In the spring of 1995 – twenty years ago almost to the day – I published a book about Japan entitled Blindside. Endorsed by such long-time Japan watchers as James Fallows, Sir James Goldsmith, and John Kenneth Galbraith (Galbraith had clocked considerable on-the-spot experience as a senior official of the American occupation in the late 1940s), it went on to be named one of the ten best business books of the year by Business Week.
So far so good. But, in retrospect, the sub-title has, er, presented a slight problem: Why Japan Is Still on Track to Overtake the United States By the Year 2000.
Is it time I admitted I was wrong? Hell, no, and anyone who thinks otherwise hasn’t read the book. Still less does he or she know how difficult it is – even in these days of light-speed communication – to understand a place as “other” as Japan. Having lived there nearly 27 years, I know that a key problem is a bizarrely counterintuitive agenda among the press’s sources, particularly top Japanese bureaucrats and Tokyo-based Western investment bankers. We’ll get to their agenda in a moment but let me say at the outset that virtually everything in the book still stands.
The book provided a detailed account of how various Japanese corporations have been staking out leadership positions in some of the world’s most advanced industries. Its account was so detailed in fact that Business Week’s Tokyo bureau chief Robert Neff pronounced it ”prodigiously researched.” Of course, other views are also available. The highlighted customer review today at Amazon.com dismisses the book as “absolute rubbish” — but that review’s reliability may be gauged from the fact that the reviewer operates from behind a screen of anonymity. What is undeniable is that in dismissing Japan as a basket case, the mainstream press is blind to a host of contrary evidence:
- Foreign vacation travel. This is one of life’s ultimate luxuries and the Japanese people have increased their foreign vacation travel nearly fourfold since the 1980s.
- Life expectancy. Although the Japanese have been eating a lot more hamburgers lately, they have somehow increased their life expectancy by nearly five years since 1989. The secret is an avowedly socialist healthcare system that, all through the “lost decades,” continued to invest heavily in ever more advanced equipment.
- Construction. Formerly dominated by low-rise jerrybuilt structures, Japanese city centers now boast some of the world’s tallest and swankiest architecture. The crowning glory is the Tokyo Skytree, the world’s second tallest structure after Dubai’s Burj Khalifa.
- Restaurants. Tokyo has now edged out Paris as the culinary capital of the world. In the latest Michelin Guide, it scored nine Michelin Three Star restaurants, versus a mere six for Paris.
- Car culture. In the 1980s Japan’s roads were characterized by Toyota Starlets and Nissan Cherrys. Now Japanese drivers are more likely to tool around in late-model Toyota Lexuses and Nissan Infinitis. Meanwhile the Toyota Prius, an expensive hybrid car favored by the Hollywood rich and famous, has broken through in Japan like nowhere else – so much so that Japanese drivers recently accounted for nearly half of all Priuses owned anywhere in the world.
Countless other indicators could be cited of Japan’s remarkable economic progress. Some are indeed obvious the moment a visitor sets foot. Take, for instance, how impressively Japan’s airports have been upgraded. Full of escalators, moving walkways, robust no-charge luggage trollies, and under-the-same-roof connections to ground transport, they are a joy to navigate compared to their crumbling American counterparts. Meanwhile foreigners quickly discover that the internet in Japan runs as much as ten times faster than in the United States. Japan’s bullet trains keep setting new speed records (and still have never suffered a fatal accident). Then there is the Chuo Shinkansen, the world’s first long-distance maglev railroad, which will connect Tokyo and Osaka at a cruising speed of more than 300 miles an hour. Construction work is already well advanced, and parts of it should be in service by 2020. And, of course, we should not forget that Eighth Wonder of the World, the Akashi Kaikyo bridge, with its world record main span of 6,532 feet. For anyone who is counting (which apparently is no one in the American media) that is more than 50 percent longer that of the Verrazano Narrows, America’s longest span. The significance of this can be gauged from the fact that the challenge in bridge building increases with the cube of a bridge’s span.
