by Walden Bello*

Gloom is the dominant mood in Japan these days. The nation’s spirit appears to be sinking along with its currency, which recently dropped to as low as 120 to the dollar from a high of less than 80 yen less than two years ago. Hardly anybody notices the fact that the economy has posted its best performance –over three per cent growth in GNP last year–since the recession began in 1991, leading one observer to comment that “just as the economy has begun to float free of the shoals, the hands are jumping ship.”

Instead, newspapers are full of headlines and advertisements for lectures and books warning of the demise of Japan as a world economic power. Typical is “Running on empty,” a headline for an article on the state of Japanese manufacturing industry in the Asahi Evening News.

The American Resurgence

It is striking how similar the current malaise in Tokyo is to that which afflicted the United States in the late 1980’s, when there was a widespread sense that American capitalism was on the ropes and the future belonged to Japanese capitalism. “Declinism” spread as the dollar sunk and the trade deficit rose, promoted by a diverse but influential band that included the journalist James Fallows, the historian Paul Kennedy, the novelist Michael (“Rising Sun”) Crichton, the economist Lester Thurow, and the famous Massachusetts Institute of Technology research team that all but wrote the epitaph of the U.S. auto industry.

Today, the declinists have lost much of their following, and in management circles, the so-called innovations that had been identified as responsible for catapulting Japan to world power status–quality circles, management-labor cooperation on the factory floor, and industrial policy–are being left by the wayside.

American capitalism is resurgent, confident, and brash. This new spirit was displayed at the recent World Economic Forum in Davos, Switzerland, by Intel’s Andrew Grove and Microsoft’s Bill Gates, who all but told the Europeans that they had lost the high tech race. The new arrogance is not limited to corporate entrepreneurs. It has, in fact, spread to intellectuals, even liberal ones like Thomas Friedman of the New York Times, who wrote recently that “while many in Europe and Japan are still trying to adjust to the demands of globalisation, and are barely up to the starting line, the US is already around the first turn.”

It is worth quoting at length from Friedman’s essay because this liberal paean to American capitalism synthesises the intellectual rationale for the new arrogance. “If 100 years ago someone told you that by the end of the century the defining feature of world affairs would be ‘globalisation’….and that you had to design a country best suited to compete in such a world,” Friedman writes, “in many respects you would have designed today’s America.”

“The US,” he explains, “has the world’s most diverse and efficient capital markets, which reward, and even celebrate, risk taking. Anyone with an invention and a garage can hope to raise millions overnight. It has a multicultural population that speaks the language of the Internet, a constantly renewing flow of immigrants, a transparent legal and regulatory environment, and a flexible federal political system. It has a job market that enables workers to move easily from one hot industrial zone to another, and a corporate sector that has, unlike Europe’s or Japan’s, already gone through the downsizing and restructuring needed for global competitiveness. It has multiple economies, with a single currency, on a single continent that looks to both the Pacific and the Atlantic.

“Globalisation,” Friedman concludes triumphantly, “is us.”

Is the Economic Miracle Formula Obsolete?

Declinism is not, however, dead; it has merely migrated to the other side of the Pacific, where Japanese versions of Fallows, Kennedy, and Thurow have surfaced to make a fast yen exploiting and deepening Tokyo’s fin de siecle pessimism. And, in an interesting reversal of roles, it is now American capitalism that is being held up as a role model for Japan’s corporate managers.

Three problems, in particular, receive widespread comment as the central reasons for Japan’s stagnation: obsolete economic institutions, the “strategic debacle” in software, and the decline in fertility.

Japan’s economic problems go beyond the weak yen, according to the pessimists. A more strategic indicator, they say, is the fact that the productivity of Japanese manufacturing is on average only 70 per cent of that of the United States,’ and dropping. They note that a seemingly positive trend in the 1980’s, the development of a truly global reach by Japan’s corporations, is actually deceptive since Japanese subsidiaries have actually been unprofitable in four out of nine regions of the world–in contrast to US subsidiaries, which were profitable in all regions. Moreover, the movement of Japanese manufacturing facilities abroad owing to high labor costs in Japan is “hollowing out” significant sectors of the economy without replacing them with new skill-intensive industries.

