Two new books–“Japanophobia: The Myth of the Invincible Japanese” (Times Books) by Bill Emmett and “Looking at the Sun” (Pantheon) by James Fallows–address this question and come to diametrically opposite conclusions. To Fallows, the Washington editor of The Atlantic Monthly’ the answers are clear: to write the Japanese off now would be a mistake of historic proportions. Despite its woes, Japan presents a special challenge to the United States. Its economy is managed adroitly by bureaucrats who are more concerned with securing Japanese preeminence in critical industries than they are with raising living standards for Japanese consumers. That central idea-heretical among U.S. economists, as Fallows pointed out recently in The Atlantic, in a series of articles adapted from the book, which will be out in April Means the United States needs to rethink economic first principles. When it comes to competing with Japan (and the economies in East Asia) it needs to forget about ideal visions of free trade and manage trade explicitly, just as the Reagan administration did with a semiconductor agreement in 1986. The pact called for the foreign share of Japan’s chip market to hit 20 percent by the early ’90s and, lo and behold. it worked. Fallows also believes the United States needs to acknowledge that government’s role in managing an economy must go beyond tending to monetary and fiscal policy. It must. like other developed countries. coddle industries worth protecting.
Those who share the Fallows view of Japan believe that the current slump is just a bump in the road. They are convinced nothing fundamental about the Japanese system is changing and that years from now Japan will emerge as an economic competitor even more formidable than it seemed in the late ’80s. To Bill Emmott, the editor of The Economist and its former Tokyo bureau chief, that idea is nonsense–because Japan never was the economic Terminator, nor will it ever be. He stakes his case on examples of how Japanese companies wildly overpaid for U.S. assets in the 1980s and have since had trouble making money with them. For example: Japanese tire giant Bridgestone Corp. paid way too much for Firestone in 1988. Far from being different, Emmett contends, the Japanese are just like us: they do some things well, but some things they screw up.
So who’s right? As trenchant as his arguments are, bad Fallows’s forthcoming book been published three years ago it would have had more impact than it will now. In part, that’s because there are people in the Clinton administration who agree with his thrust: look only at the rancor the United States is creating in Japan over its push for numerically targeted trade deals. Furthermore, Fallows and a lot of other Japan hands (including this one) underestimated the ability of U.S. industry to respond to the Japanese on-slaught. The current slump in Japan, moreover, is showing that the government’s heavy hand in business can occasionally be harmful to the nation’s commercial interests: in telecommunications Japan is falling behind the United States, thanks Lo lunkhead bureaucrats.
Still, it is simply impossible to square Bill Emmott’s view of an unexceptional Japan with reality. Yes, it’s true, as Emmett writes, that the Japanese overpaid for many assets in the United States and that Bridgestone did Firestone’s workers a favor by taking it over, keeping it in business and modernizing the U.S. company. That’s economics; it’s what acquiring companies are supposed to do. But there is, as Fallows knows (and Emmott must), more to the story than that. In Japan “economics” is as much about power and control as it is anything else. it is not an economics that Adam Smith would approve Of, and that’s not something either Hosokawa or the current recession is going to change. Having read Emmott’s book, I recently asked a bureaucrat at the illustrious Ministry of International Trade and Industry if the shoe could ever be on the other foot; what if, say, a thriving Microsoft Corp. wanted into the Japanese computer market and decided to buy Fujitsu, the flagship Japanese computer company. I never got an answer. My friend at MITI just laughed.
