A heated banker and a hurt professor

Now that the American economy has been revealed to everyone (not just to readers of my books) as a house of cards, I thought it might be safe to suggest that things in 1990s Japan weren’t all that bad. Two Tokyo-based observers have surfaced to divert attention from my argument.

My article “Japan Then, America Now” (September issue of the Number 1 Shimbun) continues to draw fire. Writing before the collapse of Lehman Brothers, I argued that the economic crisis already so obviously in prospect for the United States would prove far more serious than Japan’s problems of the 1990s. My analysis has not only been side-swiped by the Japan Times columnist Professor Gregory Clark but has been heatedly denounced by Danforth Thomas, a former top investment banker at Goldman Sachs in Tokyo.

I will deal with Clark in a moment but first let’s dispose of Thomas, who as a new recruit to Tokyo’s burgeoning Fingleton-bashing industry (Clark is a founding member of two decades’ standing), deserves welcome-wagon treatment.

Thomas’s contribution — in the October issue of the Number 1 Shimbun (see his letter below) — is notable not only for its quite inexplicably intemperate tone but for his statement that he is “too busy to compose a fuller rebuttal.” If the poor fellow is so busy, why enter the fray at all (particularly as he has no known record of ever challenging any other writer in a field otherwise notorious for the arrant nonsense that is constantly published in the Western media)? And if he is to charge me with “so many … inaccuracies,” is it too much to ask him to find time — say 30 seconds — to quote a couple of examples and specify exactly why they are supposed to have been inaccurate.

The fact is that quite literally every point he makes is bogus.

Seen from the point of view of American and European policymakers, his key point is his challenge to my argument about manufacturing industries. I have described the decline of manufacturing in nations like the United States, Britain, France and Italy as a historic disaster. Thomas comments: “Bemoaning in 2008 the loss of manufacturing jobs is akin to bemoaning in 1908 the shift from an agrarian to an industrial economy.” In reality the parallel he posits is not only spurious but obviously so to anyone who refers to what I actually wrote. As I pointed out, the key problem with postindustrial services is that they are generally poor exporters and it is for this reason that the shift to postindustrialism is so ill-advised. The shift from agriculture to manufacturing in a former era entailed no such downside — indeed quite the contrary, strength in manufacturing greatly boosted a nation’s exports.

Thomas’s only other policy point is this: “The author makes the unsupported assumption that strength in Japan’s trade account drives the imbalance in the capital account, whereas it is equally plausible (and arguably more likely) that the robust U.S. capital markets drive the trade imbalance.”

Stripped of econobabble, what Thomas is saying is that the reason Japan runs trade surpluses is not because it pursues mercantilist trade policies — oh no! — but rather because the Japanese people desperately want to invest on Wall Street and are prepared to forego current consumption to do so. In reality the evidence that Japan works determinedly to maximize its trade surpluses has been extensively documented by such acute Japan watchers as Chalmers Johnson, James Fallows, and Pat Choate (and is addressed at length also in my own books). Moreover even top Japanese officials such as Minoru Makihara have, in unguarded moments, admitted Japan’s continuing mercantilism.

Thomas avers as if he were contradicting me that there were vagrants living in Shinjuku-ku in the 1980s. This is a detail within a detail within a detail and does nothing to contradict what I actually wrote, which was that vagrants were kept far from the sight of foreigners in the 1980s. The underpasses of Shinjuku-ku are off the beaten track for most foreigners, particularly high-ranking ones, who almost all live and work in parts of Tokyo far from that area.

Basically Thomas’s contribution is argument for argument’s sake — full of sound and fury, signifying nothing.

In contrast with Thomas, Gregory Clark takes a faux-friendly approach. Basically he is using a standard Japanese disinformation technique of ostensibly praising an opponent while ludicrously misrepresenting his argument. It is a technique that Clark, a long-time adviser to the Japanese government, has often used against opponents over the years. (Clark also has a record as a consultant to the Mao Zedong regime in China in the early 1970s and he is noted for his attempts to present the Tiananmen massacre as a media myth.)

While affecting a tone of bonhomie and hurt innocence (November issue of the Number 1 Shimbun), his comments are a tendentious tangle of half truths and outright falsehoods.

He has me saying that “the failure of his [Fingleton’s] prediction that Japan would overtake the US in the year 2000 was mainly because of the US emphasis on financial industries.” Anyone reading this might be forgiven for assuming that I had conceded that the American economy really had turned the tables on Japan in the 1990s and that the secret of America’s ostensible success was its financial services industry. In reality my position at all times been that (1) America’s supposed outperformance of Japan in the 1990s was an illusion and that (2) all boosterist talk in the American financial press to the contrary, Wall Street’s influence on America’s economic fundamentals has been consistently baleful (see, for instance, my 1999 book In Praise of Hard Industries where, under the title “Finance: A Cuckoo in the Economy’s Nest,” I devote a whole chapter to the hidden dangers of America’s erstwhile wild infatuation with financial services ).

Clark repeats yet again his statement that I backed out of a proposed debate with Jesper Koll on Japan’s “lost decade.” This is a blatant fabrication. It was Koll who backed out, as the Congressional Economic Leadership Institute, which in the end was to provide the venue for the event, will testify. Moreover Koll is just one of ten key Western proponents of the “basket case Japan” story who have refused my various invitations to discuss what really happened in the 1990s. Other refuseniks include the analysts Peter Tasker, Alexander Kinmont, Kenneth Courtis, and Robert Feldman as well as the authors Bill Emmott, Richard Katz, Gillian Tett, Peter Hartcher, and Michael Porter.