The economic malaise will not be cured by short-term solutions like exchange rate stabilisation, looser monetary policies, and fiscal stimulation via more government spending. The roots of the crisis lie deeper, and the reason that Japan’s economic managers find it so hard to provide a solution is that they feel the very institutions that gave birth to the high growth rates of the post war era may now constitute its Achilles Heel. These institutions include industrial policy or the targeting of particular industries to develop; the intimate relationship between government and business, with government providing strategic economic direction; the tight and comprehensive ties among particular banks and particular industrial corporations better known as the keiretsu system; and the social contract between management and labor that is represented, among other things, by the institution of lifetime employment.

This system has long been a target of the US in its effort to penetrate the Japanese market. What is interesting today is that the voices calling for change include Japanese voices, including the Economic Planning Agency and the venerable Ministry of Trade and Industry (MITI), which was one of the key architects of this system. In the euphemistic formulation of the Economic Planning Agency White Paper, “not only is the adjustment of the industrial structure needed, but the fundamental correction of those economic systems is also required.” MITI prefers the indirect approach to euphemism: by praising US policies and trends which, in its view, have spurred the US domestic economy while transferring low-wage jobs abroad–such as high-tech innovation, deregulation, privatisation of public services, and encouragement of venture capital.

But despite their plea for “greater flexibility,” neither MITI nor the EPA dare spell out concrete policies that would introduce more deregulation, more play of market forces, and a less activist government. One reason, say the cynics, is that the economic bureaucracies do not really want to give up their control of economic direction. But equally salient, it seems, are two concerns. One, that radical tinkering with one part of the system might unravel the whole instead of leading to its transformation. Two, that the social costs might be too high, with unpredictable consequences.

For Japan’s bureaucrats are very much aware that there is another, disturbing side to the newly competitive US capitalism celebrated by ideologues like Thomas Friedman. For what the US economic managers have brought about in their pursuit of a lean and mean corporate strike force for global competition is the most unequal distribution of income since the Great Depression, the reemergence of poverty on a significant scale, and tremendous alienation among the lower classes. If this volatile discontent, which now finds expression in inflamed anti-immigrant sentiment, is also the price that will be exacted by the dismantling of the institutions of Japan Inc., such as the lifetime employment of the core industrial labor force, then the hesitations of the managers of still relatively egalitarian Japan are understandable.

The “Strategic Debacle” in Software

If the bureaucrats are stymied when it comes to economic reform, they are desperate when it comes to high tech. The key to global economic primacy, they realise, lies in information technology. While the Japanese have excelled in translating technological innovations into cheap manufactured goods in consumer electronics, computer parts, and memory chips, it has eluded them in microprocessors and in software, the two strategic heights of the information sector, control of which allows domination of the whole sector, as exemplified by the twin hegemony now exercised by the US microprocessor manufacturer Intel and the US software giant Microsoft.

A recent interview I did with a prominent Korea-born engineer who immigrated to California’s Silicon Valley and ended up creating his own, thriving software firm, is worth citing extensively since it captured vividly several dimensions of the Japanese dilemma as perceived by a frontline fighter in the software wars.

Knowledgeable of the real state of Japanese high tech, he asserted, “I don’t think the Japanese fully realise that more and more, strategic control of their industries will lie with the American firms that will determine the software they will use.”

It is becoming clearer to people in the industry that the problem with the Japanese is not lack of capital. In fact, they have a surfeit of it. The problem is cultural. As the Silicon Valley entrepreneur noted, “software development depends on an education that emphasises logical rigour, individual creativity, and competitiveness. Japan’s educational system prizes memorising, discourages individual creativity, and puts the group above everything.”

An enthusiastic headhunter, he said that he doesn’t even bother to look for people in Japan, “because it’s a waste of time. And it’s not just a question of high salaries. It’s simply that I won’t find them there. We go to India and now to Lahore [Pakistan] for people, where the training in individual problem solving is along western lines.”

In fact, some Japanese firms have come to the same conclusion as Silicon Valley and started to form alliances with Indian firms, though, with their less insular and bolder methods, the Americans are far ahead of the Japanese. Besides, says the engineer, “you will never get the Japanese to import significant numbers of Indian software people into Japan the way the Americans do. It’s skilled immigrants that are largely fuelling information tech development in the US–something that is totally inconceivable in Japan.”

So what can Japan do to reverse the trend? He pauses, then says, “If I were the Japanese, I would focus on providing capital to others that have the capacity to innovate and let them do the innovating for me. You know, like venture capital. But the Japanese should not seek to control these companies, since Japanese methods will merely deaden their creativity.”

The Fertility Free-Fall

Culture rather than purely economic factors appears to also lie at the root of the third major problem that troubles the Japanese: the declining fertility rate.

