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Thursday, March 22nd, 2001
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TOKYO. If the American press is to be believed, Japan�s once bolted-shut rice market was triumphantly blasted open by American trade negotiators in the early 1990s. Strange to say, however, American rice--although it matches the quality of the native Japanese product at just one-sixth of the price--is a truly rare commodity in Japan. It should by now have swept all before it.
Even the Tokyo American Club, where the local American executive elite congregates, does not serve it. In fact, the club�s spokesman Tim Young sheepishly confesses he cannot remember an occasion when American rice was ever served at the club. Meanwhile a search of several big Japanese supermarket chains comes up empty. Inquiring among Japanese friends, I discover that none has ever seen American rice for sale in Japan. Inquiries among culinary-minded foreigners produces a somewhat more productive response. American rice, it turns out, is indeed available at one supermarket in the heart of Tokyo�s Azabu diplomatic district. Perhaps not entirely coincidentally this happens to be where American embassy personnel do their grocery shopping.
So much for tokenism. So much moreover for the credibility of the American press. The truth is, all press reports to the contrary, Japan�s rice market remains almost as closed as ever. The "opening" trumpeted in the American press was nothing of the sort. All that happened was that, as the centerpiece of its contribution to the so-called Uruguay round of world trade talks, the Japanese government in December 1993 offered a few minimal concessions granting all the world�s rice exporting nations combined a quota of 8 percent of the Japanese rice market by 2000. And judging by the virtual total absence of foreign rice in Japanese stores even today, the Japanese government has come nowhere near to delivering even on this rather underwhelming promise.
In view of all this, it is surprising, to say the least, to revisit the press record. At the time of the deal, Tokyo correspondents glossed over its highly minimalist nature as they labored to make it look as �historic as possible. Almost without exception, correspondents failed to state the obvious: that the deal, like so many other U.S.-Japan trade agreements before it, represented a thinly veiled climbdown by the United States in the face of Tokyo�s traditionally unbudgable commitment to minutely regulated commerce. That climbdown was all the more embarrassing for the fact that the American government, after campaigning noisily for years on the issue, had made the opening of the rice market a litmus test of Tokyo�s commitment to fair trade. In the circumstances, therefore, the Associated Press�s description of the deal as "a major concession" by Tokyo was a farcical misrepresentation. But much more surreality was to follow in subsequent reports as the press strained to sustain the myth of a great American trade diplomacy triumph. Even such a respected newspaper as the Los Angeles Times talked without qualification about the "opening of the market." Other papers went almost as far. In 1994, the Washington Post had former agriculture secretary Mike Espy blithely claiming as one of his achievements �the opening of the rice market in Japan. Not to be outdone New York Times allowed a Japanese source to talk unchallenged as if the Japanese rice market had been thrown wide open to imports. Perhaps the most surreal comment of all came from the Dallas Morning News, which in March 1994 reported that �imported rice has sent the country into a full fledged panic. In reality, the only thing full fledged was the absurdity of the Dallas Morning News misstatement of the facts.
How could the American press have so misled its readers? How indeed. The American press�s dirty little secret is that its Japan coverage has always been notoriously unreliable.
As the story of Japan�s phantom rice market opening illustrates, the American press is particularly unreliable on themes that have important implications for American economic policy-making. It is not an exaggeration to say that faulty press reporting is a key reason for a long series of miscues in America�s economic relations with Japan. The press has, for instance, for decades reported that the comprehensively structured nature of Japan�s markets with its collusive business groupings, its permanent employment system, and its ubiquitous regulation has been breaking down. Yet somehow virtually none of these predictions ever seems to pan out. Another key theme on which the press has constantly misled the American public in recent years is the general state of the Japanese economy. Since Japan�s 1980s stock bubble burst in early 1990, the press has talked increasingly as if the Japanese economy is a basket case. In reality, reports of Japan�s problems have been exaggerated. Meanwhile, Japan�s huge strengths, which have continued to burgeon in the last decade, have been almost entirely overlooked.
All this misreporting is the more surprising given how important Japan is to American decision makers. Japan is not only by far America�s biggest economic partner but its biggest competitor. True, the Tokyo banks have taken some well-publicized knocks in the last decade but that does not gainsay the fact that, at recent market exchange rates, the Japanese economy was more than twice as large as Germany�s, and fully four times as large as China�s. Whether measured by exports, by technological achievement, or by savings flows, Japan is an economic titan, a far more influential force indeed than all but the most sophisticated of America�s Japan watchers have hitherto realized.
