Protectionism Is (Almost) Mainstream

Lighthizer, Robert. No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers: New York: Broadside Books, 2023.

====


“When the facts change, I change my mind. What do you do, sir?”

Often attributed to John Maynard Keynes, this stinging remark makes a fitting epigraph for Robert Lighthizer’s outspokenly mercantilist new book. One fact change in particular is hard for his opponents in the free trade camp to gainsay: China has now passed the United States as the world’s largest trading nation. The implications, as he suggests, are profound.

Lighthizer, who served as Donald Trump’s United States Trade Representative (USTR), has become increasingly critical of free trade over the years. It has been a tough slog and for many years challenging the free-trade consensus was only slightly less damaging for one’s social prospects than, say, admitting to having a current case of COVID.

One thing we can all agree on is that the speed of China’s rise has been awesome. As recently as 1999, when Beijing began negotiating to enter the World Trade Organization (WTO), China’s exports totalled little more than one-quarter of America’s. But China was already then an unstoppable freight train and it passed the United States in total exports as early as 2009. Then in 2013 it passed also in overall trade (imports + exports). It is evident moreover that China’s run is far from over: year-in-year-out China continues to ramp up its manufacturing base and on the most recently available figures, its exports exceeded America’s by nearly 40 percent.

Hardly anyone now holds out much hope that China will ever embrace free trade. Given that it is usually the winners, not the losers, who set the rules, the implications spread out in all directions. What exactly is the World Trade Organization’s role going forward? And how does the new reality play in the Second and Third Worlds? It seems only yesterday that the United States packed enormous moral authority in promoting free trade around the world. Now, to say the least, America’s authority has been holed below the waterline.

How did all this come to be? One promising place to start might be with Lighthizer’s predecessors at the office of the Trade Representative. He
avoids naming names and even Michael Froman, who served as President Obama’s USTR between 2013 and 2017, does not figure in the index. But, reading between the lines, it is evident that he regards incompetence among his predecessors as a key factor.

Another factor has been — dare one say it? — graft. The revolving door has long been a major factor in the trade field and was the subject of a memorable exposé in Pat Choate’s Agents of Influence as far back as 1990.

Speaking about the “trade-deficits-don’t-matter” crowd, Lighthizer puts it this way: “The political establishments of both Republican and Democratic parties, under the influence of multinational corporations and importers, were unwilling or unable to recognize their mistakes.”

Then there are the economists. Lighthizer is undoubtedly right to suggest that classical economists like Adam Smith and David Ricardo would never have stood for the vast trade deficits America has incurred in the last forty years. But these economists’ successors in the modern economics profession seem to have been almost entirely asleep at the switch. Lighthizer generally goes easy on the profession but, in a stinging slap, describes Larry Summers as “China’s favorite former Secretary of the Treasury.”

A further factor has been America’s allies. Lighthizer reports that they have often been less than supportive of America’s efforts to open the Chinese market. This was particularly evident in the lead-up to China’s admission to the World Trade Organization. Referring to the WTO, he writes: “Many US policymakers hoped that by creating a new multinational organization — and giving that organization the power to rule upon trade disputes — we could obtain better cooperation from our trading partners. But our trading partners in Japan and in Western Europe had a very different agenda. They were looking for ways to stop Americans from using the leverage of our huge market in trade negotiations.”

Here and there Lighthizer could have dug deeper. In the case of Japan, for instance, he accepts the conventional story that the Japan economy is deeply troubled. He talks of a Japanese “fall.” But if it is a fall, Japan’s exporters seem somehow to have defied the law of gravity. One useful indicator of the real Japan is the auto industry. Japanese automakers continued to win global market share all through the 1990s and afterwards, and did so mainly at the expense of their American competitors. As Japan entered its supposed “lost decade,” General Motors was still very much the world’s largest automaker with sales more than double those of its nearest Japanese rival, Toyota. But Toyota has consistently outperformed GM and the result as of 2022 was that Toyota’s sales were nearly 70 percent larger than GM’s. Toyota passed General Motors in global sales as far back as 2007. Such is the alertness of the modern American business press, that the news went almost entirely unrecorded.

The “basket-case” story can easily be shown to be fiction. It is based almost entirely on uncheckable forecasts, not on checkable facts. The forecasts — typically of a banking collapse supposedly just around the corner — came almost entirely from foreign observers, generally investment bankers and stock analysts, many of whom clearly had a questionable agenda. What is undeniable is that Japan’s trade negotiators used the basket-case story to great advantage. Fears that Japan might be tipped into a 1930s Great Depression constantly restrained Washington in trade negotiations to open Japanese markets.

How did Japan really do in the 1990s? The official GDP numbers suggest there was virtually no growth. Yet the reality on the ground, so far as any outsider can tell, is that Japan went from strength to strength. Yes, thanks to jolting changes in population policies in the 1930s and 1940s, Japan’s demographics are uniquely distorted. But judged by per-capita numbers Japan remains what it has long been, an increasingly prosperous society. Take life expectancy. Despite the fact that the Japanese diet has been becoming more Americanized in recent decades, Japan’s life expectancy keeps on growing. It was up nearly two years in the 1990s and now runs nearly six years longer than America’s.

Anyone who knows Japan can point to how rapidly living standards continued to rise during the lost decade. Take, for instance, travel. During the “lost decade” alone vacation travel out of Japan increased by 69%.

The remarkable degree to which the real Japan diverges from the basket case version was recently the subject of a major essay in the New York Times by Paul Krugman. Krugman even suggested that Tokyo is so vibrant that it might be compared with fin de siècle Paris. He commented: “The Japanese are clearly having great success with sophisticated urbanism; if you think of Japan as a tired, stagnant society, you’re getting it wrong.”

Where do we go from here? Lighthizer convincingly argues that the era of free trade is over. Certainly that is the case for the United States and other large economies. The main nations of East Asia have all in their turn already chosen mercantilism and, far from finding themselves cast into outer darkness, they continue steadily to increase their trade surpluses and their living standards. Their success will surely be emulated by other nations in the years ahead.

Lighthizer’s solution is tariffs, and together with his Trump administration colleagues, Peter Navarro and Wilbur Ross, he managed to spearhead a bipartisan effort to impose tariffs on China. But if America is ever to balance its trade again, this initiative alone is far from enough. For a start China is not the only problem but merely the largest and most visible. The world trading system is full of cheats. Yet, Trump or no Trump, it is hard to see America rapidly restoring the sort of comprehensive system of tariffs it had in, say, the Roaring 1920s. There are just too many well-placed opinion makers in the American establishment who recoil at the mere mention of tariffs.

Luckily, however, there is a promising alternative: the Buffett plan. Proposed by the financier Warren Buffett in 2004, the Buffett plan would require American importers to buy import certificates from American exporters. For each dollar of exports an exporting company generated, it would receive a government voucher entitling the bearer to import a dollar’s worth of goods or services. The effect would be to make the trading system self-righting.

Lighthizer mentions the Buffett plan but offers no analysis of its merits versus tariffs. Yet the Buffett plan has a special attraction in that it would make elegant use of the market mechanism, and thus might go some way towards smoothing the economics profession’s ruffled feathers.

This brings us to the question of where the economics profession went wrong. Wearing his trade lawyer’s hat, Lighthizer takes it for granted that everyone can see that free trade is a disaster. Thus he sees no reason to go toe to toe with economists in debating the merits of, say, the Theory of Comparative Advantage. That is a pity because in any effort to build a new and better trading system, it would be useful to have the American economics profession on side.

This is not the place for a detailed discussion but surely a major point is that the theory has not kept up with reality. We accept change in other areas of life. We don’t use coal-fired vehicles to get around anymore. We don’t expect medical doctors to administer blood lettings. Why didn’t economists keep up? A big part of the answer surely is that American economists have hitherto had little chance to study East Asian supply chains. The functioning of these chains diverges radically from how the Theory of Comparative Advantage might suggest. A key assumption underlying the theory is now seriously obsolete: the idea that marginal costs remain constant as production rises. The reality in many industries, particularly in key producers’ goods industries, is that marginal costs tend to nosedive as production increases. Sometimes known as the Cost Structure Revolution, this tendency opens the door to all sorts of strategic pricing as competitors in new niche industries race to gain incumbency. The effect is compounded by the no-layoff policies in many parts of East Asia: the point is that labor behaves more like a fixed cost than a variable one.