The decline in the birth rate is a problem for most of the advanced capitalist countries, but the projections in the case of Japan are starker than those for most of the other major industrial powers. The current birth rate stands below replacement levels, and it is projected to decline from 1.45 per cent in 1995 to 1.38 in 2000. A recent study of the National Institute of Population and Social Security Research recently triggered alarm bells by projecting that Japan’s population will peak at 128 million in 2007, decline to 100 million by 2050, then plunge to 67 million by 2100.

Japan’s declining birth rate has exercised the country’s male elite, in particular. It is reported that in an earlier incarnation as a senior minister of a previous government, Prime Minister Ryutaro Hashimoto suggested that one way to arrest the fertility decline was to discourage women from attaining higher education!

Hashimoto and other powerful males are not mistaken in sensing that it is educated women that increasingly hold the key to Japan’s future demographic profile and, indirectly, its future economic and political status in the world. In the 10 years since 1985, the percentage of those unmarried among women in the key 25-29 years old age bracket jumped from 30 per cent to 50 per cent.

The Sexual Strike

Undoubtedly, the statistical trends are to be accounted for partly by economic rationality: In the choice between staying single and devoting oneself exclusively to work and getting married and being torn between the demands of one’s occupation and housework, Japanese women are opting for the former in increasing numbers. Economic choices are, however, only partially responsible for women’s marriage choices. Indeed, what seem to be economic choices in this case are shaped by cultural expectations that have prevented the creation of institutional arrangements that would ease the burdens of the modern working wife, who does not want children to become an insuperable obstacle to career advancement: Men are not expected to do housework or care for the children, women are.

These expectations are, in turn, part of a complex of male values and expectations that are geared toward socialising women to be submissive, loyal, and housebound. It takes but a few conversations with Japanese women in their 20’s and 30’s to realise that something profound is happening in the relations between the sexes. An ordinary 38-year-old housewife in Osaka, who serves as a schoolteacher and takes care of the child while her husband spends most of his time working in Tokyo, told me, “The growing gap in men and women’s expectations–that is this country’s no. 1 problem. I simply can’t accept it when my husband tells me that the reason we’re together is to have somebody take care of him when he’s old.” Her husband, at her side, says nothing, though he is clearly embarrassed.

A very bright and capable 30-year-old leader of a Tokyo-based NGO tells me that practically all of her friends who got married are now divorced and in no hurry to get remarried. “It’s this widening gap between traditional male expectations and women’s changing values that’s making more and more women of my generation choose to remain unmarried,” she stated.

“Narita-divorces” are on the rise, she says, referring to a phenomenon whereby lovestruck lovers leave for their honeymoon from Narita airport only to return wanting a quick divorce. “Most Japanese men just don’t get it,” she concludes, revealing that she herself has had a long-term relationship with a non-Japanese male.

It is tragic that probably the last to realise that their women are waging what amounts to a sexual strike against them are Japanese men, who do not appear to be in any hurry to shed their old ways.

Is Japan’s Decline Irreversible?

The decline in fertility and the rise in the numbers of unmarried women will have major consequences both for the domestic economy and for Japan’s place in the world. The proportion of senior citizens is expected to reach a quarter of the population by 2015 and climb to nearly a third by 2049. What precisely will be the shape of the political fallout of a situation whereby relatively less and less people of working age support relatively more and more economically non-productive people is not known, but that there will be a political fallout is certain.

With a progressively smaller pool of workers to draw from, Japan will be forced to confront the decision of either allowing in large numbers of foreign workers or accelerating the movement of its industrial facilities to East Asia to take advantage of plentiful Asian labor. Whichever option Japan follows will have explosive consequences.

With fewer and fewer cannon fodder in the form of young Japanese recruits, Japan might opt for a high tech military force structure and strategy, including developing the nuclear bomb to provide the “ultimate security” to an aging population.

So is Japan entering a period of irreversible decline, as the indicators and trends appear to suggest?

In military strategy, there are said to be two fundamental maxims. One is to never invade Russia. The other is to never invade China. There are analogous truisms in the study of technoeconomic competition among nations. The first is never to count the US out. The second is never to count Japan out.

Like the United States, Japan might have a few surprises in store for the declinists among us.

*Dr. Walden Bello is co-director of Focus on the Global South, a program of policy research and analysis of the Chulalongkorn University Social Research Institute in Bangkok and a professor of sociology and public administration at the University of the Philippines.