Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
IN THE light of the discussion that preceded the adoption of the Neutrality Act of 1937, it might well be said that
There's a divinity that shapes our ends, Rough-hew them how we will.
The new law is the outcome of a prolonged agitation conducted by men who believe that President Wilson's intervention in the World War was a ghastly mistake. They have held that no great national interest was served by the American intervention, and that the country was drawn into the war by a blundering and unneutral diplomacy, by the machinations of war profiteers, and by the insidious efficiency of the British propaganda. This thesis was developed in a Senatorial investigation in which public opinion was prepared for legislation on American neutrality. In that investigation the archives were ransacked in a determination to prove that from 1914 to 1917 the American people were bamboozled and seduced into declaring war because they had become financially, economically and morally entangled with the British Empire.
The avowed object of the new law is to prevent another such entanglement if the Great War breaks out again. Yet the heart of the Act is a provision which means that if Britain is again at war with Germany, only Britain and her allies will be able to supply themselves in the American market. Moreover, the Senators who are most thoroughly convinced that Mr. Wilson was entangled with Great Britain are the very ones who insisted most energetically that no American goods should be sold to a belligerent unless he pays cash and carries the goods away in his own ships. Many of them voted against the bill on the ground that it did not make the cash-and-carry principle mandatory. Now, obviously, if the World War is renewed, it is Britain and her allies who will have the cash and the capacity to carry. They are the rich nations. They control the gold production of the world. They possess most of the gold that is not already in this country. They have large foreign investments that are convertible into gold or its equivalent. They own or can charter merchant ships, and they are the masters of the Atlantic highways over which American goods would have to be carried to Europe. Germany and Italy are obviously short of cash, and even if they could buy American goods they could not carry them across the Atlantic. They are excluded from the American market in war time almost as effectively as if the American Navy supported the Allied blockade.
The new law was enacted under the sponsorship of President Wilson's critics. They believe that we were drawn into the World War because President Wilson permitted the war trade with Britain and did not effectively protect a war trade with Germany; yet they have enacted a law which in 1914 would have made it impossible for Americans to trade with any belligerent not under the protection of British sea power. Insisting that Mr. Wilson was unneutral because he did not break the British blockade of Germany, they have celebrated the twentieth anniversary of his mistake by imposing what is in effect an embargo against war trade with Germany and by establishing what is in essence an economic alliance with Britain and her partners.
We may well pause and ask ourselves whether the central paradox in this law is not much the most significant thing about it. For while there are subsidiary provisions in the Act which would seriously have handicapped the Allies in 1914, they are now unimportant when compared with the great fact that the Act recognizes the supremacy of British sea power in war time and that it connects the basic resources of America with the financial power of Britain and France. Thus it is true that the Act prohibits the export of munitions. In 1914 that would have been a fatal blow to the Western Allies. But with the development of a great munitions industry in the allied nations, this is no longer of decisive importance. The Act also prohibits various practices which caused diplomatic incidents in 1914-1917. But all these things are overshadowed by the fundamental decision of the American Congress to confine American war trade to the nations which have money and have ships and command the seas.
What makes the decision so remarkable is that it is the outcome of untrammelled and unhurried popular debate. It is the work of a Congress responding to a deep feeling in the electorate that safeguards must be erected in advance against American entanglement in another world war. It must always be remembered that this bill was not sought by the Wilsonians in Washington or driven through Congress as an Administration measure. It is in fact one of the few measures of the past four years in which the initiative was in Congress, one of the few in which the procedure was that of a representative assembly deliberating. The sponsors of the bill were men who in the bottom of their hearts do not trust the State Department because they feel that it still carries on the Wilson tradition. It was the intention of Congress to follow the men who regard themselves as the heirs of the opposition to Wilson, of men who have criticized Wilson bitterly, who believe that he and his advisers were not neutral in thought or act, who reject sincerely and thoroughly the Wilsonian conception of collective action against a disturbance of the peace of the world.
Yet when they had examined the whole problem and had decided how they would express their convictions and their purposes in a law, they arrived at the conclusion that for the United States the only feasible and reasonably safe economic intercourse in a Great War is with Britain and her allies. Actions speak louder than the theories which happen to accompany them, and the conclusion is much more significant than the reasoning which is supposed to have led to it. Thus, if it is true in 1937, as the Neutrality Act proclaims, that American security is best protected by recognizing the relation between American resources on the one hand and of British sea power and British finance on the other, then there is a strong presumption that however much the Wilson diplomacy may have blundered twenty years ago, it blundered into the prescribed path of America's inescapable interest.
