While Prestowitz’s disillusionment with the Japanese model is better late than never, his proposal of a WTO remedy for Japan’s troubles is wrongheaded. Japan’s economic woes are not a trade problem and should not be treated as such.86 Trade disputes should deal exclusively with government policies that discriminate against goods or services of foreign origin. The dysfunctional Japanese policies at issue do not fit that description. Punitive tax rates on corporate and personal income do not discriminate against foreigners; neither does the failure to clean up banks’ bad debts; neither does the hopeless attempt to fake economic vitality with wasteful public works spending.
The argument made by Prestowitz and others is that if Japan reforms its economy and returns to a healthy growth path, it could import more and take up the slack for the ailing economies of the Pacific Rim. Perhaps, but how does that distinguish Japan from other countries around the world? Surely Europe could grow faster and absorb more imports if it weren’t hobbled by chronic double‐digit unemployment. If every economic underachiever were hauled to the dock, there would be no end of WTO tribunals.
The revisionists claimed to have discovered a new and superior form of capitalism: the Japanese capitalist developmental state. Today, however, the Japanese model is better known as “crony capitalism,” and its manifest failures are causing economic pain and political turmoil up and down the Pacific Rim. The revisionists argued that the United States was doomed as a leading economic power unless it adopted Japanese‐style practices. It didn’t and is now enjoying spectacular and unrivaled prosperity.
In short, the revisionists’ doom‐and‐gloom prophecies could not have been more wrong. All their errors trace back to a common source: an inability to understand and appreciate the power of free markets. Suffering from what Nobel Prize‐winning economist F. A. Hayek termed the “fatal conceit,“87 they believed that a handful of government planners could outthink millions of private decisionmakers–could pick “strategic” industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naive. Only a few short years were needed to burst their bubble.
1. Robert Neff, “Rethinking Japan,” Business Week, August 7, 1989, p. 44.
2. Clyde Prestowitz, Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It (New York: Basic Books, 1993), p. 72. This book was orginally published in 1988 and reissued in 1993 with a new introduction.
3. Stock market percentage decline is based on authors’ calculation of Nikkei 225 prices with a historic high of 38,915.87 (set at the end of 1989) and a June 30, 1998 closing price of 15,827.02. Real estate price decline figure is taken from “The Japan Puzzle,” The Economist, March 21, 1998, p. 22.
4. Reported in Peter Landers, “Japan: Time of Troubles,” Far Eastern Economic Review, February 26, 1998, p. 54.
5. “Japan MOF Official/Bad Loans,” Dow Jones News Service, May 11, 1998.
6. Figure taken from “The Japan Puzzle,” p. 22.
7. Three‐month money market rate taken from “Financial Indicators,” The Economist, July 4, 1998, p. 101.
8. U.S. data from Bureau of Economic Analysis, Revisions to Percent Change in GDP, Real GDP, and Price Indexes, http://www.bea.doc.gov/bea/an/ 0897niw/table4.htm. Other data available at http:// www.oecd.org.
9. Sandra Sugawara, “Officials Confirm Japan Is in Recession,” Washington Post, June 13, 1998.
10. Paul Blustein, “U.S., Japan Move to Boost Yen,” Washington Post, June 18, 1998.
11. “CORRECT: E.U.-11 April Unemployment Rate 11.3%, Same As March,” Dow Jones Newswires, June 16, 1998, http://interactive.wsj .com/archive/retrieve.cgi?id=DI-CO-19980616–001758.djml.
12. Quoted in Sugawara.
13. “One in Ten?” The Economist, July 1, 1995, p. 26.
14. Rupert Thompson, “Japanese Government Bonds to Rise,” Investment Week, October 20, 1997, http://www.invweek.co.uk/invweek/MARKETS /october/20markgi.htm, or “Japan Cabinet Approves This FY Y4.646 Tln Extra Budget,” Dow Jones Newswire, May 11, 1998.