So why does the Anglophone press keep droning on about Japan’s “endless economic malaise?” Part of this is ideology. Key press organizations – the Economist, the Wall Street Journal, and the Financial Times – have taken an increasingly ideological view of global competition in recent years. Thus nations like the United States, where free market ideology is widely espoused, are presented as winning; meanwhile nations like Japan, where free market rules are often flouted, are presented as losing. In large measure the ideology is most passionately espoused by top editors who have probably never been to Japan. Correspondents who seek advancement are well advised not to challenge home office preconceptions. It does not help that in an effort to curry favor with the local establishment some Western correspondents have taken the Tokyo shilling. In a word they are corrupt. Top editors meanwhile are guilty of gross negligence in failing to investigate why previous coverage did no pan out — a good example is predictions of the breakdown of lifetime employment, a hardy perennial that the Anglophone press has been vainly mooting since the 1960s without any recognizable change in the Japanese system.
There is, however, more to this than mere ideology, corruption, and editorial negliglence. The biggest problem is the press’s sources. Tokyo-based Western investment bankers function as surrogates for top Japanese bureaucrats in absurdly talking down the Japanese economy. In so doing they are consciously spreading falsehoods – but in the modern investment banking industry, what else is new? The effort to bad-mouth the economy is inspired ultimately by the Ministry of Finance, Japan’s most formidable bureaucratic agency.
But why would officials choose to present their economy in such a terrible light? Why indeed. They have discovered that the most effective way to parry unwelcome foreign pressures is for Japan to look weak and helpless. The point is best seen by contrast with how things were during the bubble era of the late 1980s. As Japan came to be seen as a latter-day El Dorado, Japanese officials were beset by a hornet’s nest of diplomatic problems. Japanese war crimes victims agitated for compensation; Third World governments begged for overseas development aid; foreign shysters and conmen offered an exotic panoply of dud investments; impecunious American universities pressed for endowments. Most menacingly the United States started to get serious about opening Japan’s closed markets.
By seeking sympathy for largely ersatz economic ills, Japanese officials have miraculously softened the mood, particularly in Washington, where officials chivalrously believe they shouldn’t kick a man when he’s down. Hence the fact that though Japan has succeeded in keeping its key markets closed all through the lost decades, no one talks about trade anymore. Take the auto market. Despite countless official promises since the 1960s of a sincere intention to open up, at last count the share of all foreign auto makes combined in Japan was little more than one-twentieth of the market. Volkswagen in particular is an interesting case: although it is a match for Toyota in other markets, it recently was accorded little more than a 1 percent share of the Japanese market.
On a closer look, the story of Japan’s “lost decades” is bifurcated. On the one hand virtually all the tangible, independently verifiable evidence shows Japan is doing just fine. On the other hand, most of the putative evidence for the basket case story consists of nebulous statistics (of the lies, damned lies, and statistics variety). For the most part, such statistics cannot be independently checked out and we just have to take the word of Japanese bureaucratic agencies that they are reliable – the same agencies, that is, that have been promising market opening since the 1960s.
Take, for instance, the official story that Japan’s national debt represents a world-beating 226 percent of gross domestic product, higher even than that of long-time leader Zimbabwe. Is this figure real? We have no way of independently checking it. All we have the Finance Ministry’s say-so.The Finance Ministry, moreover, has a long-term record of special disingenuousness in misleading the West. Frankly if you believe Japan’s government finances are in this sort of shape, there is a bridge in Brooklyn you might want to buy. In reality, as the French economist Thomas Piketty has pointed out, the official figure has to have been absurdly pumped up by accounting trickery. (If Japan really had incurred anything like Zimbabwe-style debt, it would long ago have suffered Zimbabwe-like inflation. Instead Japan, in a pattern very similar to Switzerland, has enjoyed rock-solid price stability for generations.)
The extent of Japan’s progress is best seen from a Japanese perspective. For Japanese officials, what matters is to move their nation to ever higher levels of manufacturing sophistication. This was the focus of Blindside and I have seen no evidence to suggest that the book was wrong in its prediction that Japan would rise to ever higher levels of manufacturing sophistication, and do so mainly at America’s expense. Japan’s focus on manufacturing is a policy that has remained in place since the 1870s, and top officials see no reason to abandon it. Quite the contrary. And the verdict is in: they have turned the tables on the United States, whose erstwhile pre-eminence in advanced manufacturing won the Cold War and before that two world wars. Japan moved to leadership during the “lost decades,” precisely the time when U.S. policymakers were ridiculing the Japanese model as superannuated. Even if manufacturing’s importance is underestimated these days in Washington, it is well understood elsewhere, not least in such advanced economies as Germany, Switzerland, Denmark, Sweden, Finland, Austria, the Netherlands, and Korea (several of which now boast much higher per-capita incomes than the United States).
