The problem today, however, goes far beyond market access and cannot be solved simply by dismantling Japan's myriad cartels and other market access-blocking mechanisms, although this remains a critical first step. Japan's control of so much of both the world's industrial capacity and its savings has been equaled by only two countries in history: Great Britain in the opening decades of the Industrial Revolution, and the United States in the years following the Second World War. Both faced the same dilemma that Japan does today--the only way to restart domestic economic growth was to create purchasing power in the economies of trading partners. Both countries ended up doing so, but only after crises that shook up their respective political systems. In Britain's case, the crisis was the Irish potato famine. The repeal of the corn laws in 1846, which allowed other countries to earn pounds sterling by selling agricultural produce to Britain, ushered in Britain's golden age, but not before destroying the economic base of the landed gentry. And it was only the postwar threat of militant communism that convinced the United States it had no choice but to promote the rebuilding of production capacity in Western Europe and Japan through such measures as the Marshall Plan.

For Japan to create purchasing power abroad sufficient to reverse its domestic slump it would have to yield a good part of its domestic industrial capacity to others--just as Britain let much of its agricultural capacity go fallow one hundred and fifty years ago, and the United States gave up many of its low-value added industries in the decades following the Second World War. For until the capacity goes in Japan, it will be impossible to finance its rebuilding abroad.

Simply to mention such things points to the dilemma they pose. Foreign goods pouring into Japan terrify Japan's bureaucrats with the prospect of fundamental political challenges to the prevailing order. It is not simply their effects on cozy domestic price-fixing arrangements--the "price destruction" they cause, to use the term coined in Japan for what has temporarily happened in a few narrow sectors such as gasoline, men's suits, and personal computers. To rely on foreigners for important, high value-added manufactures defies the entire weight of the institutional and personal memories of Japan's economic mandarins. And any large-scale scrapping of Japan's existing industrial capacity--capacity which in Japan includes so-called "lifetime" employees--would bring unimaginable political consequences and threaten whatever legitimacy the bureaucrats have. For it is the ability of the bureaucracy to protect the institutions and livelihoods under its purview that justifies its power.

Instead, every few years the yen ratchets up in value. After soaring to unimaginable highs (most recently, ¥79 to the dollar), heroic efforts in Tokyo and Washington stabilize the currency at a rate below the peak but well above the previous plateaus. Japanese companies have been forced to cope by investing heavily overseas, in places where costs are lower.

Because these investments are under Japanese control, they represent the only politically acceptable means in Japan by which purchasing power can be created abroad. But they train another spotlight on the absence of a center of political accountability. Never in history has a country allowed large amounts of its wealth to flow overseas without taking steps to protect that wealth. The U.S. military now protects Japan's overseas investments, but it is unlikely that either the will or the ability to do so can last much longer, notwithstanding the sort of protestations to the contrary embodied in the recent Nye Report. Protecting its overseas assets on its own would require Japan to build a political infrastructure capable of overseeing and bridling a military establishment--the missing center of political accountability. But an institution that could not also bring the Ministry of Finance under its thumb would not constitute such a center. Since this most powerful of the world's bureaucracies would meet any attempt to construct an outside force to hold it to account with implacable opposition, no one is seriously trying. It is simultaneously not easy to conceive of a more visible military that would long remain under the budget bureau of the MOF, its current restraint.

What could happen, if despite every desperate measure, the existing order collapses? A final global flight from the dollar, bringing an abrupt end to the Japanese surpluses, might do this. So could a national security challenge to Japan that the United States is unwilling or unable to handle. If forced into a corner, the mof is likely to prefer sharing power with a rehabilitated military rather than surrendering that power to ordinary Japanese citizens--a prerequisite to establishing genuine political control over the bureaucracy. And it would surely prefer to deal with a Japanese military than to reverse a century-long effort to free Japan from dependence for key industrial components on unpredictable and capricious foreigners, foreigners all too often beyond the reach of the extra-legal guidance and intimidation used to keep order in Japan. But it is precisely such a reversal that is implied in any genuine effort to dismantle bureaucratic controls.

