What is IPE and why Japan?
Is Japan irrelevant or ‘nothing’, as Francis Fukuyama indicates in his book, The End of History and The Last Man?
Japan may not have become Number One, in Ezra Vogel’s words, but does that mean it is ‘nothing’? The Number Two political economy in the world cannot be ignored or marginalised. Ignorance is not bliss; it is both Eurocentric and dangerous.
David Williams’ two books: Japan: Beyond the End of History and Japan and the Enemies of Open Political Science.
James Fallows: Japan as well as the rest of what he calls the ‘New East Asian Economic and Political System’ is neo-mercantilist or practises economic nationalism (economics as a kind of war) à la Friedrich List.
Revisionism. Van Wolferen’s The Enigma of Japanese Power.
Brian McVeigh’s work on The Nature of the Japanese State.
Class and other subject positions such as gender and ethnicity are crucial here in enunciating a properly inclusive socially scientific investigation.
There is no outside political theory.
Is all criticism of Japan ‘Japan-bashing’, as some Japanese elites seemed to imply back in the late 1980s? Of course not, but we have to be careful to be equally sceptical of ‘our own’ presuppositions, whoever ‘we’ are. Hegemonic Western discourses are not neutral either…
De-colonising the mind and taking the Rest of the World, not just the West, seriously: Japan is only one among many paths that need to be looked at more systematically and more frequently in mainstream disciplines such as IPE.
Lessons from History: An Outline of Japan’s Path to Modernity
Reading the world system from the geo-political margins: Japan’s ‘ascent’ to modernity and how it occurred.
Into The Meiji Period (1868-1912)
In the beginning came Commodore Perry’s ‘black ships’ (1853). The American naval commander, Commodore Perry, imposed unequal treaties, involving the so-called Treaty Port System, upon Japan. The Japanese reluctantly signed up to it in 1858 due to military force majeure.
Radical structural continuity in the international capitalist system? America still telling the rest of the world what to do: to open up to trade, to liberalise, to become more like it … One crucial question is: whose interests does this serve?
What Richard Barbrook said about Adam Smith being quite different from his ideological use at the hands of neo-liberal and New Right economic theorists who came to fame especially in the 1980s like Milton Friedman (he of the Chicago School) is borne out by the famous and prolific political radical and anarchist Noam Chomsky, who often refers to Adam Smith’s Vile Maxim of the Masters of Mankind, ‘All for ourselves and nothing for other people’.
What the case of the black ships shows is that one crucial strand of Japan’s modernization was exogenous, in short externally driven and coerced. If Japanese elites were to maintain control over the country, they would have to modernise, to adopt at least the outward trappings of Western political and economic institutions.
So catch-up was forced upon Japanese elites who inevitably did not want to lose their grip upon the political system. It took a revolution for the system to gain some real reformist (yet in many other ways a still very conservative and controlled) dynamism and flexibility. The Meiji Restoration Revolution of 1868 (or ishin kakumei in Japanese) was the result.
A bourgeois revolution? Ann Waswo’s book, Modern Japanese Society, 1868-1994 calls Japan in the 1920s the NIC (Newly Industrialising Country) of that day.
John Crump has argued in his writings on Japan that although the revolution may not have been a classic bourgeois revolution executed by an obvious merchant or capitalist class, a long capitalist revolution far-reaching in its transformatory effects was at length achieved by the end of the 19th century nonetheless.
Modernisation or Westernisation?
One unique thing about Japan that W.G. Beasley is right to stress (but is arguably not elaborated in an adequate way theoretically) in his standard text on Japanese Imperialism 1894-1945 is that it was at once a semi-colonised and oppressed nation on the one hand and a nation that then almost immediately went on to semi-colonise/oppress its fellow East Asian states (by means of its own lurch towards imperialism in the late 19th century) on the other.
Japan chose the path of modernisation in a way that mimicked the West, as Eskildsen indicates. In short, Japanese elites chose datsu-a nyu-ou (the policy of leaving Asia and joining the West), as the famous Japanese educationalist and founder of Keio University Fukuzawa Yukichi articulated this notion in the 1880s. Fukuzawa is so famous in Japan that his image even adorns the 10, 000 yen note.
