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Dissemination:POUO City/Source of Doeuraent: Tokyo CHUO KORON Report Name: SUPPLEMENT
Headline: conomic Cooperation. Desired
Author's)f Kazuo Nukazawa, managing director, Federation of
Economic Organizations: "Things You Can Contain and Things You Cannot"!
Source Lino: 5 Tokyo CHUO KORON in Japanese AugFOR OFFICIAL USE ONLY
Subslug; [Article by Kazuo Nukazawa, managing director. Federation of Economic Organizations; "Things You Can Contain and Things You Cannot"1
FULL TEXT OP ARTICLE;
[Article by Kazuo Nukazawa, managing director. Federation of Economic Organizations: You Can Contain and Things You Cannot"J
iText] what an irony it would be ifime when the free economy has at long last proven its superiority over the Soviet-type planned economy, the United States would try to contain the free economy!-The *'containment of Japan" would be synonymous with the containmentree economy.
Foreword
I met Mr Fallows only for about an hour when he visitedears agohort-term leadership training program of the Japan Society (in New York!.
hat at that time, he touched on the question of. burden of defending the free world and asked me in essence how I
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thought about the contention of some Americana that "Japan shouldertain share of the financialemember, my off-hand response was: "Democracy in the United States is based on the idea of 'no tax withoutnd viewed from the standpoint of this principle, unless Japan isay about. defense policy, there would be non retrospect, however, this would give Japan an opportunity to express its views actively when it comes toispute by force, and Japan would find itselfather awkward position under its Constitution;hould have added sotto voce, "Nevertheless Japan would always abstain from expressing its views"
his paper. Fallows presumes that Japan will remain thesingle partner of the United States in terms of
. military arrangements, financial cooperation,usiness transaction. In the opinion of the average American,
what is most important in relations between countries is security relations, and probably Fallows may view the importance of these terms in the order given above. We have no objection to that.
However, we should alsohought to cooperation in the question
of relieving countries with accumulated foreign debts in,
namely, financial cooperation.
Throughout its history, the United States has alternated between the fatherly image of being the preserver of the prevailing order and the youthful image of the complainant protesting against the prevailing order full of injustices. There have been conflicts between these two images, and these conflicts have given the American intellect stimuli and nourishment. The bright side of this reality is the desire to realize justice, whereas the dark side is the after-the-fact approval of rule by force.
In the Fallows paper, we first sense the temperament of the United States as the preserver of the order, determined not to permit Japan, the disturber of the order, from expanding.
we then see the face of the United States as the demurrer. Formerly the United States saw Europe as the prevailing order full of injustices. But it is now turning its eyes on what appears to be anachronistic in Japan. hange. We see how strongly Fallows, who isemporary resident of Japan, feels about protesting against the irrational aspects of Japanese society, as well as the boss-dominated aspects of its life which are underlying factors in the rigidity of the market, at least from the standpoint of Japanese consumers.
is something common between these dual approaches.preserving the existing order based onand breaking up what is irrational in Japanese society are in
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harmony with each other and even complementary to each other. Heigh moral tone of condemnation andense of mission for reformation, something in common with the erstwhile advocacymodernization, and there is no room for cultural relativism. On the other hand. Fallows does not know first-hand tho fact that once in Japan, thereeneration which angrily felt that "it is high time for Japan to lead Asia in protesting against the world order centered around the West."
It is hard to put into practice the dictum "tho righteous, behe teaching of the mother of the late Toahio Doko, former chairman of the Federation of Economic Organizations, but it is harder still to practice the dictum "the strong, be righteous." If one regards forceeans for making one's will prevail, he will need self-restraint all the more to refrain from resorting to force, especially when he is not confident whether or not his view is right.
In this sense, the present-day United States is on the verge of crisis.