The gloating that lies behind the Japan-is-collapsing school--the Japanese have defied market forces and now market forces are taking their revenge--ignores the fact that Japan represents prodigious economic and political might; Fingleton, Johnson, and Hollerman are absolutely right about this. Just as the Soviet Union did indeed turn out to be headed for the ash-heap of history while being nonetheless a dangerous country, Japan has very real economic woes that do not in any way lessen the immense economic--and thus political--power it has accumulated. Indeed they render that power even more of a threat to the framework of global prosperity. For the lack of a strategy, the absence of a center of political accountability, makes Japan exceedingly difficult to deal with. It is one thing to reach a group of power-holders executing a well-conceived plan to establish their country's "ascendancy" by demonstrating that it cannot work or by negotiating a compromise. But when no such group exists, to whom do you talk? What do you say?

Since Japan first burst into the West's consciousness in 1905 with its victory in the Russo-Japanese War, the West has been unable to make sense of the country. Japan's impact on the history of this century has been unimaginably large. It helped bring about the Russian Revolution and was the direct progenitor of the Chinese. The British Empire ended in the rubble of a fallen Singapore, while the Soviet Union collapsed in the face of an American military build-up financed by Japan. Japanese money permitted the second great American political realignment of this century, as the Republican Party discovered by accident in the early 1980s that it could borrow that money to entice votes. Japan provides the last remaining prop for the dollar's role as the world's currency, and with that role all of America's superpower pretensions.

The concentration of power Japan represents should elicit on the part of America's policy elite a supreme effort toward understanding and coping. Anything else will represent abdication of responsibility on a monumental scale.

¹Eamonn Fingleton, Blindside (Boston: Houghton Mifflin, 1995), p. 4.

²Chalmers Johnson and E.B. Keehn, "The Pentagon's Ossified Strategy", Foreign Affairs (July/August 1995), p. 104.

³Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy 1925-1975 (Stanford: Stanford University Press, 1982), p. 24.

⁴Ibid., p. 16.

⁵See Chalmers Johnson and Barry Keehn, "Rational Choice and Asian Studies", The National Interest (Summer 1994), for more on the subject.

⁶Among these would be Strategic Capitalism (Princeton: Princeton University Press, 1993) by Princeton's Kent Calder and Japan's Political Marketplace (Cambridge: Harvard University Press, 1993) by Yale's Frances Rosenbluth and the University of Chicago's Mark Ramseyer. The former book is discussed in Karel van Wolferen's "Wrong on Japan", The National Interest (Fall 1993); the latter in Johnson and Keehn, The National Interest (Summer 1994).

⁷Ivan Hall "Samurai Legacies, American Illusions", The National Interest (Summer 1992).

⁸I was one of the "revisionist" writers condemned for inadequate credentials. In both Japanese and English publications, the British Japanologist Ronald Dore questioned my qualifications to write an article on the implications of Japanese control of global finance for the Harvard Business Review.

⁹Noguchi Yukio, 1940 Taisei (The 1940 System) (Tokyo: Toyo Keizai, 1995); Ozawa Ichiro Blueprint for a New Japan: The Rethinking of a Nation (New York: Kodansha International, 1994); and Nakatani Iwao "Japan Puroburem" no Genten (The Roots of the "Japan Problem") (Tokyo: Kodansha, 1990), respectively.

¹⁰These are: Bill Emmott, The Sun Also Sets (New York: Times Books, 1989); Brian Reading, Japan: The Coming Collapse (London: Weidenfeld and Nicolson, 1992); Christopher Wood, The Bubble Economy-The Japanese Economic Collapse (London: Sidgwick & Jackson, 1992); and Christopher Wood, The End of Japan Inc. (New York: Simon & Schuster, 1994).

¹¹Hall, p. 22.

¹²Johnson, Japan: Who Governs?, p. 66.

¹³Leon Hollerman "The Headquarters Nation", The National Interest (Fall 1991).

¹⁴Karel van Wolferen "No Brakes, No Compass", The National Interest (Fall 1991).

Essay Types: Essay