The Post-1945 System
I jump now to the American Occupation of Japan, 1945-1952. More liberal beginnings, then a definite shift towards the right occurs. The general strike of February 1st 1947 is banned by MacArthur, Japan’s American shogun.
The reverse course also led to a police reserve force that was actually a Japanese army by just another name.
Partly initially under the stimulation and spurt of growth prompted by the Korean War, partly arguably via largely sensible guidance from the elite bureaucracy (see Chalmers Johnson’s seminal book, MITI and the Japanese Miracle) and partly again due to the economic and military security, assistance and help from the Americans that the alliance with the US brought into play for them, Japan’s economy entered on a period of high-speed growth especially from the 1960s up into the 1970s.
Some have argued that Japan, like Germany, benefited from the lack of a need to buy war materiel, given its peace constitution as well as its support under American security arrangements. It has sometimes been phrased that the Russians lost the Cold War, but that it was not America but Japan that ultimately triumphed from that particular conflict.
From the 1970s onwards, growth in Japan was beginning to slow from its highest points of spectacular expansion but it was still achieving growth rates unseen in the industrialised West at the same time.
Around precisely this time such books as Herman Kahn’s The Emerging Japanese Super-state and Ezra Vogel’s already mentioned Japan as Number One became bestsellers. Japan must have truly looked then as if it would rocket towards global domination. But then this is sometimes precisely the problem with direct extrapolations from past trends to present, as history involves rupture, not only continuity.
The Bubble Economy: Some Theoretical Preliminaries
A former elite bureaucrat from the Ministry of Finance called Sakakibara Eisuke (I follow throughout the Japanese convention of placing family names or surnames first, by the way) argued at the high point of the bubble in the late 1980s that Japan had transcended or overcome modernity and capitalism with its new economic system and its new logic.
It was not just Japanese (like Sakakibara) who seemed to suffer from a kind of feverish bubble mania writ nationalistic. The revisionist school among Western scholars tended to take very seriously the notion that the Finance Ministry would never need to burst the bubble, that a new paradigm with differing assumptions meant that there was no necessity for Japanese land to go down unless the Finance Ministry wanted it to. Van Wolferen argued as much at the time.
What van Wolferen and co were right about surely was that not all brands of national capitalism need to follow, nor even at some (later?) stage need they converge upon, the American model.
However, it need not follow from this, nor does it in fact, that ‘our’ (I mean Western here) concepts or perceptions are essentially incapable of capturing the nature of Japanese or other East Asian or indeed African or any other actively marginalised, non-Western reality.
The Bubble Economy and Japanese Capitalism: where American Pressure Strikes Again
Christopher Wood’s account of the bubble economy is well worth reading, or at least a few chapters of it to get the gist of the situation that he presents very succinctly. It lays out quite clearly how the bubble did indeed become just that, albeit one adapted to Japanese conditions. He may not always be very sophisticated theoretically in the way he formulates his propositions in regard to Japan, but underlying his account is an element of deep-seated truth. He is committed to trying to uncover what was at play in Japan’s economic malaise, albeit his implicit concept of convergence may well be naïve and rather flawed.
The yakuza.
Kodama Yoshio, the infamous yet massively rich, highly effective and largely successful yakuza kingpin. He was let out of jail in 1948 by the occupying forces so that he could unite the yakuza and thus take the fight to left-wing radicalism in Japan. He had until that time been classed as an A-class war criminal. He left jail essentially an ally of the Americans.
Historically, although the price of land is of course very high in Japan, between 1965 and 1985 the price of land kept track with and proportionate to the rises that were made in the stock market. From 1985, a de-linking began to occur in what had been this previously connected relationship.
The Plaza Accord was an agreement signed up to in September 1985 at the Plaza Hotel, New York, which committed the five nations present at this G-5 meeting to embark on a policy of dollar devaluation in relation to Japan’s yen and also to the West German deutsch mark.
Given the now far more expensive nature of Japanese products in the aftermath of a massive 51% depreciation of the dollar as against the yen within the space of a mere two years, the export out of a recession kind of a strategy was no longer an easy option for Japan’s economy.
The Baker-Miyazawa agreement of October 1986 was signed one year on from the Plaza Accord. Japan agreed there to initiate specific measures to stimulate the Japanese economy: such as to make a discount rate cut (on the money banks loan to businesses, for example, to make the cost of borrowing cheaper; hence it is stimulative in nature) as well as a stimulus package for the economy.
