Top Dog

An officer in MacArthur’s new administration walked into the Mitsui office in Tokyo in September 1945. ‘There it is,’ a manager said, pointing to a map of the Greater East Asia Co-Prosperity Sphere – Japan’s prewar plan for the region. ‘We tried. See what you can do with it.’ The Americans hesitated. Washington was at that moment more inclined to retribution than recovery. And the power of zaibatsu like Mitsui, huge family-owned conglomerates which had invested in Japan and its imperial territories in North-East Asia, produced matériel for the war, and come to control much of the country’s heavy industry and financial business, was incompatible with the ‘economic democracy’ the American administration wished to introduce. It started to dismantle them.

The decision was short-lived. Congress wanted to reduce its overseas spending. The administration in Tokyo was becoming alarmed at the power and political inclination of the unions it had begun by encouraging. In 1949, Chiang was finally defeated in China. And in 1950, war broke out between the two new Koreas. The United States now needed matériel of its own in East Asia. It asked Japanese firms to provide it. The zaibatsu took the chance to regroup into keiretsu, centred now on banks rather than family holdings, and to extend the integration of manufacture and distribution. By the end of the Fifties, the government in Tokyo felt confident enough to raise domestic demand. In 1960, it announced a National Income-Doubling Plan. In the next ten years, Japan managed a rate of capital formation unmatched by any economy before and only exceeded since by South Korea in the Seventies. ‘The Greater East Asia Co-Prosperity Sphere – isn’t it nice?’ a Japanese cabinet minister remarked in 1969. ‘We tried to construct it by military power in the past. This time we are going to create it by economic power.’

That has certainly been the strategy. And Asia has been favoured. Japan extended important credits to Taiwan and South Korea. As the keiretsu have moved through textiles, metals, heavy machinery, chemicals and finished metal goods to more advanced electronics, they have transferred manufacturing and technology to East Asia and more recently also to the South-East. By the mid-Eighties, the amount of Japan’s direct foreign investment in Indonesia was second only to its investment in the United States. Much of the Government’s own Overseas Development Assistance has also been to the region. In 1986, the influential Nomura Institute suggested that to reduce its dependence on the United States, Japan should direct ‘globally-traded funds into regional markets’. It is only the most promising connection of all which has yet to be made: that between Japanese capital and technology, Siberian resources and Chinese labour and markets – a co-prosperity sphere of great potential. (Gorbachev has asked for investment in the eastern USSR, but the Japanese have been frustrated at not being sure who they’re dealing with and what authority these people have. China also wants Japan to invest, but in order to improve China’s exports, not, as Japanese firms want to do, to exploit the Chinese market.)

Japan’s own most important connections, however, are now beyond Asia. In the Sixties and Seventies, it had usually been a net borrower. As recently as 1981, its overseas assets were just $10 billion. Now, they are nearly thirty times as great, and the country has become the world’s largest creditor. Half the credit is extended to the United States, which is now the largest debtor. In Kathleen Newland’s collection, Eric Helleiner is suitably cautious about the power this confers. Japan may have more leverage over its borrowers than the Saudis had after the first oil-price rise in 1973. But it has much less than the United States was able to exert throughout the Fifties and Sixties. If there is a power in Japan’s new economic strength, Helleiner argues, it lies in the newly international character of its financial relations, and remains latent. At present rates of exchange, which do overvalue Japan’s strength, the Japanese equities markets now account for nearly half of the world’s capitalisation, America’s, for less than a third; nine of the world’s ten largest banks and the 21 largest financial institutions are also Japanese. As William Horsley and Roger Buckley observe in their vivid review of the past 45 years, it is not surprising that by 1983, the Japanese prime minister had come in from the edge of the photographs that are taken at the end of international summits and was seen beaming between Reagan and Thatcher. In 1990, the United States at last agreed to increase Japan’s votes on the International Monetary Fund. Japan’s domestic product is now valued at half that of the United States, twice that of West Germany; the Nomura Institute predicts that by 2010, it will be the most highly valued of all. On the UN Development Programme’s ‘human development index’, a calculation of how well the citizens of the world’s states stand with respect to health, literacy and purchasing power, the Japanese already do best.

