Commentary No. 3, Nov. 1, 1998
"Is Japan Rising or Declining?"
The press, the pundits, and the politicians are very fickle. They change their views about basic processes of the political economy with every bump in the business cycle. Nowhere has this been clearer than in the evaluation of Japan's role in the world-economy.
For over a year now, the world press has been full of discussion of the so-called Asian crisis and the serious plight of Japanese banks. The danger we face, we are constantly told, is that a recession, a deflationary thrust, that originated in East Asia (in Thailand immediately, but really in Japan before that) is spreading, will spread, like some plague and overtake so-called healthy national economies, of which the exemplar is said to be the United States.
Yet, a mere four years ago in 1994, a U.S. scholar could write, in a text typical of the period:
Given the end of the Soviet empire, a stagnant Europe, and a lack-luster U.S. economy, Asia Pacific economies offer the greatest opportunities for dynamic consumer and infrastructure-related markets for the 1990s. With California in the fifth year of a painful recession, the worst since the Great Depression, the Asia Pacific economies are particularly alluring as an export market.(1)
Is it possible that in a mere four years, the world-economy has been so transformed that the U.S. needs now to fear Japanese failures where in 1992 it needed to fear Japanese successes? In the 1980's we were regaled with the special merits of Japanese entrepreneurs - flexible production and subcontracting - and today we are regaled with its special vices - crony capitalism and undue government interference with the freedom of the world market. If the analysts of the 1980's, on hindsight, are said today to have been so wrong, are we sure that those proposing the virtually opposite analyses today are so right?
Once again, a longer time perspective would be helpful. Right up to the Second World War, indeed even into the 1960's, Japan was typically pictured as a poor country whose industries concentrated on low-cost, somewhat shoddy products. As recently as 1962, a prominent group of U.S. scholars published a comparative analysis of Japan and Turkey, trying to decipher which of these two industrializing countries, middle-ranking on a world scale, was more likely to succeed in its effort to "modernize" the country?(2)
All of a sudden, in the 1970's, Japan emerged on the world scene as a major locus of world-economic activity, at the level of western Europe and yes, of the United States. It was then that a Trilateral Commission was created. We began to speak of a Triad, and when the G-7 was constructed as the club of the rich, no one doubted that Japan was an essential member. As the U.S. debt escalated into the trillions in the Reagan era, it was Japanese money which made possible this indebtedness. In 1991, the U.S. could not have afforded the Gulf War without the subsidy of four countries, of which Japan was one. So whence the image that Japan today is not only in crisis today but is pulling the rest of the world down with it?
There seems little doubt that Japan (as the wealthiest and most dynamic center of an East Asian economic node) remains today one of the key loci of the world-economy on a par with, and as a rival to, the U.S. and western Europe. This has been constantly true since at least 1970. It is still true today. It will almost surely continue to be true over the next 25 years at least.
If we look back at the last 25 years, we see two outstanding economic facts. The entire period has been one of a Kondratieff downturn in the world-economy during which OECD data show that the global level of profits from productive activity has been noticeably lower than in the previous A-phase (1945-circa 1970) and that most capital accumulation has come from financial speculation.
The second outstanding economic fact of the last 25 years is that, since the global level of capital accumulation has been lower, the entrepreneurs of the three major centers (U.S., western Europe, Japan) have sought to shift the burden of the downturn to each other, and their respective governments have sought to shift the burden of unemployment to each other. The result has been a seesaw for 25 years, in which the U.S., western Europe, and Japan have each had their turns at being momentarily on the top and on the bottom in relation to each other. The 1980's was Japan's heyday. The U.S. has been doing comparatively better in the mid-1990's. In the last phase of the Kondratieff downturn, which is just ahead, it is probably Europe that will do the best. But these are passing advantages.
But what of the Kondratieff upturn that will come after the recession and deflation we are all entering now? In a downturn, the goal of one strong economic node vis-a-vis the others is to suffer the least. In an upturn, the goal of a strong economic node vis-a-vis the others is to capture the largest share of the expanded accumulation. They will all try to develop the same products, market them in remarkably similar ways, and seek to lock in world monopolies in the new technologies.
The advantage will not be located in some deep-seated cultural difference. It will be straightforwardly capitalist, and go to the one who will produce most competitively. And the secret will be as simple as lower costs. We usually however look to the wrong place for low costs. A competition of leading industries in a period of expansion has little to do with labor costs, since in fact these will probably be nearly identical in all three modes, and in any case, in a period of economic expansion, competing industries are more worried about strikes interfering with production than about creeping wage rises.
The key difference will be in remuneration at the top - both the very top of the industries and the vast "middle strata" of cadres both within the leading industries and in the larger civil society outside (the lawyers, the psychologists, the entertainers, the endless consultants). Here the U.S. bill is by far and away the highest, western Europe's much lower, and Japan's least of all. It is not hard to predict that in the period 2000 or 2005-2025, it is Japanese productive enterprises that are likely to garner the largest slice of the world economic pie in the new leading industries of that era - informatics, biotechnology, new energy sources - even if at the moment they seem to be doing less well in the second half of the 1990's.
1. Tapan Munroe, "The Importance of the Asia Pacific Region for California's Economic Vitality" in B.K. Bundy et al., eds., The Future of the Pacific Rim. Westport: Praeger, 1994, p. 63.
2. Robert E. Ward and Daknwart Rustow, eds, Political Modernization in Japan and Turkey. Princeton: Princeton Univ.
Press, 1964.
Immanuel Wallerstein
[Copyright by Immanuel Wallerstein. All rights reserved. Permission is granted to download, forward electronically or e-mail to others and to post this text on non-commercial community Internet sites, provided the essay remains intact and the copyright note is displayed. To translate this text, publish it in printed and/or other forms, including commercial Internet sites and excerpts, contact the author at iwaller@binghamton.edu; fax: 1-607-777-4315.
These commentaries, published twice monthly, are intended to be reflections on the contemporary world scene, as seen
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