When men who meant to reverse Wilson because they distrust the connection with Britain come to the same fundamental conclusion that Wilson reached, there must be strong reason for thinking that there is some deeply pervasive connection between the power of Britain and the interests of the United States. This bill was not induced by the propaganda of Lord Northcliffe; it was written after a hostile inquisition into the war record of J. P. Morgan & Co.; none of its active promoters had anything but resentment against the personal predilections of Secretary Lansing and Ambassador Page. The public opinion which encouraged this legislation had been fed upon the testimony of the Nye Committee and the writings of Mr. Walter Millis and his school. But the upshot is a law which, in the event of a great war, integrates the American economy with British sea power and British finance.
Surely it is extraordinary that the critics of Wilson, House, Baker and Lansing should have started from antithetical premises, should have reasoned by wholly different processes, and should have come to the same ultimate conclusion. Twenty years later, by the deliberate act of his critics, the greatest decision of Wilson's life, the decision that the deepest American interest is somehow organically connected with Britain, is vindicated and ratified. It is as if some kind of overriding necessity, some deep necessity in the very nature of the world as it is, had compelled men to reinforce the British connection when they thought they were severing it.
Today, as twenty years ago, the American nation finds itself acting contrary to its explicit intentions. It would seem that somehow the logic of our conscious minds is not the logic that determines our behavior, and so, if we are to become aware of our real relationship to the outer world, we must reëxamine the theory on which we think we are acting.
The springs of our conscious theory are manifestly those of a people who have escaped from the bondage of Egypt and have entered the promised land. Because the American people are the descendants of emigrants from Europe, they define their freedom as isolation from the historic passions of their European ancestors. That this is the motive of the American isolationist philosophy is evident; for we do not invoke it with anything like the same determination in our relations with Asia or with South America. The entanglement that Americans resist is entanglement with Europe. What they really fear is not the costs of intervention in the quarrels of Europe but the intrusion of European quarrels into American affairs. Because political action in Europe divides the nation at home, the instinctive feeling of almost all Americans is to keep Europe at arm's length.
This feeling is a reflection of the historic fact that the American nation is still in the making, and that, as compared with the ten centuries of common experience in which the English nation has been fused, our one century and a half is a very short time indeed in which to solidify a nation. Among millions of American citizens ancestral ties are still strong, and every European quarrel puts American nationality under a severe strain. Thus we can confront the Asiatic peoples and the Latin Americans with a secure sense of national unity. But our dealings with European nations instantly raise issues which divide us at home.
For that reason it is not true to say that the philosophy of isolation is the selfishness and timidity of a people blessed with geographical security. The philosophy of isolation has its roots in the protective instincts of a people who cannot hope to fuse as a nation if they are not secure against the divisive passions of their European ancestors. The crucial problem of our foreign policy is how the American nation can satisfy this need for isolation from Europe within the circumstances of the actual world.
The traditional theory of American isolation is, of course, a rational effort to express the American need for isolation in terms of law and policy. But though the need is as great as ever it was, the traditional law and policies in which it is applied have proved unworkable in the past twenty-five years. We know that from Wilson's failure to stay out of the World War; we know it again from the action of the present Congress in renouncing the entire traditional conception of American neutrality. Something must be wrong with that conception, and we may well ask ourselves what is wrong with it.
The traditional conception is that the United States can remain isolated from the quarrels of Europe by adhering strictly to the interpretation made by American jurists of the rules of international law that have been developed over a period of three hundred years. Professor Edwin Borchard is a learned and persuasive supporter of this view. He holds that the idea of neutrality is one of the great achievements of modern civilization and that we have been fools once, and will be fools again, not to make it the principle of our policy. He insists that the true neutral does not care who wins the war. As John Quincy Adams put it, the neutral "avoids all consideration of the merits of the contest." The right formula, says Mr. Borchard, is "two nations at war, and a third in friendship with both."
That the formula fits perfectly the psychological needs of the American people is evident, and when there is no actual war in progress almost all Americans think they would like to follow it. Yet they did not follow it in the World War. They have just decided not to follow it if there is another world war. So while it may be that Professor Borchard is right and that we are badly advised to reject his advice, it may also be that his theory did not and does not work because he has misconceived the true character of modern great wars, and that the American people do not follow his teaching because they are unable to follow it.
My own view is that analysis will show that the traditional conception of neutrality is inapplicable to a great war, that is to say, to a war fought not for a limited objective in a localized area but for supremacy of power over the larger part of the earth's surface. The neutral who is "in friendship with both" nations at war must believe that it makes no vital difference to him whether one or the other wins the war. In respect to all sorts of small wars, it is easily possible to be neutral in this sense. The question is whether a principle which applies to a war between Bolivia and Paraguay is also valid in a war for the mastery of the world.