We hear little about this because producers’ goods are almost invisible not only to consumers but even to economists. And even Lighthizer largely overlooks their importance. Yet economic history tells us they are of pivotal importance.

Britain owed its nineteenth century economic supremacy in large measure to dominance in key producers’ goods, especially production machinery and other important niches where incumbents enjoyed a huge advantage. Then in the early decades of the twentieth century, leadership in producers’ goods passed to the United States. After World War II, the Americans’ lead seemed utterly unchallengeable but with skillful use of protectionism Germany and Japan slowly but surely increased their market share. Today the Japanese seem almost as dominant as the British were in their heyday, with the Germans and the South Koreans sharing the market in some important niches.

Not the least remarkable aspect of this book is who has endorsed it. The list includes such big names as the tech billionaire Peter Thiel and the Fox Business presenter Larry Kudlow. The policy-making community is represented by such a heavyweight as Senator Marco Rubio, as well as the Steelworkers leader Tom Conway, and the Donald Trump-era national security advisor Lieutenant General H. R. McMaster.

With a list like this, it is clear that protectionism is becoming almost mainstream.

Robert Lighthizer is to be congratulated for being so early to warn of the dangers of globalism. His day has finally dawned — just in time for his memoirs!

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008)
Posted in Uncategorized | Leave a comment

The East Asian miracle: a note

East Asia’s economic  policymakers have identified the manufacture of advanced intermediate goods as the key to economic leadership.  Such goods include the highly purified materials, the precisely engineered  components and the state-of-the-art production machines needed by  other nations to make the world’s consumer goods.  

The special  significance of advanced intermediate goods  is not fully appreciated these days but it is worth recalling that their manufacture was  dominated by the UK in the nineteenth century. The United States  succeeded to leadership in the early twentieth century and it was  in turn  overtaken by Japan, and, to a lesser extent, Germany, in the late  twentieth century. It is a fair guess that China will come to dominate many of these industries within a few decades.

Why are  these industries so important? They are generally both highly  capital-intensive and highly knowhow-intensive. That means that scale economies are often decisive. So is protectionism, particularly in the early stages of a nation’s “targeting”of an industry.  These industries typically shake down into tight oligopolies and,  in not a few cases, effective  monopolies or duopolies. 

Posted in Uncategorized | Leave a comment

The Myth of Post-industrialism

By Eamonn Fingleton

America’s shuttered factories and the false hope of post-industrialism. (This article first appeared in the November-December 2022 issue of The American Conservative.)

In the wake of the Japanese attack on Pearl Harbor in 1941, the American nation responded  instantly and sure-footedly. In the  shipbuilding industry alone, the resulting surge in production was monumental. Thus, as recorded by the Naval History and Heritage Command, the U.S. Navy doubled its  fleet within a year and quadrupled it before the end of the war. It was a similar story in the merchant marine: by 1943 U.S. shipyards were turning out three merchant ships a day! They ended up building a total of nearly 3,300 before the end of the war.

America’s shuttered factories and the false hope of post-industrialism. (This article first appeared in the November -December 2022 issue The American Conservative.)

Given that shipbuilding was then one of the world’s most advanced industries, there could hardly have been a more impressive demonstration  of America’s global economic leadership. 

Fast forward to today, however, and we discover that America’s now much hollowed out manufacturing sector is having a hard enough time arming Ukraine (and can do so only with the help of copious imports of advanced electronic components and other crucial inputs from various trade partners, not least China). 

How come the U.S. manufacturing base has become so hollowed out? Let’s focus here on one key, if little understood, aspect of the story: the pernicious role played by so-called post-industrialism. The term comes from The Coming of Post-Industrial Society, a book by the Harvard sociologist Daniel Bell. Writing in 1973, Bell predicted a growing  trend  for the United States to retreat from  manufacturing and to switch instead to new “post-industrial” services, of which computer software seemed to be this favorite. Jobs in post-industrial businesses would not only be cleaner and more advanced but better paid. And the great thing was that the United States seemed to enjoy some special – if not exactly spelled out – aptitude for post-industrial activities and would therefore benefit disproportionately. 

As we will see, this analysis was badly misguided but that did not stop it playing a decisive role in the decline of American manufacturing. In particular, it greatly weakened efforts in Washington and elsewhere to forge a national consensus in fighting foreign protectionism. If American manufacturers were not long for this world anyway, why, it was asked, should Washington expend vital  diplomatic capital on their behalf?  After all, nations like Japan, Germany, and Korea were evidently so intransigently committed to  mercantilism that Washington risked touching off a full-scale trade war if it pressed fully seriously for a fair deal for American manufacturers abroad. 

From this point onwards, American manufacturing was visibly on the skids. The longer America’s trade diplomats dithered, the larger and more formidable became the East Asian and European manufacturing challenge. For the challengers, size brought large economies of scale and  fast-expanding research and development departments. 

It also meant  the ability to fund ever more sophisticated lobbying initiatives abroad, not least in the United States.  Japanese and European corporate lobbyists fanned out across Washington and were soon pressing home their advantage. 

One tactic was to blame the victim. They alleged  that American manufacturers were underinvesting. Few observers seemed to notice that this  got the causality exactly reversed. The fact was that because world markets were heavily rigged against them, American manufacturers suffered chronically poor returns on investment. They therefore lacked the large retained profits needed to invest in the most efficient new manufacturing technologies.  

All this is the more surprising for the fact that anyone who glanced at Bell’s book found it shed remarkably little light on the issues.  About the only thing it contributed was a little news:  manufacturing’s share of total U.S. economic output was declining, he reported, and the share accounted for by  services was rising. He was right on both counts but this hardly meant manufacturing was finished as a principal source of First World wealth and economic leadership. The trends Bell noticed were relative (itals) ones.  Looking at the world as a whole, there was no  evidence that manufacturing was losing its position as a principal driver of prosperity.

Nor did Bell offer any fundamental reason for believing that, going forward, post-industrial services would prove more effective in increasing wealth than traditional manufacturing. In the event as we can now see clearly in retrospect, post-industrialism has proven no  panacea. Of course, some post-industrial businesses  have proved  spectacularly successful – companies like Google and Amazon come to mind. But even with Silicon Valley’s massive growth of the last half century, post-industrialism has fallen far short of creating enough new American  jobs to make up for the loss of manufacturing. 

This is where we get right to the point: jobs are one of three vital economic criteria on which  manufacturing’s contribution is a strongly positive one.  The other two are  wages and exports.

The jobs point hardly needs elaboration: factory work generally  creates  plenty of productive jobs for ordinary workers.  By contrast, jobs in many of the most successful post-industrial businesses are reserved disproportionately for workers of above-average ability. 

Of course, there are some exceptions. Thus Uber and DoorDash are examples of so-called  “gig economy” employers who create plenty of work for workers of  average ability. The problem is that such work compares quite unfavorably with the sort of jobs manufacturing used to create in better times. For the most part, gig economy work  pays little more than minimum wages and falls down also in terms of job  security and benefits.  

Contrast that with how things were in manufacturing  in the 1950s through the early 1970s, when well-paid, secure, pensionable jobs were becoming the norm even for assembly-line workers. ck

Why do  some employers pay more  than others? This question is central yet Bell never attempted to address it. In reality many factors go into determining wage levels but a crucial one is whether a business is capital-intensive or labor-intensive.  Generally, if other things are equal, capital-intensive employers pay better – and in many cases a lot better. 

Bell never explicitly considered the distinction. He seems, however, to have assumed – without really realizing he was making an assumption – that factory work in the United States was either already generally labor-intensive or was headed that way. Thus American factory jobs were destined soon to fall victim to competition from cheap-labor foreign locations. 

But  the truth was then, and still  is today, that factory work is a mixed bag. Yes, some factory work is labor-intensive and therefore low-wage nations enjoy a clear competitive advantage. But leading-edge manufacturers are generally avowedly capital-intensive. By definition this means that wage costs account for a relatively small proportion of their total costs. The term “capital-intensive” is necessarily jargonistic but is easy to understand if you think of each worker having his or her output powerfully boosted by an array of advanced production machinery. 