Luckily for the press�s Tokyo correspondents, however, few readers in the United States have been keeping score. Fewer still are sufficiently knowledgeable to spot the press�s errors in real time. Of course, the truth often emerges in the end but by then any question of revisiting the press�s record is generally moot.
Probably the American press�s biggest single error in covering Japan over the years has been to exaggerate the extent to which the country is supposedly embracing Western-style economic and social norms. It is an amazingly long-lived tendency, a point neatly illustrated by James Fallows in his 1994 book Looking at the Sun. Fallows recounted how he spent two weeks in a university library checking the press�s record on Japan in the last several decades. He discovered a pattern of constant repetition of the same absurdly exaggerated themes of Japan�s Westernization. If you brushed away the dust that hinted that some issues were older than others, it was hard to tell articles published in the 1960s from those published a generation later. As Fallows pointed out, an amazing number of Westernizing changes that American reporters maintained were happening in the Japan of the 1990s had already been �authoritatively reported in remarkably similar terms by earlier generations of correspondents. As far back as 1964, for instance, Life magazine talked about how Japan was supposed to be engaged in a �hectic drive to outAmericanize America. transition to a consumer economy was allegedly �in full swing. The young were �in revolt, the government was "stripping away import restrictions." Yet, anyone familiar with Japan�s subsequent trajectory knows that what Life thought it saw in 1964 was largely moonshine. Fallows went on to show that the psychological biases that led Life to fantasize in this way were still to a remarkable degree driving similarly hyped reports of Japan�s supposed Westernization in the 1990s.
In recent years, a notable example of how the American press tends to present Japan in a falsely Westernizing light is in discussions of the highly distinctive way the Japanese economy is structured. Take, for instance, the well known tendency for Japanese corporations to organize themselves in cartels and keiretsus (keiretsus are families of companies, such as those of the Mitsubishi group, that do business with one another on preferential terms). Several times over the years, there have reports that these structures have been breaking down as Japan supposedly has been moving to an individualistic American-style approach to business. In the early 1990s, for instance, such reports appeared in virtually every influential publication, not least the Wall Street Journal and the New York Times. The reality is that there has been no significant diminution in the prevalence of such structures. In the Japanese construction industry, for instance, the so-called dango system of bid-rigging remains as notorious as ever. And the Japanese steel industry seems as cartelized as ever. Certainly, as the top Washington trade lawyer Robert Lighthizer points out, major Japanese steel companies have maintained suspiciously stable shares of Japan�s domestic steel market over many years. Japanese cartels have even been discovered overcharging American customers, most notably in the case of vitamins, whose U.S. prices were revealed in 1999 to have been fixed for years by three major Japanese corporations in collusion with certain European co-conspirators.
Another highly unWestern aspect of the Japanese economic system that has many times been prematurely declared defunct is Japan�s distinctive system of permanent employment (which is often referred to somewhat misleadingly as the �lifetime employment system.". Indeed for long-time critics of the American press�s coverage of Japan, misguided predictions of the employment system�s demise are perhaps the ultimate example of the Sisyphean nature of the press�s attempts to understand Japan. New correspondents often write predictions of the system�s demise early in their tour of duty and then wait expectantly for the predicted domino effect to sweep through Japanese industry. They wait in vain. Misguided predictions of the system�s demise were already such a commonplace of Western comment on Japan in the early 1970s that they were mocked in a book at that time by then Tokyo-based businessman T. F. M. Adams. This has not stopped countless later American correspondents writing the same old story in the same old way.
In the 1980s alone, there were dozens of predictions of trouble ahead for the system. In 1985, for instance, the Wall Street Journal wrote what can only be considered an obituary for the system. That obituary was, of course, premature.
So was a similar one carried in the New York Times in 1993.
The Times�s report happened to appear as I was writing a book that argued that, far from collapsing, the Japanese employment system had a future. Even before the Times weighed in, my New York publisher had been unnerved by what he had been reading in the American business press (where predictions of the Japanese employment system�s collapse have, of course, been a hardy perennial for years). The Times report proved the last straw. He picked up the telephone and, waking me in the early hours of the Tokyo morning, let fly without preliminaries. "Today�s Times says lifetime employment is breaking down," he announced in ominous tones. I calmly replied that the Times report was wrong. "How can you say that?," he countered. "This is on the front page of the New York Times. It must be true!"