Trap of the New View on the Japanese
Hath respect to the conflicting views on the Japanese, Fallows' sketch of the Japanese is correct on the whole. But probably because of the limitations of his linguistic ability, his paper seems to be overly dependent on the criticism of tha Japanese by foreigners.atter of fact, the originals on which his paper is based have many errors in terms of facts and evaluations. But the Japanese, due to negligence and linguistic limitations, have failed to point out these errors in various forms, such as critical writings in influential foreign journals-
It is customary in Europe that observations which have remained unrebuttedertain period of time are used as the bricks, so to speak, to build the foundation upon which further inductions ore based.esult, the house of cards is being built on the assumption that Japan, "with an economy constitutionally predisposed to cartels and devoid of free markets,clopment-oriented state led by the government (or markedoiy relationship between industry andountry which has improved the international competitiveness of its industry and practiced mercantilism by pursuing an aggressive targeting policy, and which is the antipode of the United States (or the West) in every aspect. Naturally, the recent Recruit scandal has sprinkled this castle of cards with sequins in the formharge that "Japan is dominated by corrupt money
Here, we will digress from the Fallows paperhile to the arguments used in current Japan bashing, which have the following
three feature* in common:
Pornographic Comparison (or single-factorthree words ln English]
This refersopsided exaggeration of partial truths. To be sura, in the case of Japan, as is the case with other countries, there is hidden in its private parts some truths. Nevertheless, anyone who believes that the private parts contain everything that standsomanevel of intelligence even below that of the adolescent.reat countryong history, there are taany oultldirectional vectors. Accordingly, if one tries to explain everything about it by only collecting single-directional vectors, he can write only an article of ephemeral value. Moreover, one cannot explain everythingonsiderably efficient immense national economy on the basis of an induction from the private parts alone, for instance, from the different prices of its articles sold at home and abroad.
When'pornography directed toward women appears, men will understand why women are mad at the current pornography which is demeaning to them. Would it not be the height of happiness If one were able to aeo only the most attractive things about foreign countries rather than view their private parts with blinking eyes? We suggest that foreigners make an attempt to practice seeing what beautiful qualities there are in Japan. To be sure, Japan has many such qualities. The Japanese for their part should correct the shortcomings of the Japanese market, even little by little. Admittedly, even well-educated Japanese privately use the word
'r *'ameko" when they refer to Westerners or Americans. They say Japanese are xenophobes, but there are few countries In the world where so many foreign talents appear in commercial messages on TV as in Japan. We want foreigners to see thatountry smaller than California, there areentucky Fried Chicken shops andMcDonald's hamburger shops.
B. Viewly in the Toilet (or Jailbird's Sociology) (preceding two words in English]
This view is often found in writings by officials in charge of tradely in the toilet may believe Lhat all human beings stink,ly in the family Buddhist shrine may think that human beings are always sobbing,ly ln the noodle shop may think that human beings are alwaysipping sound. But whatan of intelligence differentroup of Juvenile adventurers is that he thinks there may be another aspect of the truth outside the realm of his observation.
Negotiators with Japan are always troubled by excessive market
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regulations and its meanness toward foreign firms If tha Japanese side really mada the kind of absurd refutations and explanations which Mr Fallows cites, then Japan cannot help but being stigmatizedunning temporizing race. But Japan's exports could not have increased to tha current level if the Japanese are ao untrustworthy, always cheating foreigners as they say. Moreover, if the predilection to cartels la prevalent in Japan as thay say, new merchandize could not make its debut on the market, one after another, and tha wholesale price could not have droppedercent from tho levelears ago.
C. Anecdotal Approach (or Anecdotal Economics) [preceding two words in English]
It is regrettable that the Fallows paper is not shielded from the effects of his reliance on the originals skewed toward auch views. This, in the final analysis, is related to another common feature, namely, an anecdotal approach.
Many"overseas best-seller type writings by foreign observers follow the stereotype pattern of inflaming low passions in the readers, by citing such anecdotes of commercial valtii* as the notorious cases of metal baaoball bats and the cumbersome standards lor ski equipment (one foolish Japanese blurted out that snow in Japan is not like snow in Europe, and this episode spread throughout the world overnightypical illustration of the closed nature of Japanese society), rather than presenting economic and sociological proof based on macroscopic observations. Anecdotes are meaningful in taking the readers by surprise at the beginningtraightforward economic observation. One Japanese claimed that "moat is not good for the Japanese because they have longer intestines than Westerners; accordingly, we are opposed to liberalization of meathis episode may be an interesting subjectight conversation at the dinner table, but in reality, the beef import quotas as well as beef consumption has Increased, and tbe liberalisation of beef imports is in the works. Salad and cheese are served at tho table and bread consumption has been popularized, would it nottore mature view if one Bakes the overall observation that the change ln the Japanese diet in this half century haa been radical-with no parallel in the world?
Well, the Fallows paper says in one breath that MIT1 (Ministry of International Trade and Industry] has nowroponent of free trade and in another that the trade policy administered by MITI is totally in tho nature of mercantilism. Thiself-contradiction resulting from his failure toacroscopic observation.