In practice locating factories in high-wage nations incurs little or no net cost disadvantage. The point is that the disadvantage of higher wage costs is  more than offset by the several advantages of operating in a First World location. Just the most obvious of these is that it is generally easier to get key technical staff to work in, say, Texas than in Fujian. 

Another consideration is trade secrets. These are often critically important in capital-intensive businesses and the battle to thwart industrial espionage is constant. In general such secrets are probably easier to protect if they are kept at home.

Seen from the point of view of the overall national interest, another key consideration is trade. Manufactured products tend to be fundamentally more exportable.  This reflects in part the fact that they tend to be less culture-specific. A car made in Japan or Germany, for instance, can be sold around the world with remarkably few adjustments for different cultures and different markets.

So-called producers’ goods are particularly free from cultural ties. Such goods are rarely mentioned in the press yet they are vital to the world economy. The category includes  super-miniaturized electronic components, highly refined materials, and ultra-precise machine tools. Often for any given item only  one or two manufacturers exist worldwide. And the processes involved in making such goods are generally highly capital-intensive and thus they provide plenty of headroom to pay above-average wages. 

Take, for instance, precision lenses. Known to the consumer mainly for their use in cameras, lenses are actually mission-critical components in countless medical, dental, scientific, and industrial applications. They are vital too in countless defense applications. The  United States long ago dropped out of contention in lenses and these days depends mainly on Japan and Germany for state-of-the-art supplies. 

As a general rule, manufacturers who dominate a significant sector in producers’ goods can expect not only to enjoy strong export sales  but strong export pricing. By contrast post-industrial businesses are generally poor exporters – at best they sell little abroad and their pricing power is generally weak. This contrasts with the remarkable strength American manufacturers enjoyed around the world in the days of American leadership. 

Many post-industrial companies  don’t export at all and in the case of even the strongest and most advanced of them, the ability to expand abroad  is generally constrained by linguistic and cultural impediments. Such difficulties may in some cases  be surmounted but at a cost and usually a considerable one. Thus Google, for instance,  has had to build a serious bricks-and-mortar presence  in countless foreign markets. So elaborate are Google’s overseas operations  that Google buildings are local landmarks in places as far afield as Tokyo, Wroclaw, Amsterdam, TelAviv, Haifa, Kuala Lumpur, London, and Dublin. 

Even an internet retailer as tech-savvy as Amazon performs quite disappointingly in key overseas markets such as China and Japan. Indeed at last count, Amazon’s sales in the United States and Canada accounted for nearly two-thirds of its total. 

The take-home message here is that the shift to post-industrialism has greatly compounded America’s  huge pre-existing trade problems.  

The result is that the United States has consistently been running huge trade deficits since the 1970s. In recent years these have settled down to average 3  to 4 ck percent of gross domestic product –  a  performance that implies that the U.S. dollar is greatly overvalued against the currencies of several big exporting nations, most notably China, Japan, and Germany. 

As a matter of  basic arithmetic, trade deficits have to be financed.  This means that successive generations at the U.S. Treasury have had to have had huge resort to foreign creditors, most notably the banks and institutional investors  of Japan, China, and South Korea.  These institutions have evidently decided for now to continue to play their allotted role in a drama directed by the  U.S. Treasury. For a few years longer they will continue to finance American ocer-consumption. Little understood in Washington, however, the Asians probably don’t plan to be taken for granted forever. America’s foreign borrowing will have to be repaid and in the process Americans will have to accept  more and more back-seating from foreign creditors. 

How do we sum up on Bell? He was not only an exceptionally poor thinker but a poor writer, and the book he produced was almost unreadably bad. He was a sociologist innocent of even the most basic and illuminating economic concepts. He rarely cited any facts – at least not relevant facts –  but larded his text instead with references to people like Leonardo Da Vinci and Einstein. The only purpose of  such  asides seems to have been to advertise his general knowledge. 

All this is the more surprising for the fact that the field does not lack for serious thinkers and serious books. One of the earliest and most persuasive books was Manufacturing Matters: The Myth of the Post-Industrial Economy, by Stephen S. Cohen and John Zysman. This was first published in good time to catch the policy debate in the mid-1980s.  Another  author who was also commendably early (mid-1990s) and prescient in his analysis was Louis Uchitelle, author of The Downsizing of America. Others who have done serious work in and around the field have included  Pat Choate, James Fallows, Alan Tonelson, Peter Navarro, and Clyde Prestowicz.

There is a  mystery here: how come a book as bad as Bell’s  – it might most charitably be described as  a historical curiosity – could have achieved such seeming influence? 

The answer seems to be that his message suited various powerful if shadowy vested interests. Had he not already existed, the trade lobby would have  had to to invent him. 

Eamonn Fingleton is the  author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999).

Posted in Uncategorized | Leave a comment

America’s Shuttered Factories and the False Hope of Post-Industrialism

Harvard sociologist Daniel Bell convinced America that manufacturing didn’t matter. He was wrong.

By Eamonn Fingleton

In the wake of the Japanese attack on Pearl Harbor in 1941, the U.S. Navy doubled its fleet within a year and quadrupled it before the end of the war. It was a similar story in the merchant marine. By 1943, U.S. shipyards were turning out three merchant ships a day. They ended up building a total of nearly 3,300 ships before the end of the war. Given that shipbuilding was then one of the world’s most advanced industries, there could hardly have been a more impressive demonstration of America’s global economic leadership. 

Fast forward to today, and we discover that America’s hollowed-out manufacturing sector is having a hard time arming Ukraine and can do so only with the help of copious imports of advanced electronic components from various trade partners, not least China. 

Why has the U.S. manufacturing base become so hollowed out? One key yet little understood aspect of the story: the pernicious role played by so-called post-industrialism.

The term comes from The Coming of Post-Industrial Society, a book by the Harvard sociologist Daniel Bell. Writing in 1973, Bell predicted a growing trend  for the United States to retreat from manufacturing and to switch instead to new “post-industrial” services, of which computer software seemed to be his favorite. Jobs in post-industrial businesses would be not only cleaner and more advanced but better paid. Best of all, the United States seemed to enjoy some special (if never clearly spelled out) aptitude for post-industrial activities and would therefore benefit disproportionately. 

As we will see, this analysis was badly misguided, but that did not stop it playing a decisive role in the decline of American manufacturing. 

It greatly weakened efforts in Washington and elsewhere to forge a national consensus in fighting foreign protectionism. If American manufacturers were not long for this world anyway, why should Washington expend vital diplomatic capital on their behalf? After all, nations like Japan, Germany, and Korea seemed so intransigently committed to mercantilism that Washington risked touching off a full-scale trade war if it pressed fully seriously for a fair deal for American manufacturers abroad. 
From this point onwards, American manufacturing was visibly on the skids. The longer America’s trade diplomats dithered, the larger and more formidable became the East Asian and European manufacturing challenge. For the challengers, size brought large economies of scale and fast-expanding research and development departments. It also meant the ability to fund ever more sophisticated lobbying initiatives abroad, not least in the United States. Japanese and European corporate lobbyists fanned out across Washington and were soon pressing home their advantage.

One tactic was to blame the victim. It was alleged that American manufacturers were underinvesting. Few observers seemed to notice that this got the causality reversed. Because world markets were heavily rigged against them, American manufacturers suffered chronically poor returns on investment. They therefore lacked the large retained profits needed to invest in the most efficient new manufacturing technologies. 

Bell’s book was actually remarkably light on details. Its only significant contribution to the discussion was the observation that manufacturing’s share of total U.S. economic output was declining. Bell was right, of course, but this hardly meant manufacturing was finished as a principal source of First World wealth and economic leadership. Looking at the world as a whole, there was no evidence that manufacturing was losing its position as a driver of prosperity. Thus in Germany, for instance, no one talked as if manufacturing had reached the end of the road. Far from it, Germany manufacturers continued to go from strength to strength.

Nor did Bell offer any fundamental reason for believing that, going forward, post-industrial services would prove more effective in increasing wealth than traditional manufacturing. As we can now see clearly in retrospect, post-industrialism has proven no panacea. Of course, some post-industrial businesses have proved spectacularly successful—companies like Google and Amazon come to mind—but even with Silicon Valley’s massive growth of the last half century, post-industrialism has fallen far short of creating enough new American jobs to make up for the loss of manufacturing. 

This is where we get right to the point. Jobs are one of three vital economic criteria on which  manufacturing’s contribution is strongly positive. The other two are wages and exports.