Examples of Japanese manufacturing leadership run the gamut. They are particularly important where they are least visible – in so-called producers’ goods. A notable example is Tokyo-based Minebea’s lock on miniature bearings, which are essential in everything from miniature disk drives to dentists’ hyper-fast drills. Meanwhile at the other end of the scale IHI Corporation monopolizes the world supply of giant, highly precisely engineered spindles for the largest jet engines. In short it is now Japan not America that boasts the most capital-intensive, knowhow-intensive manufacturing.
In many industries Japan has achieved layer-upon-layer of dominance. Take telecommunications hardware. Not only does Japan dominate the manufacture of optical fibers but it enjoys a near monopoly in laser diodes, which are signal-emitting devices required in optical fiber systems. At an even more fundamental level, Japan enjoys a monopoly on gallium arsenide, a crucial semiconductor material essential in making laser diodes. (In a useful bonus point, laser diodes have countless other uses, such as in barcode readers, camera rangefinders, and DVD players.)
Although Japan has hidden many of its most important manufacturing triumphs under a proverbial bushel, some are hard to miss. Take the car industry. You need no more than a casual familiarity with the world’s roads to realize that Japan has almost doubled its market share since 1990 – and much of the gain has come at Detroit’s expense. It is worth remembering that the auto industry is the single largest factor in world trade and is a major driver of progress in advanced materials, precision machine tools, robotics, and electronics. By no coincidence these industries are now dominated by Japan. All this helps explain why in sharp contrast to the United States, Japan continues to run large current account surpluses.
But what about Japan’s declining population. Surely the “basket case Japan” crowd are right at least to present this as evidence of profound national malaise? Actually no. A declining population makes a serious dent in some of Japan’s economic numbers, of course, most obviously its overall economic output — a nation whose working population has fallen by 10 percent in little more than a decade will produce less and export less than it otherwise might have. But this hardly means that such a nation is a basket case. Far from it. On a per-worker basis Japan is doing fine, and the imbalance between working age population and retirees can be expected to work itself out in time. What Western observers have not understood is the population decline is a fundamental national policy. That policy can be traced back to the Eugenic Protection Acts of the late 1940s, which initiated a program of population reduction. That program arose out of a concern that, shorn of empire, Japan faced a major food security problem. At a stroke Japanese officials stopped dead in its tracks a huge baby boom which took hold between 1946 and 1948. Ever afterwards Japan has enjoyed – yes, that is the appropriate word – a low birthrate. Although the program’s rationale and workings may not have been recognized in the West, they are fully understood in the East and both Singapore and China went on to formulate similar policies.
Many, many other issues could also be addressed – and that is why I spent more than two years writing a lengthy book. What about deflation, for instance? It’s a non-issue. Unbeknownst to the press, there is more than one form of deflation. As used in the press, the word connotes the disastrous demand mismanagement of the American Depression of the 1930s. Japan’s deflation is very different: healthy deflation like that experienced in the United States in the 1880s and 1890s, when by virtue of increasing productivity prices kept falling. The proof of the benign nature of Japanese deflation is that price behavior is very similar to that in Switzerland – and no one considers Switzerland a basket case.
One final question: if the Japanese economy is doing so well, why has Prime Minister Shinzo Abe been working so hard to “reflate” the economy? Essentially, like so much of the surface of Japanese life, his Abenomics program is theater. By definition if Japan is trying to feign illness, it also has to pretend to be trying to get well.
It is worth remembering that Abe is hardly central casting’s idea of a true American ally. Certainly Americans should be wary of anyone whose other much publicized policy is to “unapologize” for Japan’s wartime atrocities.
For more on the contradictions of the “lost decades” story, click here for an article I wrote for the New York Times Sunday New Review.