they are concerned the relationship is like a common-law marriage. No papers were signed, no firm arrangements established, but force of habit has forged something that is not less established and should not be less reliable than if a formal treaty had spelled out all the advantages that Japan today enjoys. In American eyes Japan does not perform commensurately with its wealth, in any field, so it is time for Japan to grow up and play a responsible role in the international community. Japan is all the more obliged to do this, according to the American perception, after four decades of American nurture, help and protection. The United States, of course, has helped create the current situation by providing diplomatic and military shelter for Japan, by discouraging strong central rule and by accepting, at least initially, Japan’s postwar economic practices. But how could Washington have known what the result of all that would be?
What does make sense, however, is for the United States to decide quickly on measures constituting a Japan policy, to stave off an otherwise seemingly inevitable confrontation that would harm the non-communist world and destroy what remains of the international free trade system.
A Japan policy must necessarily contain ingredients that diverge widely from accepted diplomatic practices between countries at peace. To see that clearly, it is useful to recognize how the Japanese System itself handles conflict. In Japanese society conflict is avoided, ignored, denied, exorcised by ritual, but rarely solved. There is no tradition of appealing to universal principles or of using legal procedures to keep order in society. Individuals and groups accept their positions and their lot because a stronger power holds them in place, although subtle acts of sabotage are expected and condoned. The ins and outs of the grand balancing act among the semiautonomous components of the system are not finally determined by reason, but by power. Conflicts between parties that have no hierarchical relationship with each other and refuse to accept subordinate positions fester and cannot be resolved. Conflicts with the outside world are comparable, as Japanese groups will not subordinate themselves voluntarily to foreigners, while the reasoning that outsiders bring to bear can never be convincing enough. The situation is insoluble unless, of course, the other country adopts the means of the system and forces recognition of proper positions.
If he listens carefully, the foreigner will quite often hear his contacts in Japan say that there will be no essential shift in policy until relentless and consistent outside pressure forces the change. The Japanese political-economic system fosters inward-looking attitudes. It is incapable of selfless gestures, but it can react with alacrity once it is imbued with a pervasive sense of crisis. In the growing conflict with America no significant Japanese adjustments can be expected until the entire establishment has been thoroughly imbued with the idea that there is a new reality to which it must adjust, like the reality created by OPEC. No verbal threats serve this purpose, because they have for many years proved quite empty.
International trade legislation of the most general kind is unlikely to have enough effect on Japan. Only action that specifically singles out Japan, in a carefully measured dose, will imbue the Japanese System with the sense that the situation has become intolerable for the United States. The Reagan Administration could usefully give up its efforts to remind Japan of the teachings of Adam Smith and jettison the fiction that Japan has a free-market economy similar to those of the West. It is one thing to fight the growth of government control over one’s own economy but quite another to blind oneself to the Japanese reality of a highly controlled economy. To make the point perfectly clear it is necessary for the United States to stop agreeing diplomatically with the Japanese argument that American companies also must try harder to penetrate the Japanese market.
When the Japanese System has become fully alerted to the new reality, a modus vivendi must be arranged with it. One part of the new set of conditions could be direct fixed commitments between Western and Japanese economic institutions for an international division of labor. The "voluntary" quotas on car exports demonstrate the feasibility of such agreements. The cartelization that they necessitate is nothing new to the Japanese System, and would even be preferred by some of its components. Yoshihiro Inayama, the former chairman of Keidanren (the most influential club of Japanese industrialists), has actually stated that it would be better if the United States decided unilaterally to restrict the import of Japanese products until the trade imbalance is rectified.
It must be remembered that the essence of the problem is not that Japan exports much more than it imports, but that its exports systematically undermine Western industries. Peter Drucker calls this adversarial trade, as distinct from competitive trade whereby a country also imports manufactures of the same kind as it exports. Germany’s trade surpluses are very large too but Germany practices such competitive trade, as does the United States.
The important thing for the American government to realize is that in order for the relatively free international trade system to survive, the world needs a different kind of discipline. The increasing impact of Japan’s imitators and the possibility that China will in the future develop a CDS apparatus make it all the more urgent. The hue and cry in Japan that almost inevitably will follow such American measures may give the impression that the Japanese are being punished. But that will not be the case at all. Quite the contrary, by preventing waves of uncontrollable retaliatory protectionism, these measures will most probably preserve the health of the Japanese economy, considering how dependent it is on exports, and thereby promote continued political stability.