I first proposed such a debate in the summer of 1998, after Tasker, who was then being presented in the Japan Times and elsewhere as the world’s most reliable authority on Japanese economics, had led a team of five or six cohorts, including Alexander Kinmont, Richard Katz, and Paul Scalise, in a coordinated effort to misrepresent my Blindside analysis. Their chosen medium was the so-called Dead Fukuzawa Society, an internet discussion forum then widely followed by Japan watchers. After nearly three months of enduring increasingly Orwellian barracking at the DFS, I invited Tasker to a one-on-one discussion. His reaction spoke volumes. He would debate me only if the proceedings were in Japanese! This despite the fact that he is British and that he had just spent months of his valuable time elaborately lambasting me in English. Moreover he insisted that he would have to be flanked on the podium by his chief assistant Kinmont, as well as by some Japanese economists. He went on to name the Foreign Correspondents’ Club of Japan as his chosen venue. When someone — not me — pointed out that the official language of the FCCJ is English, he withdrew his offer and soon afterwards left Japan for good.

To this day my offer to do a debate remains open and I would be delighted to meet any of the ten refuseniks — or indeed any other top analyst or author who helped project the “basket case Japan” myth into the Western media — in any appropriate forum in either Tokyo, Washington, London, or New York. As for audience participation, I ask simply that the first 60-70 minutes of the event be devoted to a one-on-one discussion, after which I will take as many questions and comments from the floor as time permits.

I ask Clark to publicize this offer in his Japan Times column. Name the refuseniks, the better to cajole them into taking up my invitation. These people have massively misled the West on a point of first-order historic importance and it is a disgrace to the Western spirit of free inquiry that they are not prepared to defend their record in a public forum.

Danforth Thomas’s letter as published in the October issue of Number 1 Shimbun:

Reading “Japan Then, America Now” (by Eamonn Fingleton, September No. 1 Shimbun) was a bit like biting into a thistle … so many omissions, inaccuracies, selective anecdotes and unsupported conclusions that one doesn’t really know which needles to spit out first. Being too busy to compose a fuller rebuttal, but considering the subject an important one, let me highlight just a few of the more glaring flaws in the argument.

First, the author makes the unsupported assumption that strength in Japan’s trade account drives the imbalance in the capital account, whereas it is equally plausible (and arguably more likely) that the robust U.S. capital markets drive the trade imbalance.

Second, the author rejects the objective measure of economic strength, GDP growth figures, as drastically understating Japan’s growth and instead relies among other things on his own subjective view of visible consumption in Tokyo. Any objective traveler to Japan’s hinterlands is keenly aware of the duality in living standards between Tokyo and the rest of the country. Similarly, a more objective viewer would look beyond the fashions worn in Omotesando and note the unmitigated paucity of housing space, the abysmal level of care provided to the elderly infirm, etc., etc. Further, anyone with even a modicum of olfactory sensibility who had set foot in Shinjuku or any other major urban district in the ’80s would laugh at the statement that Japan’s cities were vagrant-free at that time.

Finally, the author suffers from the common but misguided view of the primacy of manufacturing. Bemoaning in 2008 the loss of manufacturing jobs is akin to bemoaning in 1908 the shift from an agrarian to an industrial economy – emotionally resonant in some circles but ultimately destined to the “Earth is flat” dustbin. The laundry list of technologies supposedly demonstrating Japan’s technological prowess reminds one of “Say No” Ishihara’s now famously disproved views on the dominance of Japan’s semiconductor industry. The complete lack of understanding of value in the technology industry deserves a separate and more lengthy rebuttal, but suffice it here to say generally that artificially low capital costs will result in an inefficient and suboptimal allocation of resources in the form of overinvestment in manufacturing, and to say specifically that anyone who believes that tiny disk-drive motors are the key to the iPod’s success must be imbibing some pretty strange stuff.

This short note is not meant to disparage Japan’s economy, which like any other has it strengths and weaknesses, but simply to highlight the analytical defects in the article with a view to encouraging a more accurate and objective understanding of those strengths and weaknesses.

Dan Thomas

Gregory Clark’s letter as published in the November issue of Number 1 Shimbun:

Eamonn Fingleton’s remarks about me in his two No. One Shimbun contributions leave me rather surprised.

He began by saying he had never met me and was surprised by my disagreeing with his views on the Japanese economy. I replied (August issue) saying not only had we met, but we had had a long conversation in which I not only congratulated him for his fine work on Japan’s manufacturing industry but said the failure of his prediction that Japan would overtake the US in the year 2000 was mainly because of the US emphasis on financial industries (now coming unstuck big time).

For some reason he now says that this ‘garbles my (his) analysis of the Japanese economy but reiterates as if there were no issue the standard Japan Times propaganda version of Japan’s lost decade of the 1990s that I have debunked in three books.” I never said anything about any ‘lost decade.’ How he can construe my kind remarks about his work as Japan Times ‘lost decade’ propaganda seems rather delusional.

He also says it was Jesper Koll, not himself, that backed out of a FCCJ debate because questions would be allowed. The idea that Jesper Koll of all people would be reluctant to answer questions is also amazing.

Gregory Clark

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