The jobs point hardly needs elaboration. Factory work generally creates plenty of productive jobs for ordinary workers. By contrast, jobs in many of the most successful post-industrial businesses are reserved disproportionately for workers of above average intelligence and general ability. There are some exceptions, such as Uber and DoorDash, which create plenty of “gig economy” work for individuals of  average ability. The problem is that such work compares quite unfavorably with the sort of jobs manufacturing used to create in better times. For the most part, today’s gig economy work pays little more than minimum wage and falls down also in terms of job security and benefits.  

The second criterion is wages. Why do some employers pay more than others? This question is central, yet Bell never attempts to address it. In reality, many factors go into determining wage levels. One is whether a business is capital-intensive or labor-intensive. Generally, all else being equal, capital-intensive employers pay better, in many cases a lot better. 

Bell never explicitly considered the distinction. He seems to have assumed—without really realizing he was making an assumption—that factory work in the United States was either already labor-intensive or was headed that way. Thus American factory jobs would supposedly soon fall victim to competition from cheap-labor foreign locations. 
This was nonsense: the truth was then, and it still is today, that factory work is a mixed bag. Some factory work is labor-intensive, giving low-wage nations a clear competitive advantage, but leading-edge manufacturers are generally capital-intensive. This means that wage costs account for a relatively small proportion of their total costs, giving low-wage nations little edge.

Another consideration is trade secrets. These are often critically important in capital-intensive businesses and such secrets are easier to keep secret if they are kept at home. 

The third criterion is trade. Manufactured products tend to be fundamentally more exportable.  This reflects in part the fact that they tend to be less culture-specific. A car made in Japan or Germany can be sold around the world with remarkably few adjustments for different markets.

Then there are so-called producers’ goods. These tend to be particularly free from cultural ties. Such goods are rarely mentioned in the press, yet they are vital to the world economy. The category includes  super-miniaturized electronic components, highly refined materials, and ultra-precise machine tools. Often, for any given item, only one or two manufacturers exist worldwide. The processes involved in making such goods are generally highly capital-intensive, thus they provide plenty of headroom to pay above-average wages.

Take precision lenses. Known to the consumer mainly for their use in cameras, lenses are critical components in countless medical, dental, scientific, and defense applications. The  United States long ago dropped out of contention in lenses and these days depends mainly on Japan and Germany for state-of-the-art supplies.

As a general rule, manufacturers who dominate a significant sector in producers’ goods can expect to enjoy particularly strong export sales and export pricing. By contrast, post-industrial businesses are generally poor exporters. At best they sell little abroad and their pricing power is generally weak. Even for the strongest and most advanced of them, the ability to expand abroad is generally constrained by linguistic and cultural impediments. Google, for instance, has had to build a serious bricks-and-mortar presence in countless foreign markets in order to be competitive. So elaborate are Google’s overseas operations that Google buildings are local landmarks in places as far afield as Tokyo, Wroclaw, Amsterdam, Tel Aviv, Haifa and Kuala Lumpur. 

Even an internet retailer as tech-savvy as Amazon performs quite disappointingly in key overseas markets such as China and Japan. At last count, Amazon’s sales in the United States and Canada accounted for nearly two-thirds of its total. 
For all these reasons, the shift to post-industrialism has greatly compounded America’s huge pre-existing trade problems. The result is that the United States has consistently been running huge trade deficits since the 1970s. In recent years, these have settled down to average 3 to 4 percent of gross domestic product, a  performance that implies that the U.S. dollar is greatly overvalued against the currencies of several big exporting nations, most notably China, Japan, and Germany. 
As a matter of basic arithmetic, trade deficits have to be financed. This means that successive generations at the U.S. Treasury have needed huge resort to foreign creditors, most notably the banks and institutional investors of Japan, China, and South Korea. These institutions have evidently decided for now to continue to play their allotted role in a drama directed by the U.S. Treasury. For a few years longer, they will continue to finance American over-consumption. Little understood in Washington, however, is that the Asians probably don’t plan to be taken for granted forever.

America’s foreign borrowing will have to be repaid and in the process Americans will have to accept more and more back-seating from foreign creditors. 

How do we sum up Bell and his influence? He was not only an exceptionally poor thinker but a poor writer, and the book he produced was almost unreadably bad. He was a sociologist innocent of even the most basic and illuminating economic concepts. He rarely cited any facts—at least not relevant facts—but larded his text instead with references to people like Leonardo Da Vinci and Einstein. The only purpose of such asides seemed to be to advertise his general knowledge.

The counterargument to Bell never lacked for serious thinkers and serious books. One of the earliest and most persuasive was Manufacturing Matters: The Myth of the Post-Industrial Economy by Stephen S. Cohen and John Zysman. This was first published in good time to catch the policy debate in the mid-1980s. Other authors who have done serious work in and around the field have included Louis Uchitelle, Pat Choate, James Fallows, Alan Tonelson, Peter Navarro, and Clyde Prestowicz.

There is a mystery here. How did a book as bad as Bell’s, which today might most charitably be described as a historical curiosity, achieve such seeming influence? 

The answer seems to be that his message suited various powerful vested interests. Had Bell not already existed, the trade lobby would have had to have invented him. 

Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999).

Posted in Uncategorized | Leave a comment

The rise of East Asia and an epochal threat to American freedoms

By Eamonn Fingleton

(This article appears in the January-February 2022 issue of The American Conservative. To read it in pdf form,  please click here.)

In April 1998 Sony Corporation chairman Norio Ohga made world headlines with this comment: “The Japanese economy is on the verge of collapsing.”

In reality nothing in Sony’s own experience supported such an assessment. On the contrary, Sony’s business actually boomed right through the 1990s. More generally Japanese industrial corporations continued strongly to gain share from American rivals. Yet they all talked as if Japan was a hopeless basket case.

Even the president of Toyota Motor Hiroshi Okuda joined in, suggesting Japan could cause a “world-wide financial crash.” This despite the fact that Toyota’s sales soared fully 95 percent in the 1990s. Between 1989 and 2019, moreover, Toyota went from little more than one-quarter of General Motors’s revenues to nearly twice as large.

As for Sony’s Ohga, his talk was even more puzzling. In the quarterly accounting  period of his remark, Sony’s sales  in the Japanese market actually increased by 14.7 per cent. The wider picture  was also  impressive: measured against 1989 (the last year of Japan’s 1980s boom), Sony’s profits in 1998 were up fully 131 percent! As if that wasn’t enough, the 1990s counted as the decade when  Sony finally buried such once formidable American rivals as Motorola, RCA, and Zenith.

This is cognitive dissonance on a vast scale. So what was really going on? In truth Japan’s alleged economic disaster of the 1990s was a fake funk:  Japanese leaders just pretended their economy was collapsing. There was method in their madness: they desperately wanted  Washington to cut Tokyo some slack in trade negotiations. This was at a time when Americans had never been more incandescent with rage about Japan’s closed markets. The gambit worked in spades. Not only did Washington back off trying to open Japan but it has never subsequently tried any further market opening efforts.

I have explained more about Japan’s 1990s fake funk in a New York Times commentary. (https://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html)

For now let’s note that the issue of Japan’s true performance is of first order historic importance because of its implications for (1) the rise of China, and (2) for the coming triumph of authoritarianism around the world. Both China and Japan  operate essentially the same authoritarian — and almost universally misunderstood and underestimated — economic model. Let’s call this the Confucian model.

China runs about twenty years behind Japan, as is obvious in, for instance, the global car industry. This means it has a lot of technologically easy catchup growth ahead of it. Combine this with the fact that China boasts four times America’s population (and eleven times Japan’s) and it is hard to exaggerate how dominant Beijing will be by 2050.

Invented in the desperately poor circumstances of early-1950s Japan (and thus a  memorable  instance of necessity playing mother to invention!), the Confucian model has long been powerfully shaping economic outcomes in South Korea and Taiwan as well as, of course, in China and Japan.

The model’s key function is to force-feed  the  growth process. Admittedly in the case of Japan,  growth lately has been lower than it was in the 1980s. But this reflects factors external to the model: in particular, as economists like Paul Krugman and William Cline have pointed out, Japan’s growth has been greatly curtailed by a uniquely jolting demographic switchback (the echo of a major effort begun in 1948 to reduce the population).