The Louvre Accord came about in September 1987 due to the fact that the dollar had gone into freefall and the G-6 now wanted to make sure that the dollar would not fall through the floor and thus affect world economic growth very adversely.
The context of the real fear of a global slowdown, especially on the part of the US, coupled with Japan’s own worries about the yen spiralling out of control (thus making Japan’s exports increasingly uncompetitive in US markets), had resulted in Japan succumbing to pressure to stimulate the economy via successive cuts in the discount rates, namely in the cost of borrowing.
Christopher Wood writes: “Between January 1986 and February 1987, the Bank of Japan … lowered the official discount rate from 5 percent to 2.5 percent. As a consequence, bank loans were available for as little as 4 percent to their best corporate customers. Even better than that, publicly quoted companies could exploit a rising stock market by raising money using the neat trick of issuing Eurobonds with warrants attached in London’s offshore Euromarket, the world’s largest debt market, and swapping the dollar exposure back into yen. Money became virtually free in Japan…”
Stiglitz agrees with revisionists like Fallows and van Wolferen both that the East Asian system can be called a system in some sense and also that it is clear that this system has been uniquely successful until it was interfered with and disrupted by outside forces, whether by the Plaza and Louvre Accords and the US administration’s strong dollar depreciation policies back in the late 1980s or whether later on in 1997-98 in terms of the financial speculators who took it upon themselves to make attacks on the dragon or NIC economies of East Asia and who were effectively supported by the IMF and the US Treasury. These speculators in 1997-98 precipitated the crisis Stiglitz examines in a highly recommended chapter in his Globalization and Its Discontents.
But the weakness, I think, of Stiglitz’s analysis is that, somewhat naively, he does not see the zero-sum or competitive core at the heart of the world capitalist leviathan. Any system that expands without end is by that very reason a colonising presence in one sense of the word or another…… If this is true, and it seems very obvious that this is so, the perpetual expansion of East Asian economies, willy-nilly, implies the capture of greater and greater market power as against that of others…… It is this that the revisionists understand all too acutely, albeit their nationalistic and chauvinistic neo-Listian identification of the source of the problem means that they cannot comprehend that the truest zero-sum contest, that between global labour and global capital, is the one that truly defines the real and ever-new fights to come in the 21st century.
Hence, Stiglitz, in rightly identifying the essence of the East Asian crisis as deriving from the predatory interests of global financial speculators and the way that the IMF and the US Treasury both effectively collude with these speculators, albeit that is not Stiglitz’s word of course but mine, he somewhat naively goes on to idealise the nature of East Asian politico-economic systems and societies. Elites there are, after all, (just as elsewhere) acting in their own class interests, too.
It is just not the case that the poor have not suffered in specific ways in these systems, not least because, for a start, there is very little if any social insurance in East Asia. There is of course often the informal or even direct suppression of certain freedoms that, albeit dwindling in Western countries especially in the aftermath of 9/11, nonetheless attests in many Western contexts at least to the prior history of the many great struggles won through victorious and sometimes even bloody battles with the authorities over decades or more. In East Asia, social freedoms for the individual have all too frequent a tendency in some countries to be either profoundly underdeveloped or even directly repressed.
That is to say that the East Asian systems have a level of ‘cost’ that must be measured in a truly holistic fashion and not merely at the level of narrow economic advance or benefit, albeit of those there have been many instances, too. To imagine, however, that, for example, lifetime employment systems were prevalent throughout the Japanese system rather than true of only about a quarter of the workforce is to engage in a degree of submission to Japanese or other East Asian state or elite propaganda that totally misses the fact that these systems have always had another darker or more underprivileged side to their working practices. This very partial, even marginal side (given it is only 20 to 25% of the workforce) was often believed to epitomise Japanese or East Asian systems of social harmony (one Japanese’s concept of ‘harmony’ might represent to another person a case of repressive social restriction or control) and to constitute a characteristic instance. In Japan, this split has been somewhat anaemically captured under the label of the ‘dual economy’. The sometimes twilight world of arubaito (from the German word for work, Arbeit, that in Japan refers to informal or part-time labour) has involved occasions where workers were being sent home when not wanted for work and being called back in again when then suddenly needed. In the recessionary 1990s, such practices became even more widespread of course but they certainly pre-existed by a long way the bursting of the bubble. It is this kind of thing of which Stiglitz needs perhaps to take more account.