15. Paul Abrahams, “Ageing Cohort Needs Faster Growth, Higher Returns,” Financial Times, March 26, 1998.
16. “Sony Chief Says Japan’s Economy Faces Collapse,” Financial Times, April 3, 1998.
17. Jim Rohwer, “Japan’s Quiet Corporate Revolution,” Fortune, March 30, 1998, p. 83.
18. Michael Crichton, Rising Sun (New York: Knopf, 1992), p. 349.
19. James Fallows, “Containing Japan,” Atlantic Monthly, May 1989, p. 40.
20. Prestowitz, Trading Places, p. 493.
21. Ibid., p. 94.
22. Chalmers Johnson, Japan: Who Governs? (New York: W.W. Norton & Company, 1995), p. 9.
23. Quoted in John Berlau, “Romancing the Japanese Model: Fans of Industrial Policy Suffer Unrequited Love,” Investor’s Business Daily, April 29, 1998.
24. Alan Murray, “Asia’s Financial Foibles Make American Way Look Like a Winner,” Wall Street Journal, December 8, 1997.
25. Robert Zielinski and Nigel Holloway, Unequal Equities: Power and Risk in Japan’s Stock Market (New York: Kodansha International, 1991), p. 24.
26. Robert L. Kearns, Zaibatsu America: How Japanese Firms Are Colonizing Vital U.S. Industries (New York: Free Press, 1992), p. xi.
27. Johnson, Japan, p. 63.
28. Prestowitz, Trading Places, p. 519.
29. Karel van Wolferen, The Enigma of Japanese Power: People and Politics in a Stateless Nation (London: Macmillan, 1989), p. 400.
30. Prestowitz, Trading Places, p. 519.
31. James Fallows, “Getting Along with Japan,” Atlantic Monthly, December 1989, pp. 54–55.
32. Quoted in Murray.
34. Jesper Koll, “The ‘Big Bang’ of Financial Market Reform,” Remarks delivered at “Deregulation in the Global Marketplace: Challenges for Japan and the United States in the 21st Century,” Cato Institute‐Keidanren Symposium, Tokyo, April 6, 1998. Text available from authors by request.
35. Kearns, p. 6.
36. Gillian Tett, “A Bang or a Whimper?” Financial Times, April 1, 1998.
37. “Bang, Pop or Sputter?” The Economist: A Survey of Financial Centers (insert), May 9, 1998, p. 29.
38. Rohwer, p. 84.
39. James Grant, “Why Japan Is Undervalued,” Wall Street Journal, April 17, 1998.
40. Prestowitz, Trading Places, p. 256.
41. Chalmers Johnson, MITI and the Japanese Miracle, 1925–1975 (Stanford, Calif.: Stanford University Press, 1982), p. 323.
42. “The ESI FAQ, http://www.econstrat.org/ Inside.htm, on May 26, 1998.
43. For more on the failure of U.S. industrial policy, see Brink Lindsey, “DRAM SCAM: How the United States Built an Industrial Policy on Sand,” Reason, February 1992; or T. J. Rodgers, “Silicon Valley versus Corporate Welfare,” Cato Institute Briefing Paper no. 37, April 27, 1998.
44. The core of U.S. high‐tech industrial policy is the Advanced Technology Program (ATP), which had a 1997 appropriation of $225 million. ATP was zeroed out by Congress in the 1996 budget cycle, although President Clinton vetoed that bill and secured a compromise that allowed ATP to survive with a 49 percent budget cut. In 1997, ATP’s budget was expanded by only 2 percent.
45. Jeffrey Batholet, “Dimming the Sun: the Alliance of Japanese Bureaucrats and Businessmen Doesn’t Work So Well Anymore,” Newsweek, March 17, 1998, p. 38.
46. David P. Hamilton, “Japan Appears Set to Abandon Its Analog HDTV,” Wall Street Journal, March 3, 1997.
47. Prestowitz, Trading Places, pp. 491–92.
48. “Public TV and the Transition to Digital Broadcasting,” Current Online, May 4, 1998, http://www.current.org/atv1.html. The “Grand‐Alliance” consists of AT&T, General Instrument, MIT, Philips, Sarnoff, Thomson, and Zenith.