We will first briefly test the validity of his claim that since
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the adjustment of the exchange ratesnd since the subsequent Kaekawa Reporthe constitutional makeup of the Japanese economy has remained unchanged.
he ratio of the current account balance to the GUP (this is the only figure appearing in the Maekawa Report) had gradually declinedercent as of last yearercenthis ratio will continue to decline, even according to Lhe laLest maximum upward modifications of Japan'surrent account surplus, including the IMF projection.
In addition, the contribution of international payments balance to growth hasinus inears. Incidentally, the ratio of exports to the GNP has decreasedercent2 percent in the same period. The amount of exports has also dropped fromrillion yen torillion yen level.
he ratio of manufactured imports began to rise sharply from aboutercenteachingercenthe income elasticity coefficient of manufactured imports is considerably high.
he elasticity coefficients of Japanese exports and imports have changed quite radically. For instance, according to the latest monthly survey report of the Bank of Japan, the income elasticity coefficient of the volumeS.-bound exports has dropped, whereas the price elasticity coefficient has increased7
According to this year's white paper on trade, the Income elasticity coefficient of the volume of Japanese imports increased7S7 before the realignment of the exchange rates.
Already inear period5anufactured imports increased sharplyillionillion. Then, how can the argument that the readjustment of the exchange rates has no effect whatsoever on the Japanese square with this fact? There have been some worrisome periods in the statistics of the past several months. But if-the United States should call for containment of Japan on the basis of these unfavorable months, then would it not strengthen the impression of the United Statesanction-happy country justrigger-happy cowboy in westerns? In May thereeportrastic shrinking of Japan's trade surplus. The ratiobound exports to Japan's total exports dropped fromercent69 percentt is too much for Japan to handle if the United States extrapolates the trade balance on the basis of the longest. economic boom lasting roughly foronths. we are currently testing whether or not these dual factors, namely, the continuing boom in the United States and
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the rapid increase in the export of capital goods accompanying the sharp increase in Japan's direct overseas investment, are sufficient to explain the slow pace in narrowing the trade imbalance between the two countries.
Moreover, if youillomewhat anecdotal expression. Japan's annual imports from the United States are greater than tho combined total imports from the United States by the three leading European countries (Germany, France, andhis in spite of the fact that both the combined GNP and population of these three European countries are greater than those of Japan, we have, time and time again, pointed out these facts to the American ECONOMIST [asut it has made no response except to say that "it is because Europe is farther from the United States than Japan is ."
Things To Learn
However, in reality, it may be useless to point out these and other' facts.
Fallowsong time ago this much: macroeconomic factors are responsible for the trade imbalance of both Japan and the United States. In addition. Representative Gephardt and other influential Americans are unanimous in pointing out that even if tho Japanese market is fully liberalized, the payments imbalance between the two countries would improve only by SB billion, that is,ercent of the total imbalance.
To begin with, the trade balance in general and the balance of bilateral trade in particular have no economic meaning, and an exchange rate readjustment produces not much effect unless it is accompanied by macroeconomic policy. West Germany's trade surplus also increasedillion5illion8
(Japan's trade surplus increasedillionustoms clearancend thisighter fiscal policy on the part of theand the continued expansion of domestic demand on the partand Germany.
I presume what Fallows really wanted to say is that in spite of all this, unless Japan liberalizes its markets and thus becomes the standard-bearer of free trade in the GATT, the United States ond the whole world would suffer, and thatig country like Japanighly balanced economy, it would have an adverse impact overseas.
To be sure, there are only national treatment and most-favored-nation treatment as far as GATT rules are concerned, and
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introduction of the kind of reciprocity concept as advocated by Pallows--an idea that ia valid only in bilateralundermine the multilateral system. So, what about considering this issue in the following manner of thinking? Suppose trade and investment are completely liberalizedighly regulated economy (let It be tbe Japanese economy!parsely regulated economy (let it be.merican firms still would be unable to enter the Japanese market because of the cost of adapting itself to the Japanese regulations, even if It treated in the same way domestic firms are.
Needless to say, Japan has not violated the GATT rules in this regard, and Japan can insist that both sides should meet half way. Nevertheless, it will be beneficial to both sides if they endeavor to eliminate controls ao much as possible. The gap in the intensity of control produces friction by generating "positionalhere there are controls, there necessarily will be th* cost of administering th* controls and the cost of abiding by them (this cost is several times more than the administering cost) and th* controls, themselvei, wouldcorruption and shady deals. Th* administrative reform was intended not only to improve efficiency but also to makeetter place to live through an enhanced sense of responsibility on the part of each citizen,f-cleansing function of society,ider distribution of power and information, won'tl better if we suppress th* feeling that we loathe--or weahacaeful to be forced--to correct our shortcomings under outside pressures, or rather if we think that th* country that cannot eliminate its fiscal deficit even under worldwide pressures must be more shameful, and that the country that can ractify its economic shortcomings under outside pressures is much better.