Well, Times or no Times, front page or no front page, the report was nonsense. And, of course, today it is abundantly clear the system did not come close to breaking down in 1993. Certainly the system was still around in 1996, when a later Times correspondent wrote essentially the same story. In an apparent reference to her predecessor�s prediction, she noted that the Japanese system has been "declared on the way out before." This is probably as close as the Times will ever come to admitting that the 1993 report was misinformed. As is now clear, the Times�s second shot at writing off the system has, to say the least, also proved premature.
In reality both Times reports, like countless other similarly misinformed commentaries over the years, were based on a hidden wrong assumption about why the system exists in the first place. That assumption is that the system is based on a voluntary, and therefore eminently revocable commitment by paternalistic employers to provide stable employment. In reality, there is little that is voluntary about the system. This is because the system�s true raison d�etre is not corporate paternalism but rather government regulation. By law Japanese employers are heavily constrained in making layoffs. In practice the law provides its greatest protection to male employees working for major corporations and thereby essentially guarantees them in most circumstances almost total job security up to their early fifties. (For people in their later fifties and beyond, the system has never given watertight guarantees; thus the system�s description as lifetime employment has always been a misnomer.) Though labor regulators interpret the rules flexibly by, for instance, allowing seriously troubled companies to make layoffs, most major companies are held to a high standard of stability in their employment policies. Of course, the details of the regulations are sometimes revised and this has led to some marginal relaxation in some cases. But according to Tom Nevins, who has run an employment consulting firm in Japan for more than twenty years, the Japanese employment system emerged from the 1990s little changed. �Basically the employment system works in much the same way today as it did as far back as the 1960s," he says.
All this is of more than passing interest to many readers of the American press. For American managers trying to set up operations in Japan, for instance, accurate information on local employment conditions is obviously crucial. Certainly any American company unwise enough to assume from reading the American press that American-style hire-and-fire is a legitimate option in Japan is destined for a rude shock particularly if, as is often the case, it makes serious errors in its hiring decisions in its early months in Japan. Another aspect of Japanese economic life that has been constantly misrepresented is Japanese public spending. The story always is that the Japanese government is supposedly squandering billions on boondoggles. This is an easy charge to make because, of course, few large organizations, let alone governments, can claim that they have never funded a boondoggle. But the odd thing is that when the press cites supposedly egregious examples of Japanese public spending excesses, the projects concerned often turn out to be highly socially desirable. Take, for instance, a charge by a New York Times columnist that the Japanese government has been �building bridges to nowhere. This seems to be based mainly on a headline in the Economist magazine describing Japan�s Akashi Kaikyo bridge as �The bridge to nowhere in particular. A check of the map, however, shows that the massive bridge, which boasts the world�s longest span, serves millions of people and in particular is a vital lifeline for residents of Awaji Island. Although the Western press may cavalierly dismiss Awaji Island as �nowhere," this says more about the Western press�s fact-checking practices than about Awaji Island�s significance. The island is in fact home to more than 200,000 people. For them, the bridge is the only land connection to the mainland and as such promises to pay large social dividends for centuries to come.
Japan residents know from their own experience that few major Japanese infrastructure projects in recent years have been unnecessary. Take, for instance, how things look to residents of Mita, the Tokyo suburb where I live. The area is now served by two new subway lines, both built in the 1990s and both obviously badly needed in a city hitherto notorious for sardine-can commuting conditions. The area has also benefited from a new suspension bridge and a five-mile road tunnel. Like the subway lines, these projects represent huge investments (the tunnel is the world�s longest undersea road crossing). But both are highly welcome in that they link millions of Tokyo residents to previously largely inaccessible and underused recreational areas on the other side of Tokyo bay.
The truth is wherever you look in Japan infrastructure improvements are desperately needed--a point that should be obvious given that Japan has always in the past been notorious for its lagging infrastructure and in particular the inaccessibility of its recreational areas. Add in the fact that Japan is one of the world�s most densely populated countries and it is clear that it would take truly perverse genius to build many bridges to "nowhere."
