Japan Cries Wolf Yet Again
TOKYO. One of Unsustainable.org's most important messages is that Japan continues to pursue a policy of systematic mercantilism. It is a policy that devastatingly disadvantages America�s few remaining world-class exporters.
Of course, Japan's trade lobbyists in Washington deny all this. They insist that the Tokyo authorities are doing their best to open up to American goods but are stymied by Japan�s various much publicized internal economic problems.
The lobbyists seem to have a point. After all even Japan's own economic leaders keep implying -- or even in some cases openly saying -- that the Japanese economy is headed to hell in a hand basket. That goes even for the top policymakers directly responsible for the management of the economy. Just last week, for instance, Finance Minister Kiichi Miyazawa blurted out that the country was close to a "catastrophic situation."
Over the years there has been a long litany of similarly despairing comments from other Japanese leaders. In fact such comments are a recurring theme in Japanese economic history. The record shows many examples over the last five decades, not least in the booming 1980s.
The funny thing is that such comments are never borne out by subsequent events. An even funnier thing is that, to informed Western observers on the ground in Tokyo, such comments always seem utterly unjustified by the available facts at the time. In a word Japanese leaders have a long tradition of crying wolf. At various times in Japan's rise to economic greatness, Japanese leaders have gone out of their way to exaggerate the country's difficulties and downplay its strengths. It is a pattern that was already well documented as far back as the early 1970s. Writing at that time the Tokyo-based American businessman T.F.M. Adams labelled the syndrome Japan's "poor-little-me complex." Its obvious purpose is to appeal for sympathy from American policymakers and thereby to win special consideration and other favors. In particular the Japanese have a long record of using hard luck stories to persuade Washington to back off from taking realistic measures on trade.
One thing is clear: so long as Americans are prepared to believe that the Japanese economy is close to collapse they will never steel themselves to push the tough policies necessary to level the trading field for American exporters.
Only time will tell whether the "collapse" that Miyazawa seems so worried about will materialize. But in the meantime it is interesting to revisit similarly despairing earlier comments by other Japanese establishment figures.
Let's look in particular at some of the things that were said in 1998 -- a vintage year for connoisseurs of Japan's crying-wolf tactics. In April of that year, Sony Corporation chairman Norio Ohga went on record saying: "The Japanese economy is on the verge of collapsing." It was a comment that led news broadcasts around the world. Meanwhile, not to be outdone, Toyota president Hiroshi Okuda in August of the same year suggested that Japan's economic woes were so bad that they could trigger a "worldwide financial crash."
When corporate chieftains speak as provocatively as this, we have a right to assume that they that they are speaking from inside knowledge of their own corporations' experience. So how disastrous did 1998 prove in the end for Sony Corporation? Actually not disastrous at all. In fact, far from making a thumping loss as we might have expected, Sony actually made an excellent profit. On an after-tax basis, its earnings for fiscal 1998 -- the year to March 1999 -- came to $1,504 million. Just how good this was can be gauged from the fact that it represented a 131 percent rise on fiscal 1989. And 1989 was, of course, the last year of Japan's famous 1980s stock market boom -- a time when Japanese corporations were widely seen abroad as all-conquering juggernauts.
Now for Hiroshi Okuda�s fears of a "worldwide financial crash." Nothing in Toyota Motor's experience in 1998 seems to have justified this premonition. After all,
the record shows that in fiscal 1998 -- again the year to March 1999 -- Toyota managed to rake in after-tax profits of $3,747 million. This represented a rise of 9
percent on the previous year -- a notable contrast with the poor performances of both Ford and General Motors in 1998 (Ford�s profits dropped more than 11 percent and GM�s a stunning 55 percent). Perhaps more interestingly, Toyota's 1998 profits represented an increase of fully 56 percent on the boom year of 1989 -- an increase that again handsomely outperformed both Ford and General Motors over the same period.
Perhaps the most piquant thing about both the Okuda and Ohga "disaster" predictions is that they sparked massive waves of selling of Japanese stocks by foreign investors. Not the least affected by the selloffs were the stocks of Sony and Toyota. It is interesting therefore to note that anyone who knew at the time that Okuda and Ohga were talking through their hats -- and that in particular nothing at either Sony or Toyota justified the Armageddon comments -- could have made a bundle by buying when the foreigners were selling. For the startling truth is that far from falling in the interim, the stock prices of both corporations have been notably strong. As of this writing (March 12, 2001), Sony's dollar-denominated stock price has risen 55 percent on balance from the date of Ohga�s outburst. By contrast the Standard & Poor's 500-share index has risen a mere 5 percent. Meanwhile Toyota Motor's stock has risen 43 percent from the date of Okuda's remark, while the S&P index managed a gain of just 8 percent.
Let's now revisit some other occasions when the Tokyo establishment went out of its way to fan foreign concerns about Japan's economic and political stability. In 1986, for instance, Japanese spokesmen portrayed many key Japanese export industries as on the brink of bankruptcy because of the then rocketing yen (the yen doubled against the dollar between 1985 and 1987). This story helped stay Washington�s hand on trade at a time when Japan's trade surpluses ratcheted up to a new, unprecedentedly high level.
It is interesting to note the lengths to which Japanese officials went at the time to mislead the world. They came down like the proverbial tone of bricks on one Tokyo-based observer, the consultant Tait Ratcliffe, who saw through their line and had the audacity to contradict it publicly. He was promptly summoned to a chilly meeting at the Economic Planning Agency at which the Economic Planning Minister, surrounded by grim-faced aides, upbraided him for his "errors" and insisted that the official line was correct. In the end, events completely vindicated Ratcliffe. Contrary to the establishment's warnings, there were, of course, no significant bankruptcies in the Japanese manufacturing sector. Not only that, Japan's current account surplus jumped from $49 billion to $87 billion between 1985 and 1987.
Another occasion when Japanese officials notably cried wolf was during the oil crisis of the mid 1970s. Anxious to frighten the United States into agreeing to grant Japan a disproportionately high share of the available oil, they let it be known that Japanese employers were supposedly cutting output by 55 percent and that the country faced "conditions approaching anarchy." They even encouraged suggestions that Japan might fall victim to a coup d'etat.
Needless to say all these suggestions were pure fantasy -- but they were highly effective in securing preferential treatment for Japan when the time came for the United States and other advanced nations to divvy up the available oil.
Subsequent events showed, of course, that Japan in the mid 1970s was far from the basket case it pretended to be. In fact it hardly missed a beat in exploiting the many opportunities thrown up by the changed economics of energy. As Japan's exports soared in the latter half of the 1970s, the West gradually came to understand that Japan had all along been better positioned than any other advanced nation to extract comparative advantage from the crisis. The point -- which should have been obvious all along -- was that Japan's export industries were already extremely energy-efficient going into the crisis. The Japanese car industry in particular was a huge net beneficiary from the crisis. This was because it was suddenly positioned to capitalize on the fact that it was already producing some of the world's most fuel-efficient cars, a huge advantage that almost instantly catapulted it to a position of permanent technological leadership in the American car market.
At the end of the day, the pattern for Japanese leaders to cry wolf whenever they wish to divert attention from the country�s trade policies is so well established that the appropriate response to Miyazawa�s remarks is obvious: switch our attention immediately to Japan's trade numbers. Take a look in particular at Japan's surplus with just the United States alone: in 2000 this hit a record $81.3 billion. It is interesting to note that this is 35 percent higher than the total current account surplus Japan enjoyed with the entire world in 1989. To use Miyazawa's words, this is a "catastrophic situation" -- but it is catastrophic for the U.S., not Japan.
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