Of course, those in the West who cling to the belief  that the model failed Japan see little reason to worry about a rising China.

On the other hand, for those who realize that the model greatly alleviated Japan’s uniquely difficult demographic problems, it is clear that the Confucian model presents a devastating challenge to the United States. Japan never lost its mojo in recent decades and the prospect is that China will not either.

We will discuss some of the Confucian model’s key features  in a moment. First though let’s note that  this model is fundamentally incompatible with America’s hopes for a global rollout of free markets. There are two immediate problems:

1. The Confucian model is not only protectionist but is unalterably so. Other aspects of the model cannot work without a protected home market.

2. The Confucian model features a complex lattice-work of corporate structures that clearly conflicts with American free-market capitalism. Not the least of these structures is cartels, which are, of course, strictly forbidden under U.S. law. Another problem is Japan’s keiretsus and other similar corporate groupings (these latter are known  as chaebols in South  Korea,  qiye jituans in China, and  quangxi jituans in Taiwan).  As we will see,  such structures are undoubtedly on balance helpful in improving East Asian productivity.

Let’s be clear: the Confucian system makes considerable use of markets and this, of course, encourages hopes in Washington for a general  trend towards greater freedom in East Asia. In reality, however, top officials throughout the region claim the right to overrule market forces almost at will. Moreover they often use cartels and keiretsus as power vectors that help them reach deeply into the system’s  internal workings. “Undesirable elements” quickly discover there is nowhere to hide.

A key difference is in how corporate executives see their responsibilities. Whereas in the United States they focus on profits almost to the exclusion of everything else, in East Asia worker productivity gets priority.

To understand the Confucian system the best starting point is its savings strategy. If a nation’s savers save more, corporations can invest more. If corporations invest more, workers can produce more. Equipped with the most advanced production machinery (robots, for instance, in the car industry), nations can  quickly leap to the forefront   in productivity. Economic growth is thereby stimulated.

Of course, savers need a return and here is where protectionism is so important. Corporations earn super-high profits in the home market and these are then applied to looking after the various sources of  capital. Meanwhile producers can aggressively cut prices in export markets.

For an economy to keep growing, savers must keep  saving. This is where the Confucian model really comes into its own again. The model’s most important — and most counterintuitive — feature is its savings process.

With few exceptions, American observers assume that culture is sufficient to explain the region’s super-high savings rates. Supposedly Confucianism instills in everyone a powerful tendency to frugality.

This, however, does not fit the facts. In former times when East Asian nations seemed  more Confucian than they are today, they were often notably weak savers. Japan’s savings rate remained low well into the 1950s. Singapore,South Korea, and China followed a similar pattern, with low savings rates as late as the 1960s, 1970s, and 1980s respectively.

In reality it is only when East Asian nations begin to adopt other aspects of the Confucian model — in particular the model’s aggressively mercantilist trade policy — that their savings rates take off.

Behind all this is a policy virtually unheard of in latter day America: suppressed consumption. By discouraging consumption, top officials ensure that an economy’s savings rate is strongly stimulated.

To anyone tutored in modern American economic thought, the idea of suppressing consumption may seem to be bordering on insanity. But that is not how things look  in modern East Asia. Nor is it how  things looked to U.S. economic planners in former times. Soon  after Pearl Harbor, the United States began  tightly suppressing  consumption. The program started with rubber tires and in April 1942, rationing was extended to cars, sugar, typewriters, and gasoline. By the end of the war, the program also included coffee, shoes, stoves, meats, processed foods, and bicycles.  Lo and behold, the result was a preternatural increase in the savings rate: according to the economist Laura Nicolae, U.S. households’ excess savings during the war totaled nearly 40 percent of national income.

In modern East Asia, the effort to suppress consumption is less direct but it is equally effective. For a start East Asian governments restrict the import of key consumer products. Another important strategy is to minimize consumer credit. Mortgage finance  is largely or totally unavailable in many parts of the region. Credit cards are also hard to come by. This  point is often missed  because American correspondents tend to  conflate debit cards with credit cards. According to Fitch Ratings recently, fewer than 30 percent of Chinese adults had at least one credit card, compared to 79 percent in the United States.

Meanwhile in many East Asian nations, zoning is so tight that housing is rendered stunningly expensive. Restricted living space means consumers consume less electricity and gas. They also buy fewer appliances and items of furniture.

According to the Australia-based statistical website Finder.com, of the ten nations with the world’s most  expensive city-center housing  recently, six were in East Asia. In descending order they were Hong Kong, Singapore, South Korea, Japan, Taiwan, and China.

One further point needs to be noted: much of East Asia’s saving takes the form of corporate profits. Certain special corporations make huge profits through  oligopolistic control of, for instance, urban land.

Now let’s consider the Confucian model’s approach to employment. This is perhaps the area where the East Asian model diverges most obviously from American capitalism.

As a matter of employer etiquette, major East Asian employers do not hire from direct competitors. Moreover they rarely resort to lay-offs, even in the worst recessions. This creates by default a rather settled system of long-term employment.

Orthodox American economists regard East Asia’s no-layoffs policy as “inefficient.” But the region’s passionately patriotic government officials see things differently: any calculation of the benefits to society from American-style hire-and-fire should, they believe, be netted for the cost to the public purse of unemployment benefit.

The psychological advantages that accrue to employers from a no-layoffs policy are a lot more beneficial than is understood in modern America. For a start East Asian workforces feature a far greater degree of long-term accountability. They are also impressively long on teamwork. Because the  East Asian employment system expects employees to commit for the long term, there are rarely second chances for employees who fall out with their first employer. That means that workers are considerably more cooperative in taking on tough assignments.  Certainly East Asian employers enjoy the observed advantage that at all times they have at their disposal  battalions of hard-working employees willing to be sent anywhere and do anything to further their employer’s agenda.

Another advantage of the East Asian system is that it provides employers with a much greater incentive to invest in worker skills. By contrast American employers have to worry that any workers they train may be quickly  hired away by rival employers.

In recessions, East Asian employers beat the bushes to find other work for their workers. They will even go to the extent of inventing “busywork” but generally things don’t get that bad and even in a recession East Asian corporations rarely run out of useful work to do.

Moreover the degree to which  East Asian corporations can cut export prices and still come out ahead is greater than Americans typically understand. A key point  is that  there is a big  difference in the way that labor costs necessarily must be accounted for.  In the terminology of the accounting profession, wage costs count  as a fixed cost for East Asian employers, whereas they are a variable one for American employers. This has crucial implications because so long as variable costs are covered, East Asian corporations can keep discounting their prices. Hence in large part the reason why in a recession  East Asian corporations can quote almost preternaturally low prices.

Faced with the never-undersold nature  of East Asian competition, American employers often enter a process of terminal shrinkage. They slash jobs in a recession but rarely fully restore these in a recovery. Instead they may resort to outsourcing, which they consider to  make  particular sense in the early, tentative stages of a recovery. A  devastating ratchet effect is therefore at work in which over the long haul the Americans keep losing market share.

All that said, even East Asian corporations hardly emerge unscathed from a global recession. In withstanding the strains, however, they have an important cushion in undervalued home currencies. Put another way, the U.S. dollar has long been  massively overvalued. Just how overvalued is suggested when you consider America’s forty-year record of huge trade deficits. How low would the dollar have to go before we might see a real revival in industrial investment in the United States?  A reasonable guess is that even a devaluation of as much as 75 or 80 percent would not have an appreciable effect. Yet a revaluation on that scale would  imply that total U.S. gross domestic product  would at a stroke be cut to less  than China’s and even Japan’s. No U.S. Presidential administration is likely to contemplate such a haircut. Meanwhile the big exporting nations — including Germany, as well as China and Japan — will probably for several years to come continue to prop up  the dollar as a quid pro quo for continued  access to the American market. Remember that these nations’ top priority is not financial but rather industrial and they therefore aspire to  continue to hone their production skills. The super-long production runs provided by an open American market are an important help in this regard.

Let’s briefly consider some other features of the Confucian system.  Perhaps the most troublesome from an American point of view is cartels.

The one thing every American  first-year economics student seems to know is that cartels are bad! They not only cheat  consumers but featherbed inefficient industrial processes. Or so orthodox American thinkers vociferously proclaim.