Ts Japan Following Mercantilism?
Is mercantilism, that is, expansion of exports and curtailment of imports, possible nowadays?
First, the type of mercantilism referred to by Fallows, that is, the type by which "Spain and Portugal amasseds impossible unless the value of gold is considerably stable. Itnown fact that the value of gold has been fluctuating considerably, and the ratio of gold stock to the foreign currency reserves in Japanercent, the lowest among the summit nations (th* ratio in the United States3 percent).
Although th* value of the dollar has fluctuated violently, we may safely say holdings in dollars haveepreciating asset for these several years except over the recent several months. The foreign currency reserves of the Bank of Japan have markedly depreciated. In brief, in the age of theurrency,
ironically mercantilism may become an act of altruism. It may appear that Japan is pursuing real estate buying, but that is not true either. Janeway of THE WASHINGTON POST (onay) said that "in making investments in the United States (particularly investment in stocks, bonds, and real estate) the Japaneseersistent tendency 'to buyigh price and sellower price.'"
loating exchange rate system, mercantile measures (export subsidies, import surtaxes,uota system) would be neutralized by changes in the exchange rates. When we enforce an import quota system in one sector, it would rebound to the exchange rate, to the detriment of our own export industries. In addition,orld where capital moves freely, measures to curb imports will resultigher exchange rate, depriving export industries of their competitive edges, and eventually transferring employment and tax revenues to overseas. In brief, in the modern world mercantilismelf-correcting mechanism.
If Japan tries to protect its agricultural products, the food industries using farm products as raw materials will be forced out of business and move their bases of operation overseas.onsequence, Japan will lose employment, tax revenues, and its bases for the development of processing technologies, and the agricultural sector will lose its markets, On the other hand, if subsidies are paid to ships carrying export goods, foreign shipping agents will hire transportsower cost than our own ships,low to our own shipping industry, which will also come to demand protection. Thus protection would beget protection, and the cost of protection would fall on the shoulders of the proficient industries. In my opinion, the overwhelming role of Japan's industrial policy in quantitative terms has been the transfer of income from the proficient economic sectors to the inefficient sectors (agriculture among others). (This has been the case since the Meiji era, according to various sources,tudy by Professor Teranishi of Hitotsubashi University,onder why foreigners refuse to learn this lesson.) On the other hand, in ray view, the most effective industrial policy in qualitative terms has been the stimulation of rationalization efforts on the part of enterprises through gradual
The modeldevelopmental state" [preceding two words in English) which underlies the Fallows paper, seems to neglect the question of where the financial resources for protection and fostering come from. This will be the first question to be encountered whenargeting policy and related managing of trade in the United States. If the financial resources forigh-tech industry are to be sought in the corporate incomereater portion of the actual tax revenues will come from proficient and profitable industries, so this will end up transferring resources
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from the right pocket of the proficient industries to their left pocket.
Most probably, the relatively more effective part of our industrial policy has been that it hasool of research and development resources and information on overseas markets for enterprises, has spurred the dismantling of equipment in recession-affected industries, and has given enterprises the rational for their investment decisions.
In his paper. Fallows points out that Japan has tried to becomen every field.omparative advantage means the ranking in the domestic competition for productivity (as pointed out in7 presidential economicnd it should be noted that it does not mean, as is generally misunderstood, thatn our country is more efficient thann the competitor nation. Even if one country can produce more efficiently than its competitor in every industry, national income will increase when it substitutes importsertain group of industries.
The Japanese economy will become more efficient when the market rigidity of agriculture, distribution, and other heavily regulated sectors is removed. As things stand now, there willanpower shortage3 in the information processing sector alone (accordingrojection by the financial department of the Federation of Economicaturally, Japan cannot becomen everything" as Fallows claims it wants to, even in areas deemed unimportant. To put it bluntly, if the United States stops protecting the textile industry, at an annual costillion to consumers (according to9 presidential economic message), its national income will increase. Now is the best chance to do this, with the unemployment rate at its lowest inears, and in the longest sustained postwar boom. Incidentally, the United States had better do something about its agriculture, which will have more items on the list of restricted imports than its Japanese counterpartears from now. Moreover, it is shameful that thererice gap between Japanese goods sold at home and abroad, but it is also odd that the price of American wheat sold in Moscow is lower than that in the united states.