For all these reasons, Stiglitz’s seeming advocacy of the basic health of the East Asian system and of its miracle growth as largely beneficial appears at times a little arbitrary and naïve. It tends to forget or sideline the experience of many East Asians who feel repressed or stifled in their societies and who have suffered profoundly in varying ways, labouring terribly under conservative or authoritarian systems that allow little space for them to be what they are or want to be.
To return to the question of the Japanese bubble, which actually cannot be separated from the wider economy and its dysfunctionalities, Not only did the discount rate go down to 2.5%, as Wood indicated but it remained at that level for two years and three months: from February 1987 until May 1989. As Geoffrey P. Miller has written, “The money supply was growing at over 10 percent a year, much faster than GDP which grew between 4.8 and 5.9 percent between 1987 and 1989.” Despite the strong Japanese currency, Japan’s exports as well as its trade surplus with the US kept on climbing.
The Japanese stock market began to rise. Again Geoffrey Miller explains this well: “Starting at about 20,000 at the beginning of 1987, the Nikkei 225 rose quickly through much of the year. The rally was interrupted by the worldwide share price collapse of October, 1987, but by the spring of 1988 the market had recovered and was surging to new highs. In 1988 the Nikkei set new records and rose 39.9% in local currency terms, closing at over 30,000. By the beginning of 1989, Japanese share markets accounted for more than 42 percent of the value of all markets worldwide, up from 15 percent in 1980.”
In real estate markets, dizzying heights were achieved whereby, especially in Tokyo, prices more than doubled in the space of four years, taking the starting point as 1986. With residential price rises in Tokyo doing so on an annual basis of about 70% in 1988, and Tokyo commercial real estate rising by nearly 80 %, prices were shooting through the roof.
Many of the problems stemmed from the fact of far-reaching deregulation in the system, as both Wood and Stiglitz have argued cogently. Liberalisation, especially if put into place speedily, creates all kinds of deep instabilities in the system. In Japan’s case, the financial system had been undergoing many changes since 1984.
Many other irrationalities overcame the system: from crazily expensive golf memberships that acted as shares, to real estate purchasing in California and other parts of the US and the building of massive luxury hotels, particularly in Hawaii, that very few would be able to afford to stay in and which, to remain solvent required something in the region of 75% occupancy rates (and that would surely soon go bust on precisely that account), to the building of masses and masses of new golf courses in Japan.
Eventually, the Bank of Japan, in Miller’s words once more, “began to act against the land and share price bubbles in 1989. It tightened monetary policy in a mild way at the end of May, 1989, when it raised the official discount rate for the first time in nine years – from 2.5 percent to 3.25 percent… short term interest rates rose a full percentage point between January and June, 1989. On October 11, 1989, the BOJ raised the discount rate again, from 3.25 percent to 3.75 percent, following rate rises by the Bundesbank and other central banks. The indications of a more restrictive monetary policy at the BOJ could be seen in short term rates, which climbed throughout the Fall of 1989, closing the year at 6.25 percent.” Irrespective of the rising discount rates, the stock market continued to stay at near-record levels. At the end of August, the Nikkei 225 posted 35,000 levels. The property boom continued for the rest of the year, as did the stock markets, which rose further right through to the end of the year. By this time, the Nikkei was posting levels in excess of 38,000 and the market was euphoric. No wonder, you might well say, because Japan had seemingly reached the top with all the indicators so well-balanced and perfectly attuned. Unemployment was a low 2.2-2.3 percent; there was low inflation with high economic growth, underpinned by a large trade surplus and supported in turn by huge rises in property and share values. The sky was halcyon with seemingly no storm clouds brewing. The only worry might be that all this, in Miller’s words, was simply “too good to be true”. Tokyo, however, as well as Japan more broadly, was at this stage in no mood for such sober reflections. The market, mad beast that it is when everything is going up, was rather more consumed by what John Maynard Keynes referred to as ‘animal spirits’, which indicates something of the nature of the madness that infects markets at their dizzy peak of speculative insanity, that highpoint in anarchic capitalist irrationality.