In East Asia the view is  different. East Asian cartels are quasi-regulated institutions answerable at all times to the national interest. Yes, members of such cartels fix prices but, no, they don’t necessarily shut down all forms of competition. Rather cartel members are generally encouraged  to  compete on quality and service.  As for unrestrained free-market pricing, this is seen as wasteful because this diverts executive attention away from the weightier matter of delivering ever higher quality at ever lower production cost. The problem of gimmicky pricing incidentally can be particularly acute in the most capital-intensive industries, which are precisely the industries with the best prospects of creating well-paid rank-and-file jobs going forward.

Another advantage of cartels is in standard setting. In former times, industrial standards typically originated in the United States. Not anymore. Most standards these days emerge from East Asia. This is important because those who set standards tend to favor their own interests.

Then there is perhaps  the most important advantage of  East Asian-style cartels: they reduce the cost of  research and development. This is because they divide up  research projects among cartel members and thus minimize duplication. This feature alone may make all the difference, as it is not unusual for leading  manufacturing corporations elsewhere in the world to spend as much as 5 percent of sales on research and development.  East Asian cartels get far more innovation for their money and this benefit is passed on to each member.

Much, much could be said but already it should be clear that the United States desperately needs to take a closer look at the Confucian model. The conclusion is epochal: a system that rivals Soviet communism in its grim suppression of individualism is now powerfully outperforming American free-market capitalism. The outperformance  is most obvious in international trade but on closer  examination the Confucian system’s superior wealth-creating capabilities are evident almost right across the board.

In short we are witnessing a fundamental revolution in the human condition. The world is transitioning from an era when free societies did well precisely because they were free, to a new era in which authoritarian societies are doing well precisely because they are authoritarian.

In one sentence, authoritarianism is set to inherit the earth.

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).

Posted in Uncategorized | Leave a comment

The long arm of Japanese industrial policy: Northern Ireland’s experience

In Dublin, Ireland, where I have lived in recent years, many observers view East Asian economics as a remote issue of little interest in Western Europe. As I discovered the other day, it is an attitude shared even by some of Ireland’s most prominent and widely travelled politicians.

Yet it is so misguided. The truth is that for decades now, East Asian economic policies have deeply influenced Western Europe.

Take, for instance, Japan’s role in the troubles in Northern Ireland.  You can be forgiven your ignorance if you are not aware of such a role: as in many other aspects of the East Asian economic phenomenon,  the English-language press has been asleep at the switch on this story.

Japanese industrial policy began to influence  Northern Ireland as far back as the 1950s.  And Northern Ireland has come off  consistently the worse from the encounter.

The truth is that soon after Japan began its post-war recovery it “targeted” shipbuilding.  Targeting in this sense is a highly controversial technique that was effectively a death sentence for most of the UK shipbuilding industry, not least the once-huge Harland & Wolff shipyard in Belfast.

More about targeting in a moment. First let’s consider the wider context. Harland & Wolff had emerged from World War II at the top of its game, having contributed disproportionately to the Allies’ victory as the builder of more than half of British aircraft carriers. The shipyard had long been Northern Ireland’s largest employer and as late as the 1950s, its direct workforce alone totaled more than 30,000 workers.  Various associated businesses in the Belfast area moreover  provided perhaps as many as 10,000 further jobs. This made the shipyard by far the largest employer on the island of Ireland (it towered over even  the famous Guinness brewing business  in Dublin).

Harland & Wolff was in fact one of the UK’s most successful exporters  —  no small statement given that at that time the UK still dominated many world markets (as late as the early 1950s the UK was the world’s largest exporter of cars, for instance). By virtue of its export success, Harland & Wolff was the cornerstone of Northern Ireland’s then remarkable prosperity.

The impact of Japanese targeting, however, was soon felt.  By the late 1960s, the company was struggling and by the mid-1970s it was already a dead man walking. And soon things were to get even worse as the Koreans, using similar tactics to the Japanese and accessing much of Japan’s manufacturing knowhow, began making serious inroads in the world shipbuilding industry.

The most obvious consequence in Northern Ireland was that tens of thousands of once proud upper working class Loyalist workers found themselves permanently on the dole. Many of them sought a purpose in life by participating in increasingly vicious  tit-for-tat terrorism. This was all a remarkable contrast to an earlier period of IRA provocation in the 1950s. Most Loyalists then were gainfully employed and were happy to leave it to the established forces to round up IRA discontents. With no resentful unemployed Loyalists to be provoked, the troubles of the 1950s soon petered out.

Harland & Wolff launched its last ship as far back as 2003. But still today the gaping hole left by the company’s collapse has not been filled. It is hard to exaggerate the  consequences.  With no major industries left and no world-beating shipyard to keep the Admiralty interested, Northern Ireland’s days as a constituent nation of the United Kingdom seem numbered. This is clearly implicit in UK Prime Minister Boris Johnson’s  take-it-or-leave-it attitude to the Democratic Unionists on Brexit. He evidently is confident of considerable support on  the British mainland. After all, it has long been no secret that the Northern Ireland economy has been a major drain on the British Exchequer.

The mainland is increasingly signalling it has had enough. A fair guess is that by the 2050s, if not before, London will have thrown Northern Ireland overboard . The consequences for the Irish Republic, and for the Irish taxpayer in particular, are not clear. Neither are the prospects for continuing peace on the island of Ireland.

What does Japanese “targeting” mean? The term refers to a pattern for the Japanese state to make common cause with Japanese corporations in a no-holds-barred effort to seize leadership in important global  industries. Some tactics are more covert than others and not infrequently they are completely unethical. But we needn’t  dwell on this  as in reality one of the most effective Japanese tactics was the relatively mentionable one of keeping the yen massively undervalued. To that end Japanese officials organised  cast-of-thousands pantomimes aimed at convincing visiting foreigners that Japan was a Third World country and thus posed no threat to the advanced industries on which the  West’s economic success was based. Thus although worker productivity in the Japanese shipbuilding industry was  broadly on a par with the UK industry, London acquiesced in a hugely undervalued yen.  This meant that the wage bills Japanese shipbuilders had to pay were little more than half of UK levels. With a cost advantage on that scale, the Japanese soon had the entire UK shipbuilding industry on the run. Cities like Newcastle, Glasgow, and Liverpool soon felt the impact but nowhere were the consequences more lamentable than in Belfast.

Yet no one in London lifted a finger. The pound was kept permanently overvalued in a manoeuvre that suited a callous and blinkered City of London.  Meanwhile London elites rejoiced in the fact that an overvalued pound meant their money went further when they travelled abroad on holiday.

It is worth considering the might-have-beens. Had successive British governments stood up to Japanese targeting, the outcome could have been very different. Just how different is apparent from a look at the trajectories of Harland & Wolff’s once puny Japanese challengers. Take, for instance, Mitsubishi Heavy Industries (MHI). In the 1950s it was broadly as advanced as Harland & Wolff. Today it is a manufacturing colossus that leads the world in a host of super-advanced industries. MHI’s products include space launch vehicles, missiles, aircraft, machine tools, hydraulic equipment, and aerospace components (it is a major supplier to Boeing of components so advanced that Boeing can’t make them for itself).

MHI’s achievement can be summed up in one number: it recently employed more than 81,000 workers. As for Harland & Wolff, the yard that built the Titanic survives, sort of,  doing marine engineering odd jobs.  According to Wikipedia, at last count it employed just 79 workers — little more than, say, a successful suburban car servicing workshop.

 

Posted in Japan, Manufacturing, Press, Trade | Leave a comment

On VJ Day, a hard look at an atom bomb apologist

By Eamonn Fingleton

If you Google “Laurens van der Post” and “Hiroshima”, you’ll turn up hundreds of thousands of results. This confirms something that some observers have known for years: that though the South African-born author Laurens van der Post was little known in the United States, he  nonetheless has played an outsized role in how Americans see the atomic bombing of Japan in 1945.

We’ll have more to say about this role in a moment but first let’s note something else: if you Google “Laurens van der Post” and “liar” you will also get hundreds of thousands of results.

It is fair to say that van der Post is a controversial figure — so controversial indeed that it is more than surprising that he might be considered a trusted source on anything, let alone on something as epochal and politically charged as the atomic bombing of Japan.