In seeking the answer to that question we must, I think, note at the outset that the idea of neutrality, as expounded by Professor Borchard, implies one of two assumptions. Either the neutrals are decisively more powerful than the belligerents or the neutrals are so delicately poised between the belligerents that they hold the balance of power. If the neutrals are greater powers than the belligerents they can, of course, localize the war. If they hold the balance of power, neither belligerent may dare to invade their neutrality. In both cases the circumstance which makes neutrality possible is the power of the neutral. For all neutrals are potential Belgiums when they lack the power to enforce their neutrality.
Now the theory of neutrality which crystallized in American minds during the nineteenth century was entertained in a world in which Great Britain exercised unchallenged supremacy over the principal maritime highways. It was assumed that in time of war Britain would be mistress of the seas, that her fleet would successfully bottle up the war in a relatively small area, and that beyond this war zone the maritime highways would be peacefully under British control. The theoretical questions raised by Americans against British maritime supremacy were essentially concerned with the attempt to persuade Great Britain to relax somewhat her mastery of the seas, to exercise her dominion with a little more freedom for American commerce. But underneath all the controversies, the predominance of British sea power was not challenged. On the contrary it was tacitly assumed. The international world in which the American nation matured and conceived its national policy was a world in which Britain controlled the seas.
It was in such a world that we formulated and practised the philosophy of isolation. The invisible, the unexamined and unrecognized premise of American isolation has always been an international system in which naval power in British hands is predominant over all other military power. Our own foreign policy was fixed upon the assumption of that international system, and presupposes that system. Mr. Borchard's neutrality is a suitable policy within the framework of that international system. The whole conception of isolation, the inner meaning of self-determination among peoples, presupposes an international power so great that it can restrain all military conquerors. Such an international system existed in the century between Waterloo and the Marne, and all our preconceptions about world politics implicitly assume the continuation of some such system.
Thus when Americans speak of isolation and of being indifferent to the outcome of European wars they have already taken it for granted that there exists a power great enough to localize wars of aggression. In this situation the concept of neutrality can be made to work. But the concept itself rests on a deeper premise, on the tacit and unrealized assumption that the world as a whole will remain orderly under the final authority of sea power controlled by men who on the whole believe in the supremacy of law and in government by consent of the governed. Once that assumption is upset, once this pivotal organization of human power is seriously disrupted, the basis of neutrality and of isolation is destroyed. A fatal blow struck at the heart of the British power would not merely destroy the international unity of the Empire; it would mean the destruction of all international order as we have known it.
We have only to imagine our own position if the British supremacy were to collapse under an attack by Germany in the North Atlantic, by Italy in the Mediterranean, by Japan in the Western Pacific. Could we conceivably be indifferent to such a world-shaking catastrophe as that? With whom would we then discuss amiably the idea of naval parity? Would it be possible for us not to care about how the innumerable fragments of that great political organization were disposed of? We could not be indifferent. All that is familiar and taken for granted, like the air we breathe, would suddenly be drastically altered. A thousand relations to all parts of the world, so well established that we forget they exist, would suddenly be broken. The disruption of Austria-Hungary has changed the face of European politics. The disruption of the British Empire would have consequences so incomparably much greater that we cannot really imagine them. One might as well have asked a citizen of Rome in the time of Augustus to imagine Europe when the Roman power had disintegrated.
Thus, though it is no doubt written in the book of fate that Britain will no longer carry on alone the authority she exercised in the nineteenth century, it is also written in that book that our civilization is doomed to another dark age unless that authority can be perpetuated by peoples who intend to live by the same political tradition. There is no alternative -- except a century or more of wars fought savagely and indecisively by peoples contending for world supremacy. Whether the power that Britain exercised in the nineteenth century is to be perpetuated through Geneva is a relatively minor question. The great question is whether a nation placed as we are, and desiring above all else to live and let live, can preserve its isolation if there is no power in the world which preserves the order of the world.
The answer to that question is, I am convinced, that we can and that we will stand aside only as long as we feel that there is no fatal challenge to the central power which makes for order in our world. Our unconscious wisdom is the deposit of a century of experience. In that century of American isolation an organic and inseverable connection was formed between the life of the American nation and an international order held together through supreme authority exercised by men who in great matters think as we do. We cannot break that connection. We could not break it in 1917. We have declared that we cannot break it in 1937. We shall not break it. In the final test, no matter what we wish now or now believe, though collaboration with Britain and her allies is difficult and often irritating, we shall protect that connection because in no other way can we fulfill our destiny.