49. Johnson, Japan, p. 95.
50. Prestowitz, Trading Places, p. 514.
52. Fallows, “Getting Along with Japan,” p. 62.
53. Johnson, Japan, p. 13.
54. Ibid., p. 89.
55. Ibid., p. 55.
56. Cited in Scott Latham, “Market Opening or Corporate Welfare? ‘Results‐Oriented’ Trade Policy toward Japan,” Cato Institute Policy Analysis no. 252, April 15, 1996, p. 34.
57. Johnson, Japan, p. 67.
58. James Fallows, Looking at the Sun: The Rise of the New East Asian Economic and Political System (New York: Pantheon Books, 1994), p. 208.
59. Johnson, MITI and the Japanese Miracle, p. 315.
60. Quoted in Fallows, “Containing Japan,” p. 40.
61. Johnson, Japan, p. 68.
62. An analysis of Japanese “lean production” techniques in the automobile industry is provided in James P. Womack, Daniel T. Jones, and Daniel Roos, The Machine That Changed the World, (New York: Macmillan, 1990).
63. Federal Reserve Board chairman Alan Greenspan made this point recently in congressional testimony on the Asian financial crisis. See Alan Greenspan, Testimony before the Committee on Foreign Relations, U.S. Senate, February 12, 1998, http://www.bog.frb.fed.us/boarddocs/testimony/19980212.htm.
64. Economist Alan Reynolds makes this point in “Toward Meaningful Tax Reform in Japan,” Remarks delivered at “Deregulation in the Global Marketplace: Challenges for Japan and the United States in the 21st Century,” Cato Institute‐Keidanren Symposium, Tokyo, April 6, 1998, http://www.freetrade.org/pubs/speeches/ar-4–6-98.html.
65. Clyde Prestowitz, “Retooling Japan Is the Only Way to Rescue Asia Now,” Washington Post, December 14, 1997.
67. Eamonn Fingleton, Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000 (New York: Buttonwood, 1995), p. 290.
68. Ibid., p. 61.
69. Ibid., p. 294.
70. Eamonn Fingleton, “The Great Recession: Real or Fabricated?” American Chamber of Commerce in Japan Journal, April 1, 1997.
71. Fingleton, Blindside, p. 6.
72. Based on the OECD’s gross domestic product statistics available at http://www.oecd.org/std/ gdp.htm.
73. Quoted at http://www.amazon.com/ exec/obidos/ASIN/0395633168/o/002–9089057-0751229.
74. James Fallows, “How the Far East Was Won,” U.S. News & World Report, December 8, 1997, p. 11.
76. Paul Krugman, “I Told You So,” New York Times Magazine, May 5, 1998.
77. Chalmers Johnson, “Asia’s Financial Meltdown: What Caused It and What Does It Mean?” Remarks delivered before the Economic Strategy Institute, March 24, 1998, http://www.econstrat.org/ECONSTRAT/johnson.htm.
78. Chalmers Johnson, “Cold War Economics Melt Asia,” Nation, February 23, 1998, p. 16.
79. Chalmers Johnson, posted on the Dead Fukuzawa Society listserv, aprox. December 1997. Text available from authors by request.
80. Johnson, Japan, p. 13.
81. Ibid., p. 83.
82. Clyde Prestowitz, “Going Down with Japan,” Far Eastern Economic Review, April 16, 1998, p. 15.
83. Prestowitz, “Retooling Japan Is the Only Way to Rescue Asia Now.”
84. Prestowitz, Trading Places, p. 514.
85. Clyde Prestowitz, “A Plan for Japan,” Washington Post, April 7, 1998.
86. Brink Lindsey, “Japan’s Weakness Is No Threat,” Journal of Commerce, May 29, 1998.
87. F. A. Hayek, The Fatal Conceit (Chicago: University of Chicago Press, 1989).