According to his biographer J.D.F. Jones, van der Post was a “compulsive fantasist”. Writing in Teller of Many Tales: The Lives of Laurens Van Der Post (London: Carroll & Graf, 2001), Jones explained: “Time after time, the storyteller’s tales about himself were inaccurate, embellished, exaggerated, distorted or invented. Put more bluntly, he was a constant liar.”

Little was known about van der Post’s character defects in his lifetime and indeed towards the end of his life he came to be revered as something of a secular saint and was even embraced as a close friend by such dignitaries as  Margaret Thatcher and Prince Charles. Soon after his death in 1996, however, an avalanche of allegations emerged that completely demolished his reputation. Not the least of the disclosures was that in the early 1950s when he was already well into his forties van der Post had seduced and made pregnant a fourteen-year-old South African girl who had been entrusted to his care.

All this notwithstanding, commentators and historians who seek to justify the bombing of Hiroshima and Nagasaki often cite his testimony as clinching evidence for their case. Meanwhile nothing is mentioned of his tendency to make up the facts, let alone various other character issues that have called his credibility into question.

Yet it is now amply clear — and indeed undisputed — that van der Post’s life story was one of the most scandalous of any influential author in modern times.

Born on a farm in South Africa in 1906, he was hired in 1925 as a trainee journalist by a newspaper in Durban. By the 1930s he had moved to the UK where he quickly made several useful literary contacts.

Then at the outbreak of World War II, he volunteered for the British Army and in 1942 was captured by the Japanese in Java. Thus began more than three years of brutal captivity in which he suffered greatly and was witness to the torture and murder of many of his fellow prisoners.

He went on in 1970 to publish The Night of the New Moon, a book about his wartime experiences. This aired a sensational allegation that in the last weeks of the war Hisaichi Terauchi, a senior Japanese military officer, planned as a parting shot to order the massacre of hundreds of thousands of Allied POWs under his control in South-East Asia. Terauchi, who seems to have been based in Vietnam at the time, was allegedly intent on perpetrating this massacre  even though this flouted the express wishes of top military leaders in Tokyo. According to van der Post, it was only because of the shock of the Hiroshima and Nagasaki bombings that Terauchi was dissuaded from this plan. Thus, in van der Post’s account, on a net basis America’s resort to atomic weapons saved many more lives than it sacrificed.

For acute observers there have always been problems with this story — problems that for the most part were apparent long before van der Post’s general credibility was torched by J.D.F. Jones and others.

In assessing van der Post’s story, let’s  first note that Japan’s very different and rigid we’re-all-in-this-together culture makes the Terauchi story inherently unlikely. Although there is no doubt that Terauchi was one of Japan’s most brutal war criminals (he was responsible for among other things the deaths of more than 15,000 Allied POWs in the construction of the Burma Railway alone), the fact is that the Japanese are not noted for breaking ranks. And certainly the idea that someone in Terauchi’s position — he was a field marshal — would have defied higher-ups on something as epochal as the endgame of a world war seems a stretch.

Another problem with the story is that as a matter of historical record Terauchi had suffered a devastating stroke in May 1945. Thus in August 1945, when according to the van der Post version  Terauchi was supposedly planning one of the biggest war crimes in history, Terauchi was actually a semi-invalid. In the event Terauchi went on to die of cardio-vascular complications in 1946 and thus was never tried for his crimes.

Another problem with van der Post’s story is why did it take so long to be made public. If in the immediate aftermath of the war van der Post really had the goods on the “Terauchi plan” (at a time when key witnesses were still very much alive and major media organisations were still massively concerned with the war),  he would have been sitting on a major world scoop. Indeed had he promptly sold his story to a top media organisation, he would instantly have won both fame and fortune. Yet we are asked to believe that he made no attempt to sell his scoop but instead  chose to return to South Africa to a dead-end job with a regional newspaper. More than two decades were to elapse before he went public with his allegation and even then he did so in a half-baked way that was amazingly lacking in substantiation.

What evidence did he have? He cited only a single named source. This was Ronald Penney, a senior British Army officer who served as the Allies’ military intelligence chief in South-East Asia in the final months of the war. Here is how van der Post put it: “General Penney assured me that, among the staff records captured at Terauchi’s headquarters, evidence was found of plans to kill all prisoners and internees.”

At first sight this may sound like it clinches the argument in van der Post’s favour.  Actually it does the opposite: it devastatingly undermines his story.  Why? Because had records of this sort really been found, Penney would have passed them on posthaste to one or more of the several major public  tribunals the Allies had set up to investigate Japanese war crimes. Once in the hands of any such tribunal such documents would have been effectively in the public domain and it is certainly inconceivable that their existence would have remained hidden for long. (Remember that hundreds of top American,  British, Canadian and Australian press reporters had followed the Allied forces to post-surrender Japan and their most urgent concern was to uncover evidence of Japanese war crimes.)

A question remains: what did  Penney make of van der Post’s allegations? We don’t know because, conveniently for van der Post’s case, Penney had been long dead by the time the book came out. It is fair to say that it was typical of van der Post’s style to build his case on the basis of  quotes from sources who were untraceable or dead.

In closing let’s briefly consider the wider controversy surrounding van der Post. Some prominent people came to van der Post’s defence at the time of  the publication of the late  J.D.F. Jones’s stunning biography. It is clear that in several cases such people were friends of van der Post’s or at least friends of the family.  But while their attacks  were long on rhetoric they did little to question Jones’s  factual accuracy. Quite the contrary: because van der Post’s defenders have tended to tip-toe around Jones’s most devastating allegations, they have implicitly admitted they had nothing to say in rebuttal.

In  answer to the charge that van der Post had been guilty of statutory rape, the best his defenders have been able to do in rejoinder has been to suggest that Jones’s account was  “prurient”.

I ought to declare an interest here. As a journalist who worked in London in the 1970s, I happen to have known J.D.F. Jones. Actually in Jones’s then capacity as managing editor of the Financial Times, he hired me in 1978 as editor of the paper’s Saturday savings pages. For the sake of completeness I should perhaps add  that I never knew van der Post.

As one of  Jones’s former colleagues, I find it more than surprising to see him denounced as “prurient”. He was actually one of the wisest and most decent journalists of his generation and he is widely credited with playing a major role in  turning the Financial Times into a globally influential institution.

In recording van der Post’s scandalous love life, was Jones being prurient? Hardly. It was actually incumbent on Jones to investigate van der Post’s character defects.  Not to put too fine a point on it, authors like van der Post who present themselves as arbiters on controversial issues had damned well make sure they suffer from no significant character defects. Otherwise they have little or no ability to stand up to any vested interests that might seek to influence their work. Might the fact that van der Post had guilty secrets help explain how he wrote about the atomic bombing of Japan?  Maybe.  But my guess is that the real explanation is probably more mundane (e.g. by making up a story about the Terauchi plan van der Post may have hoped to improve the publishing value of his work in the United States).

One thing is certain: the fact that such a flawed character came to be accepted as a trusted friend by top British dignitaries sheds an interesting light on the quality of the UK’s intelligence services in the last half century.

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in  the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).

Posted in Japan, Uncategorized | Leave a comment

Was the Hiroshima bomb justified?

By Eamonn Fingleton

It is a question that comes up every year: was the atomic bombing of Hiroshima justified? This year — the 75th anniversary of the attack — the question seems more pertinent than ever.

The bombing, which took place on August 6th 1945, killed perhaps 80,000 people. A second atomic bomb dropped on Nagasaki three days later may have claimed as many as 50,000 more lives.

The decision to use nuclear weapons ultimately lay with then U.S. President Harry Truman, and to the end of his days he was to insist not only that his decision was morally justified but that it saved more lives than it sacrificed. His version quickly became conventional wisdom not only in the United States but to a lesser extent in much of the rest of the English-speaking world. In some retellings moreover the decision to go nuclear has even been cast as a net benefit to the Japanese people. The idea is that by hastening the collapse of the Japanese military government, it obviated the need for a massive American military invasion of the home islands of Japan, an initiative that undoubtedly would have proved profusely bloody.

As a journalist and author who lived 27 years in Tokyo, I have long been aware that this “Truman version” conceals as much as it reveals. All the evidence is not only that Truman’s resort to nuclear weapons was morally highly questionable but that it greatly compounded America’s subsequent problems in achieving a sincere meeting of minds with the Japanese people in the post-1945 era.