If the American press has often been misguided in its criticisms of Japan�s public spending, it has been positively incompetent in reporting on the Japanese government�s finances. If the press is to believed, the Japanese government has for years been running some of the world�s largest budget deficits. In reality, the opposite is the truth: as authoritative figures published by the OECD confirm, Japan was not only been of the few nations to run budget surpluses in the 1990s but its surpluses have been among the highest of any major nation. It is useful to take a look at 1997, the last year for which OECD figures are available. The government surplus that year at 2.9 percent of national output stunningly belied reports at the time in everything from the Christian Science Monitor to Business Week that the government was running �a huge budget deficit. Similarly egregious misstatements of the Japanese budget position have been repeatedly published in virtually all the major American media, not least the New York Times, Washington Post, and Wall Street Journal.
Such reports have been part of a larger pattern for the American media to portray the entire Japanese economy as a basket case. If you are to believe the press, the 1990s were the Japanese economy�s �lost decade. A stubborn �slump" has gripped the once feared economic giant. In some accounts, the press has gone even further in disparaging Japan�s performance. An article in the Boston Globe in 1993 described the Japanese economy as a �shambles." In April 2000 a Tokyo-based correspondent of the Washington Post had a source talking matter-of-factly about �the collapse of the economy." Some shambles. Some collapse. The financial sector apart, the Japanese economy is palpably far stronger and more successful today than it was at the height of the Tokyo stock boom of the late 1980s. One thing should be obvious to even the most casual Japan watcher: the use of the �slump" word to describe what has been going on in Japan in recent years is an absurd misrepresentation. After all, it connotes a disastrously high level of unemployment such as the United States suffered in the 1930s. In reality, in recent years, Japan�s unemployment rate as measured authoritatively by the Organization of Economic Co-operation and Development has been close to or even lower than that of the United States. As such it has been dramatically lower than that in most of Europe and has run less than half the rate in France, for instance. It ought be added that France�s economic growth rate in the 1990s was almost exactly the same as Japan�s yet oddly enough no one has presented France as being in a "slump." In fact, again as measured by the OECD, the Japanese economy grew in all but two years of the 1990s. In 1996, for instance, its growth rate, at 3.6 percent, was the highest of the world�s seven major economies and comfortably outpaced the 2.4 percent rate recorded that year by the United States. Yet the Dow Jones database of American newspaper clippings shows that even in 1996 there were at least 200 occurrences of the word slump in the same paragraph as Japan or Japanese.As Karen Lowe of the Public Radio program Marketplace has pointed out, foreign correspondents in Tokyo have privately dubbed Japan�s malaise of the 1990s the �invisible recession." This is because though the economy is supposed to be in dire straits, none of the obvious signs of recession are
apparent. As Lowe has noted, shops and restaurants, for instance, are bustling.
Ian de Stains, a British born long-time observer of Japan, identifies another key aspect of Japanese economic life that resoundingly contradicts the �slump" story. The pace of construction of new offices and shops, which hardly missed a beat all through the financial troubles of the last ten years. "Tokyo is full of vast new building projects," Esays de Stains, who is executive director of the British Chamber of Commerce. �Western visitors are amazed at how prosperous Tokyo looks. They look around and say, �If this is a recession, please let�s have one.��
Judged by a host of concrete measures, Japanese consumers have never had it so good. Household ownership of cars, for instance, has increased by 10 percent from its already high level of a decade ago. Car quality has increased dramatically to the point where today the cars on the road in Tokyo are visibly considerably newer and more luxurious on average than those in, say, New York. Household ownership of personal computers and video cameras has doubled. On many other measures, the improvement in living standards has been even more marked. In the first nine years of the 1990s, the number of Japanese going abroad on vacation, for instance, increased more than 60 percent. In the last eight years, ownership of mobile phones has multiplied more than one-hundred fold. In fact, Japan today is bested only by Scandinavia in the percentage of the population with a mobile phone. On that ultimate measure of consumer welfare, life expectancy, the news is also telling. The Japanese increased their average life expectancy by more than one year in the 1990s and now by a wide margin outlive Americans, Britons, and even the traditionally long-lived Swedes. (True to form, the �collapsing Japan school turns this supreme illustration of Japan�s economic success on its head. The Japanese population is aging faster than almost any other, they wail. Given that since the 1930s the Japanese have gone from living fifteen years shorter lives than Americans to four years longer, the proportion of old people in Japan has necessarily exploded�but if that is a problem, it is one most nations would love to have. Certainly, Japan�s massive savings rate is more than adequate to cope.)
