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The myth of a failed Japan

By Warren Reed - posted Friday, 17 June 2011


References in the media to the state of the Japanese economy, whether perfunctory or carefully considered, too often provide a skewed view. Typical is an article in London's Financial Times on June 15 by that newspaper's renowned commentator, Martin Wolf. Headlined 'How China could yet fail like Japan', its assumption is that the failure of the Japanese economy is a given.

"Until 1990," Wolf begins, "Japan was the most successful large economy in the world. Almost nobody predicted what would happen to it in the succeeding decades. Today, people are yet more in awe of the achievements of China. Is it conceivable that this colossus could learn that spectacular success is a precursor of surprising failure? The answer is: yes." Unsurprisingly, Wolf makes some useful comparisons, but their relevance would be more substantial if premised upon an understanding of the real Japan.

Eamonn Fingelton, an Irish expatriate and long-time resident of Tokyo, writing in the June issue of the American Conservative, puts it this way: "Western observers are discovering that the Japanese economy is not quite the irrelevant has-been they had assumed. To say the least, as shortages of Japanese-made components and materials cause cascading shutdowns in the world manufacturing supply chain, Japan has suddenly emerged in an interesting new light. On the measures that matter to Japanese leaders, Japan quietly continued to power ahead even after the Tokyo stock market crash of the early 1990s."

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The most important measure, or course, is exports, particularly exports of advanced manufactures. Fingleton suggests that while the attention of Western observers has been elsewhere, Japan's exporters have not been resting on their oars: "Rather, they have performed so strongly that Japan multiplied its current account surplus more than five-fold between 1990 and 2010! In the same period, America's current account balance also multiplied five-fold – its current account deficit, that is. The two developments are opposite sides of the same coin. Japan's key strategy has been to acquire 'chokepoints' – monopolies or at least strong oligopolies – in countless producers' goods, often highly advanced goods in which the United States was formerly the world's leading or only source. The result, as is now very belatedly becoming clear in Washington and elsewhere, is that Japanese manufacturers have achieved the sort of global supply chain dominance enjoyed by American manufacturers at the height of American economic power in the 1960s. Though producers' goods are invisible to the consumer, they are vital to the global economy – so vital indeed that without them the modern world literally would not exist."

Clyde Prestowitz, a longstanding US commentator on Japan and one-time advisor to the Reagan Administration, noted in the Foreign Policy journal at the start of this year that Americans should ask, what of that $55 billion trade deficit with Japan that so concerned Reagan in 1986? By 2006, it was $90 billion. Overall, the US today is running a global trade deficit of roughly $600 billion. The numbers aren't lying, he says. "It's time to realise that the US never really beat Japan – and it's unlikely to win against China without a new strategy. Chanting tired ideological mantras didn't save us in the late 1980s. And it won't save us now."

Where has this distorted image of Japan come from?

Fingleton says, "The irony is that had foreign correspondents been reporting competently all along, Japan would never have slipped from view … Now suddenly it turns out that Japan's economic death has been greatly exaggerated … In reality, anyone with access to international trade figures could have seen all along that Japan's problems were vastly overblown." Likewise with the Japanese Government's hefty debt burden, which is now over 200 per cent of GDP. In stark contrast to many other countries in a similar situation, Japan's debt is a 'family affair' – money borrowed from Japanese inside the Japanese economy, rather than from outside.

David Pilling, a Financial Times columnist who does read the figures accurately, earlier this year homed in on claims that Japan had lost its 'mojo', and on the ridicule that observers heap on that country for its economic stagnation, indebtedness and corporate decline. He acknowledged that while most of the facts presented to us certainly tell a story, it is not a complete one. If we start from the proposition that the business of the state is to serve its own people, the picture looks rather different, even in the narrowest economic sense. "Japan's real performance," he noted, "has been masked by deflation and a stagnant population."

Of course, Japan's revolving-door prime ministership hardly enhances the country's image overseas. If you're visiting Japan remember never to mention politicians – it's a quick way to make Japanese lose their much-vaunted cool!

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Mistaken perceptions of the country are not restricted to its economy. They are commonplace in reporting on the multiple disasters that struck Japan on March 11 and thereafter. Little is known about Japan's emergency information processes, which are probably the world's most sophisticated. And they generally functioned well when the earthquake struck. NHK, Japan's national broadcasting corporation, acts as the country's central nervous system in an emergency. Japanese automatically tune in to learn what has happened, where and why, and what they need to do. As Fingleton points out about March 11, "a vast network of ingenious systems snapped into action to shut off power grids, gas flows and bullet trains." As one British disaster expert has noted, in Japan even the doors of fire stations are pre-programmed: on the first hint of a tremor, they open automatically, thereby enabling fire engines to make the fastest possible exit if the earthquake turns out to be serious.

The disaster at the Fukushima nuclear power plant justifiably took centre stage in domestic and international coverage of the earthquake and tsunami. But this overshadowed notable successes in Japan's emergency preparedness. Foreign reporting of the earthquake's impact on the capital, Tokyo, focused on the 'scary swaying of skyscrapers' without any reference to the fact that that was precisely what they were designed to do. Most importantly, none of them collapsed. Lost in the understandable sensationalism of the moment were the strict building codes introduced in Japan after the earthquake that destroyed much of Kobe in 1995, killing 6,600 people.

Those same codes were responsible for minimal damage to new buildings – whether houses or high-rises – along the northern Honshu coastline that bore the brunt of the magnitude 9.00 earthquake on March 11 and the tsunami that followed just under an hour later. Also lost in coverage of that day's events was a major achievement of Japanese engineering: construction of an elaborate system of seabed breakwaters offshore from ports, harbours and population centres along that same tsunami-prone coastline. Each of these giant underwater structures, created by using 10,000-tonne reinforced concrete caissons specially designed for each site, was positioned to disrupt the three or four 'pre-waves' before the tsunami itself struck. The aim – to generate significant water turbulence to mitigate the momentum of the giant wave itself.

As these installations were put in place, each in accordance with extensive historical data from similar waves over the past thousand years, local communities were briefed on the purpose of the exercise. No structure, it was explained – be it on the seabed or in the form of onshore protective walls – could save their homes from destruction. What the breakwaters could do, however, was to buy extra time for residents to flee to high ground. This is exactly what happened on March 11, with valuable minutes helping people reach safety. That vital margin of time came on top of warnings provided by seismologists immediately before the quake struck, coupled with the traditional awareness that a powerful offshore earthquake would inevitably be followed by a massive wave. A government tsunami research institute south of Tokyo, where the breakwaters were designed, had long studied this eternal threat to the country and how the human toll could be minimised.

There is much more about the real Japan that needs to be known. Catch-phrases like 'the Japanese economy's two lost decades' do nothing to inform Australians of the truth about one of their most important trading partners and close allies.

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About the Author

Warren Reed was an Australia-Japan Business Cooperation Committee scholar in the Law Faculty of Tokyo University in the 1970s. He later spent ten years in intelligence and was also chief operating officer of the Committee for Economic Development of Australia. He served in Asia, the Middle East and India.

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