A fundamental weakness of the Truman version is that it posits a false choice. Supposedly Truman had only two options: either he reached for the bomb or he ordered a massive conventional military invasion of Japan. This latter was already being planned by U.S. generals in the summer of 1945 and had tentatively been scheduled to begin in November of that year.

But were these the only choices available? Hardly. An obvious third choice would have been simply to have imposed a naval embargo on Japan. All the evidence is that, by cutting Japan off from vital sources of food and other necessities, an embargo would have proved almost as quick and efficient as atomic bombs in breaking the Japanese militarists’ will (and that’s not even counting the devastating effect that the  Soviet Union’s entry into the war on August 8 1945 was to have — more about that later).

The fact is that Japan was uniquely vulnerable. Already it was one of the world’s most densely populated nations, and in those days, before the rise of factory farming, densely populated nations had no alternative but to rely on imports for the vast bulk of their food. As an island nation moreover, Japan was remarkably dependent on ships to transport such imports. Yet by the summer of 1945 about four fifths of its military and civilian shipping had already been sunk. And had the Allies devoted enough of their submarines to embargoing Japan, they could have sunk much of what remained of Japanese shipping within weeks.

Proponents of the Truman version suggest that a naval blockade would have been almost as cruel as the atomic bomb. Perhaps — but this follows only if you assume that Japanese leaders would have persisted with the war indefinitely. Responsibility for any deaths from starvation in the meantime moreover would have lain in the first instance with Tokyo and not with Washington. After all, at any point, the starvation could have been quickly alleviated if Japan surrendered, something that since Germany had surrendered unconditionally in May 1945, all senior Japanese leaders knew would be the inevitable outcome in any case. To add to the pressure, Washington could have arranged a special demonstration of a nuclear explosion to be witnessed from a safe distance by the militarists’ representatives. Such a demonstration would have been almost as powerful as the bombing of Hiroshima and Nagasaki in concentrating minds among Japanese leaders (particularly if there was an implied threat that Tokyo would be next).

Proponents of the Truman version often insist that, without the unique shock of the Hiroshima and Nagasaki bombs, the Japanese would indeed have persisted with the war indefinitely. But this assumes a degree of irrational intransigence that anyone who knows the Japanese knows is a figment of Western imaginations. The truth is that while the Japanese often appear remarkably irrational, this is almost invariably no more than a facade or a negotiating tactic. If you look underneath the surface, the Japanese are generally found to be behaving perfectly rationally. It is worth pointing out that in the latter half of the nineteenth century, when the West first came into extensive contact with the Japanese, the pattern for the Japanese to speak irrationally (in a remarkable cultural phenomenon known in Japanese as tatemae) was widely commented upon. It was wittily satirized, for instance, in W.S. Gilbert’s portrayal of Poobah in The Mikado. In subsequent times, however, under American influence, the West largely lost sight of the tatemae phenomenon, and has tended more and more earnestly to take the Japanese at face value and overlook the Japanese capacity for “nonsense speak”.

But surely, you might suggest, the fighting pattern of Japanese troops in World War II provides conclusive evidence of a culture of extreme irrationality. After all, with remarkably few exceptions, Japanese fighting men never allowed themselves to be taken alive. At first sight this certainly suggests a degree of fanaticism almost unique in the history of war. But it hardly seems so irrational if viewed in context. The truth is that Japan’s fighting men were indoctrinated to believe that if they were taken alive they would be subjected to torture even more extreme than that which they routinely saw visited on countless American troops who had had the misfortune to be taken alive. In other words in opting to kill themselves, Japanese fighters believed they were choosing the lesser of two evils. And in the meantime because they could be expected to fight to the death, they represented a uniquely dangerous threat.

Some commentators have argued that had not Truman resorted to atomic weapons,  hundreds of thousands of Allied prisoners of war would have been massacred by the Japanese in the final weeks of the war. This argument was presented most notably in a book in 1970 by Laurens van der Post, a South African-born British Army officer who had himself been held prisoner by the Japanese for more than three years. There are several weaknesses in  van der Post’s argument, not least that it assumes that the Japanese would have persisted for many more months with a war that, even before the Hiroshima bombing, the Tokyo leadership knew was doomed. It overlooks in particular the fact that for many weeks before August 6, Russia was clearly planning to attack Japan (it had previously been neutral in East Asia). In the end it declared war on Japan on August 8.  It is hard to exaggerate how profoundly this event alone transformed the situation. The truth is that as the East Asian war entered its final stages after Germany’s surrender, nothing terrified Japan more than the threat of a Soviet invasion. The reality is that irrespective of whether Truman dropped the bomb or not, the Japanese would have chosen prompt surrender to the Americans as by far the more acceptable of two evils.  To have continued to resist would have resulted in much of their country coming under Soviet domination.

One aspect of the conventional account that cries out for particular attention is the way Truman chose to present his decision. In a radio address after the first bomb, he suggested that Hiroshima had been chosen because it was a military base. He commented: “We wished in this first attack to avoid, insofar as possible, the killing of civilians.” The truth is that though there was indeed a military base in the Hiroshima area, it was NOT the target. Rather the target was the city’s residential and commercial districts. Evidence recently cited by the political scientists Katherine E. McKinney, Scott D. Sagan and Allen S. Weiner suggests that fewer than 10 percent of those who died on August 6th 1945 were military personnel. Writing in Bulletin of the Atomic Scientists, McKinney and her co-authors added that the Americans “deliberately chose to maximize the number of civilians who succumbed in the attack.”

This seems to settle the matter. It is past time to call a spade a spade. Truman’s decision was driven primarily by a desire for vengeance. The circumstances of August 1945 were certainly extenuating but the desire for vengeance never brings out the best in the human spirit.

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).

Posted in Uncategorized | Leave a comment

Some of my Forbes commentaries

 

If you click through on the headings below, you can get to the articles concerned. Most of them focus on international trade or American decline or both. For my first item, however, I chose something different — partly because it is of more general interest and partly because the response to it was particularly memorable. Not the least aspect of that was response was that Mayer Brown dropped the lawsuit like a hot brick. Another aspect was that Yoshiko Sakurai, a veteran Japanese broadcaster, was moved to describe it as “in extremely poor taste.” See whether you agree!

‘Disgusting!,’ Cry Legal Experts: Is This The Lowest A Top U.S. Law Firm Has Ever Stooped?

Now They Tell Us: The Story Of Japan’s ‘Lost Decades’ Was Just One Big Hoax

 

Super Tuesday Post-Mortem: If Hillary Thinks America Is Still Great, She Needs To Get Out More

 

Memo To Benighted U.S. Economists: The Importance Of Being Irish — Or Danish, Or Swedish

 

China Knows Something You Don’t: U.S. Economists Are History’s Biggest Patsies

 

If You Trust The American Press, Here’s A Thought Experiment

 

Even Martians Know What The Press Won’t Say: Disastrous China Trade Policy Drove Trump/Sanders Wins

 

Like 1950s Detroit, Boeing Is Underestimating Emerging Japanese Competition

 

Reports Of America’s Manufacturing Renaissance Are Just A Cruel Political Hoax

 

Where It Counts, ‘Basket-Case Japan’ Is Beating The Pants Off The United States

 

American Decline: More Wishful Thinking from the Naysayers

 

Henry Kissinger Says American Decline Is A Myth: What Are You Smokin’, Dude?

 

U.S. Decline: An Open Letter to a Closed Mind

 

American Decline: Is It for Real?

 

Here are some other articles that may be of interest:

 

After the Financial Times buyout, let’s stop belittling Japan’s success

(The Guardian, London)

Japan Eyes Trump: Why the Media’s Silence on Japanese Protectionism Gives Trump Another Priceless Opening

(The Unz Review, Palo Alto)

Boeing Goes to Pieces

(The American Conservative, Washington)

The Myth of Japan’s Failure

(The New York Times)

 

 

 

 

 

 

 

 

Posted in American decline, China, Global economy, History, Japan, Manufacturing, Press, Service economy, Sino-Japanese relations, Trade | Tagged , , | Leave a comment

Now Blogging at Forbes

I am now blogging at Forbes – you can find my most recent articles here.

The RSS Feed for my Forbes blog is here.

Posted in American decline, Global economy, Japan, Manufacturing, Trade | Leave a comment