Savings and Investment
Saving is delayed consumption. In this sense the dollars that Japan has earned are bound to be spent for consumption. It is painful to be criticized only because we have worked hard and saved prudently in accordance with the teachings of Benjamin Franklin, but it is politically desirable to direct our consumption both in its broader and narrower senses toward the United States as much as possible. Observed overall, the United States has advantages in land-intensive
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goods (farm products), in scale, in defense-related equipment for which its government has put forth great efforts; therefore, it is natural for consumption in the narrower sense of the word to be directed toward American farm products, real estate, and arms. As far as military hardware is concerned, it is outside the GATT liberalization requirements. The reason some people in the United States are apprehensive of Japanese investment in real estate and plants in the United States is that such investment is, as the saying goes, the goose that lays golden eggs. On the contrary, some others are of the opinion that investment in real estate is more desirable because stocks and bonds can be sold overnight but real estate cannot be taken to Japan. The argument that Japan "should buy eggs, not the goose" bolls down to the demand that the Japanese save less. In this metaphor, attention should be paid to the fact that the goose (real estate and factories) will remain in the yard of the other party. Moreover, if additional operational resources are created and more eggs are laidesult of Japanese participation and the quality of the egg yolk improves, then it will be an additional merit of Japanese investment.
Fallows says that Japanese firms operating overseas do not hire non- Japanese for managerial posts. However, in view of the fact that the annual income of section and department chiefs of large Japanese firms has already surpassed that of their American counterparts (except for managing directors or higherhere willtepped up drive to hire more and more non-Japanese in order to save personnel expenditure, including the cost of stationing Japanese employees in the United States. Japanese firms operating in the United States which fail to put outstanding American youths (who choose not to enter the legal profession or Kail Street in favor of Japanese firms) in key posts will most likely be defeated in the whirlwinds of the American market.
Fallows also points out the lag in Japan's efforts to foster social overhead capital. But according to data on hand, the ratio of overall public fixed capital formation to the GNP in the pastears has been atimes that in the United States and twice that in west Germany, which rose from the ashes like Japan. In the overall-picture Japan-looks like it is falling behind now, but it should be remembered that Japanate starter.
Sfi. It has onlyears since Japan became first in the world in terms of per capita national income in the wake of the readjustment of the exchange rates. Inasmuch as being rich is an idea involving the stock of wealth rather than its flow, they should not hastily complain that the Japanese living standard is not highest in the world now. If Japan is left uncontained, it will improve this also. Needless to say, land is the most important problem.
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IT. Possibility of Containment.
SB. The logic of economics, just like underground water, cannot be containedence or embankment. The water will burst out if we try to contain it by force. Thereovie inhitelack break out of prison handcuffed to each other. At first, they curse each other, but they gradually come to cooperate each other from nacessity, and then when their handcuffs are removed, they become inseparable. The relationship batween Japan and the united States is closer than mad (mutual assured destruction) ties, and it seems that their relationship is so close that if one sidelow to the other, the blow will rebound to its own economy through natural consequences on its financial and service markets as well as th* monetary and capital markets, oven if the government of the other aide takes no retaliatory measures.
If the United States tries to shut out imports from Japan by import restrictions, exports from Japanese production bases in Asia and Europe will increase as long as ther*emand in the United States, and Japanese competitors will fill the void. The United States will have to shut out these imports also and end uporldwide quota system. When this teaches Wall Street, the market will panic.
On the other hand, if Japan la so foolish as to act inay as to hurt. economy, its direct investment in the United States ceases to bring in earnings,urther depreciation of th* dollar willreat blow to Japanes* life and non-life insurance companies and banks (including the Bank of Japan) with investments in American securities. To begin with, investment is an act which dependsealthy condition of th* *conomy of the other country more than on trade with it.
CI. It may be possible to stem th*f Japan, but it is impossible to contain the tides of MIC's (newly industrialized country] which will appear on the seen* one after another. If they are contained, one by one. then what is contained will not be Japan alon* but the world economy itself. What an irony it would be ifime when the free economy has at long last proved its superiority over the Soviet-type planned economy, th* United States should try to contain the free economy!
62. if the United states Is determined to contain Japan for the sake
of th* world order, it should do so only after letting Japan
cooperate with it in correcting the present state of
affaire--compared with Japan, the United Statesimes
more energy and emitsimeBercent of
th* globalhe cause of acid rain, andimes more
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Original document.
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