The development has been extraordinary. But there is nothing inherently mysterious about it. The decision to put growth first was taken more than a hundred years ago in response to Japan’s weakness against the great powers. It took time to work out the best means of directing it. And in the Thirties, the chosen direction proved disastrous. But the means were by then fixed. (Many of the men who had been responsible for the policy before the war, and continued it in the Ministry of Munitions between 1943 and 1945, were to resume their place in 1949 and remain until the Sixties.) Faced with few domestic sources of energy or raw materials for industry, and until recently, with a shortage of foreign exchange, government departments – from 1949, the Ministry of International Trade and Industry and the Ministry of Finance – have carefully assessed likely markets and then allocated foreign exchange, favourable terms of credit and tax incentives to the firms they have believed could best supply them. (Not all the firms which have since been successful were thus favoured. By the early Sixties, MITI had with some difficulty reduced the ten existing car-makers to eight to economise production. When in 1963 Soichiro Honda, who made motorbikes, asked to join the eight, MITI advised him not to. He persisted, and would seem to have confounded the advice. But MITI was not entirely mistaken: after the oil-price rise in 1973, total capacity in the industry turned out to be too large, sales fell, and Mazda had actually to be rescued.) Favoured firms have been encouraged to take a long view. One influential MITI minister used to quote Schumpeter: the competition that really counts is measured not by profits but by the development of new commodities, new technologies, new sources of supply and new kinds of organisation. (This has been made easier by the scarcity of shareholders demanding a fast return, and the frequent presence of hired villains at the meetings of those who might. Firms also restrain executive salaries. The president of Sony once remarked that the manager of his American branch was paid more than he was.) To begin with, industry absorbed the domestic savings; later, these went to finance government deficits; now, they help fund international investments. And over all except some of the last, it is the civil servants who have had control. (It is they who have decided the budgetary allocations. And it is they, not politicians and spies, who have been the objects of popular curiosity and romance.) The Government has merely had to approve the overall line.

In this respect, the politicians in the ruling party might be thought to have had an easy time. In comparison with those elsewhere, they have. They have also been able to arrange a distribution of constituencies which has made it difficult for any other party to come to power, have been presented with fairly compliant citizens, and are prevented by the country’s constitution from arming for any other purpose than immediate self-defence. But their ease has been increasingly disturbed. The United States has wanted to reduce its trading deficit with Japan. It has also been asking Tokyo to make a larger contribution to the wider defence of North-East Asia. By the early Eighties, the Government had accumulated a large public deficit. (At the prevailing exchange rate against the dollar, the debt of Japanese National Railways alone was larger than those of Brazil and Mexico combined.) The Stock Exchange has recently experienced some falls. And in the late Eighties, some leading Liberal Democrats were found to have taken large bribes.

The disturbances, however, have been contained. The pressures in the United States for more protection have not been decisive, and Japan’s offer to reduce the imbalance by buying Alaskan oil was refused. Reagan did persuade Prime Minister Nakasone, who was not unwilling, to take Japan’s defence budget above the sacred ceiling of 1 per cent of national income, and henceforth to construe Japan’s defence to include policing sea lanes a thousand miles to the south. But he also increased America’s own military presence in the Pacific. Nakasone managed to reduce Japan’s public deficit. The falls on the Tokyo exchange are merely a reasoned reaction to the overvaluation in the mid-Eighties of fixed assets against those denominated in a devaluing dollar. (The value of the Nippon Telegraph and Telephone Corporation was for a moment put at more than the whole of West Germany, the 300 acres of the imperial palace in central Tokyo at more than the State of California.) And the LDP has recovered from the scandal of Recruit. The politicians will, it is true, eventually have to decide – or to ask their civil servants to decide – whether to let the yen rise yet further against the dollar so that the United States can export more to Japan, move into surplus, and pay off its debt. But they will have first to face a larger question. Now that it is an international economic power, can Japan continue to insist on seikei bunri, ‘the separation of politics and economics’, in its foreign policy?

The conventional answer is no. In international politics, this argument insists, Japan has been something of a free rider. ‘To be specific,’ an American popular song had it during the Second World War, ‘it’s our Pacific’. The Japanese have since been happy to leave it that way. So also in South-East Asia, in the Middle East, on which they’ve depended for their oil, and in their new area of interest in Latin America. But American ‘hegemony’, the argument continues, is weakening. The threat from Moscow has now gone. And the budget deficit in the United States will make Washington more reluctant to deploy the force which the deficit has recently helped to finance. This will not be lost on states (and on aspiring national groups within them) which might want to press their discontents. In the post-war period, the world’s sovereign states have been frozen. With the exception, however, of the division of Pakistan in 1971, and of one or two other more minor adjustments to the muddles of post-colonialism, no self-described nation has been allowed actually to secede, and with the equally exceptional exception of Tibet, whose sovereignty was never formally agreed with China, irredentism also has been out. The prescriptive sovereignty of states, James Mayall makes clear in his cool account of where we now are, is indeed sovereign. But Lee Kuan Yew and others, in Asia and beyond, have claimed that once the lid is off, there could be much trouble, and in many places. The International Court will be asked to consider more claims from pained nations in the name of ‘human rights’. The Court, though, has little force; its deliberations serve at best to air a discontent, at worst to fan it. And military expenditure in the poorer countries, as the UNDP points out, has been rising faster than income. (Iraq is extreme in having spent seven times as much on defence in the later Eighties as on health and education. Costa Rica is still the only country which spends nothing on defence at all. The average ratio in the Third World now is about 120:100.) For all the present euphoria about the United Nations, there will be no sure way of imposing order. Japan, the conclusion is, should reconsider its responsibilities.