Let�s now turn to the Japanese economy�s external impact. This is where the attention of American policy makers should be principally directed so it is a particularly interesting story. Again just the facts:
1. The yen rose 38 percent against the dollar in the 1990s. The yen�s strength means that Japanese wages at current market exchange rates are now the highest of any major nation (they run about 15 to 25 percent higher than those in the United States, for instance).
2. Despite the fact that Japanese corporations pay such high wages, they dominate world markets in virtually every category of product in which they compete. The result is that Japan�s current surpluses in the 1990s ran 2.1 times their already huge total of the 1980s.
3. With just 2 percent of the world�s population, Japan now accounts for more than 30 percent of the world�s new savings each year. This means that Japan is now by far the world�s largest exporter of capital (and in particular has been by far the largest source of the massive foreign credits that have kept the American consumer boom bubbling in recent years). The IMF keeps the ultimate numbers on this and though these are literally never mentioned in the American press they make stunning reading: Japan�s net external assets in the first nine years of the 1990s shot from $294 billion to $1,153 billion. In the same period, the United States, which was already in net deficit to the rest of the world by the late 1980s, saw its net external liabilities rise 30-fold, from $49 billion to $1,537 billion.
4. Far from being left behind by the information technology revolution, Japan is a prime mover in that revolution. Remember that the revolution is being driven by huge advances both in the power of computer chips and in the capacity of the world telecommunications system. In both cases the dozens of crucial enabling components and materials are almost largely Japanese. These technologies include the manufacture of semiconductor grade silicon (which has to be vastly purer today than the already almost impossibly pure silicon of a decade ago), steppers (these are the lithographic machines whose succeeding generations have printed ever finer lines on silicon), and laser diodes (these are driving fiber optic communications, among many other crucial information-technology applications).
In view of all this misreporting, it is reasonable to wonder what is going on here. After all it is not as if the American press�s Tokyo correspondents lack for top-notch credentials. Many correspondents sent in by the major American media have a record of overachievement in reporting domestic news in the United States. Some have Pulitzer Prizes to prove it.
Part of the explanation is that the American press greatly underestimates the problem of the language barrier. Few top American correspondents speak the Japanese language fluently and fewer still read it. In other words they are functional illiterates a serious disability for a reporter anywhere but particularly so in a society that has always been ambivalent, to say the least, towards foreign reporters (and is not noted moreover for cutting
illiterates much slack).
The language barrier problem has been greatly compounded in recent years by the American press�s congenital inability to read the spin in Tokyo. In truth, the Japanese economic system has often pursued a highly counterintuitive public relations agenda. A key objective has evidently been to deflect American attention from Japan�s soaring trade surpluses. In this regard the system has found that exaggerating Japan�s various economic difficulties while minimizing or even denying Japan�s strengths has been highly effective in persuading Washington to tolerate Japanese trade policies and generally win sympathy for the �humbled economic juggernaut. Hence for instance a pattern by Japan�s official and unofficial spokesmen as well as its Washington lobbyists consistently to present the government�s finances as disastrously weak when in reality they are extremely strong. The Japanese system�s spin control is also abundantly apparent in how trade issues are reported. The reporting of the rice issue provides a classic example of how successful Tokyo has been in spinning the trade news.
A further factor is also at work and this is perhaps the most lamentable of all: the American press�s ideological biases. These often lead correspondents unconsciously to spin the story in ways that outrageously mislead the American public. Again trade provides an excellent example. Thanks to the American press�s free-trade bias, Tokyo correspondents have long played down the extent to which Japan deviates from Western trade rules. Ideological bias has also strongly encouraged the press to present Japan as an economic basket case. After all given that the Japanese economy is so obviously structured and regulated in ways that defy Western ideas of
good economic management, how can it possibly be successful? The irony in all this is that in explaining away U.S.-Japan trade imbalances over the years, the American press�s free-trade commentators have often alleged that America�s failure to export to Japan results from American industry�s shortcomings. In particular they alleged that American exporters did not �try hard enough in Japan. In truth few American institutions have tried less hard in Japan than the august organs of the American press and the result is that corporate America has been systematically blindsided in its attempts to come to terms with the world�s second biggest market.
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Contact Eamonn Fingleton |
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