American hegemony, however, may always have been more illusion than fact. This is not to say that in international politics, as elsewhere, illusion does not matter. It governs perceptions and causes actions and in the case of the imagined power of the USA, it may even have induced some restraint. Yet in the past forty years, outside Central America, the US has not determined the outcome of any of the disputes in which it has intervened. (In those it which it might appear to have done, the disputes which led to the coups in Brazil in 1964, for instance, in what later became Zaire in 1965, in Indonesia in 1967 and in Chile in 1973, the changes would almost certainly have taken place anyway.) And the new directions in the USSR owe at least as much to internal difficulties there as to Reagan’s intensification of the arms race. The world ‘after hegemony’ may not be very different.

Indeed, it may improve. Americans joke that ‘the Cold War is over, and Japan has won.’ The joke, however, runs deep. No one would dispute Woodrow Wilson’s remark, made at the moment, as Helleiner says, at which the financial power of the USA was beginning to exceed Britain’s, that ‘those who finance the world must understand it.’ But Wilson added that they must also ‘rule it with their spirits and their minds’. With this, the Japanese do not agree. Like many other nations which have in one way or another been dependent on the United States, they resent America’s evangelism. But unlike many others, they are not themselves evangelical. They are indifferent to the long-standing Atlantic diversion of insisting on the principled distinction between left and right; in fact, they are culturally indifferent to everything beyond their borders. They care only for what a much-discussed report on the matter to Nakasone in 1986 called ‘harmony’: a world without financial risk.

‘From the Marshall Plan to the present,’ Robert Gilpin observes in the Newland collection, ‘successive US Administrations have used foreign aid and influenced financial flows to support US foreign policy objectives.’ Japan will not do this. It has no foreign interests which are not economic, and many foreign interests which clearly are. In each respect, it is quite unlike the United States. This is already evident in its decisions about Overseas Development Assistance. The Japanese press has occasionally described these as ‘strategic’. But as Juichi Inada explains in his essay in Newland, this has in the past merely meant ‘consistent with the strategy of the United States’, and it is a description that the Government itself has never used. The decisions on ODA are taken by civil servants in MITI and the Economic Planning Agency and the Ministries of Finance and Foreign Affairs, and are always taken on economic grounds. (The aid and loans have also ceased to be tied. The governor of the Inter-American Bank, for instance, has recently expressed his pleasure at the fact that it’s the Japanese who now finance it. They don’t insist that recipients trade with them. They know that any trade at all, with anyone else in the world, will benefit them in the end. And unlike the Americans, they care little for the complexion of the local politics.) If there is a discernible strategy now in Tokyo, it is to create relations whose security will rest on mutual interest rather than military power.

The present crisis in the Gulf shows how this can be done. When in October 1973 the Organisation of Arab Petroleum-Exporting Nations cut off oil to ‘unfriendly nations’, MITI was horrified to discover that Japan had just 49 days’ supply left, 45 of which was already moving through the system and committed. In an interview in one of the BBC television programmes from which Horsley and Buckley derive their book, the civil servant who was in charge of natural resources in the ministry recalls that when he explained the situation to ‘eminent people’, Prime Minister Tanaka, Nakasone, then MITI’s own minister, and others, making it clear that they had just four days’ reserves, they went into ‘total shock’. ‘How,’ Tanaka shouted, ‘could such a stupid thing have happened?’ He soon recovered, put an appropriate distance between Japan and Israel, and told MITI not to let it happen again. It has not. There are now thought to be 700 billion recoverable barrels of crude left in the world. But those who supply it are unstable, and the price has been rising. Japan’s cash contribution to the forces against Saddam is merely a polite acknowledgment to the United Nations. In the meantime, MITI has put a ban on new oil-fired plants and turned its attention to the 700 billion known barrel-equivalents of recoverable oil-bearing tar. It has asked Mitsubishi to complete the technical tests on this new Orimulsion, as it’s called (most of it is in the Orinoco basin in central Venezuela); made sure that it’s economic (the Venezuelans are shrewdly keeping the price down); declared it to be ‘coal’ (to beat its own ban); and asked power stations in the country to convert to it. The country is pragmatic, and if its partners will not play, or are unreliable, it will go elsewhere. Indeed, now that all imaginable nuclear threats to it have gone, Japan’s preferred politics has a free field.