A $10,000 offer for Robby Feldman and Ed Lincoln

Let’s sort out once and for all what has really happened to the Japanese economy in the last two decades.

Some months ago I offered to make a $5,000 donation to charity if any of ten influential Western commentators joined me for a public debate on Japan’s “two lost decades.” These commentators have all been leading proponents of the conventional view of Japan as a dysfunctional has-been.

I take a different view – that, while of course there have been some problems (not least the stock market and real estate crashes of 1990-94, which I, almost alone among Tokyo-based observers, predicted), the overall  economy has done well. I point to a mountain of contrary evidence which has somehow escaped the notice of the ten commentators. On my analysis, which I have documented in three books, the lost-decades story is a media myth. It has been conjured up by Japan’s bureaucratic elite to win sympathy abroad and thus to forestall Washington’s efforts to open Japanese markets.

My $5,000 offer was made on February 26 but still by March 11, when the great East Japan earthquake hit, no one had accepted. I have not heard anything since.

I am now doubling my offer and am extending it exclusively to the two pivotal figures among the ten, Robby Feldman and Ed Lincoln. Between them they have virtually defined the “lost decades” story, and were the sources of many of the others’ misunderstandings. I will donate $10,000 to charity if either Feldman or Lincoln is prepared to join me in a public discussion. The choice of charity is theirs but they might appropriately favor the Japan Earthquake Relief Fund.

The only significant conditions I attach are that the event be a simple one-on-one encounter under a mutually acceptable moderator, probably a prominent politician, and that it be held in Washington at a venue like the Council on Foreign Relations at a time when both houses of Congress are in session. I hope that the proceedings will be taped and that I will be permitted to feature the recording at my website.

Robby, who was educated at MIT and Yale and worked at the IMF before moving to Japan in 1990, is a managing director of Morgan Stanley and its chief Japan economist. Previously he worked for the Bank of Japan. Ed served as ambassador Walter Mondale’s chief advisor on Japanese economics in the 1990s and before that he worked for the Japan Economic Institute, a Washington-based advocacy group noted for promoting the view that America’s trade deficits do not matter (a view subsequently espoused by Vice President Dick Cheney). In contradistinction to most of the rest of the February ten, both Feldman and Lincoln are fluent in the Japanese language.

Let me speak plainly: no one of any commonsense in Tokyo has ever placed much credence in the story of the first “lost decade,” let alone the second. They have kept their views to themselves, however, because Japan is not a place where people lightly contradict the elite bureaucracy on anything, let alone on a fundamental public relations theme that has been systematically projected into the foreign media for twenty years.

While it may seem amazing that crucial facts can be swept under the carpet in this way, the Japanese bureaucracy’s almost magical ability to impose self-censorship not only on Japanese citizens but even on Japan-watching foreigners has been well documented (see, for instance, Ivan P. Hall’s Bamboozled: How America Loses the Intellectual Game With Japan and Its Implications for Our Future in Asia).

A notorious example was the omerta observed for decades on the Nanking Massacre, Japan’s equivalent of Auschwitz. The subject remained sub rosa for decades even in the Encyclopaedia Britannica (see, for instance, the 1970 edition). The silence was decisively broken only by the late Iris Chang, who came from outside the Japan-watching field and did not feel bound by its rules.

Another example – of special relevance to the current discussion – is Japan’s closed car market. Tokyo-based correspondents have written virtually nothing about it in many years and I can’t remember the last time it was discussed at the Foreign Correspondents’ Club. Yet the fact is that with the exception of two luxury German marques, foreign cars remain completely marginalized and the aggregate foreign market share has been kept at 4 percent for decades (irrespective of whether the yen is high or low). Even mighty VW has been permitted no more than a token share. Korean makers are completely shut out, although many capable Japan-based businessmen of Korean heritage, not least Japan’s richest tycoon Masayoshi Son, would undoubtedly jump at the chance to set up distribution. Then there are the Detroit companies: most of their European-made products are available in configurations suitable for Japan’s drive-on-the-left roads, yet are virtually never seen on those roads. Amazingly Renault, which took a controlling stake in Nissan more than a decade ago, has yet to be permitted to sell its own French-built products in its Japanese showrooms. The coup de grace is this: not only has the French government never complained but the French ambassador refuses even to discuss the matter.

It is not necessary to present my entire argument here but a few pointers might be useful. First, it is obvious there is a disconnect between the low officially-calculated GDP growth rate and the visibly rapid improvement in the Japanese people’s living standards. Healthcare, eating out, the universal prevalence of all the latest advanced gadgetry (car navigation systems, smart-phones, and large LCD television screens, etc.), clothing quality, and public infrastructure (airports, subway systems, train stations, broadcast and mobile phone signal quality etc.) are only the most obvious areas where the Japanese have progressed well beyond American standards in recent years.

Some commentators have argued that Japan is becoming “arthritic.” But ageing populations are almost a defining feature of the world’s richest nations. They reflect in the first instance better healthcare (the Japanese now live four years longer than Americans, whereas in the late 1940s their life expectancy trailed that of Americans by eleven years). Japan’s demographics are also driven by another marked characteristic of the world’s most advanced nations, small families (crucially the latter trend is closely correlated with high educational standards for women). Although much is made of how old the Japanese population is, the median age in Japan is actually not significantly higher than in much of rich central Europe and indeed it is lower than that of Germany, whose economic performance has been widely and correctly hailed as remarkably strong.

What is clear is that there has been nothing “arthritic” about Japan’s trade performance in recent years. Though it has been overlooked by both the press and by promoters of the lost-decades story, the fact is that, on OECD numbers, Japan’s current account surplus – the widest and most meaningful measure of its trade – reached $195 billion in 2010. This was the world’s second largest surplus and represented a more than three-fold increase on 1989, the peak year of “juggernaut Japan” talk in the American media, and more than five-fold on 1990. The increase was achieved at a time when Japan’s major competitors in world markets – mainly Germany but also South Korea, Taiwan, and, of course, China – were hardly standing still. Even more impressive is the fact that, thanks to a soaring yen, Japanese factory wage rates increased more than 80 percent in the period (again the press does not seem to have noticed but Japanese factory-floor wages are now probably the highest among major nations).

Japan’s trade performance is all the more significant given the contrast with the United States, whose current account balance is also up five-fold since 1990 – its current account deficit, that is! The U.S.–Japan trade dichotomy points to one of the most consequential developments of the modern era, yet one that has been completely overlooked: Japan has now succeeded to America’s former place as the world’s dominant source of advanced manufactures. This position was, of course, the cornerstone of America’s former economic greatness. Japan’s dominance in such goods – typically producers’ goods without which the modern world would literally not exist – now reaches inside American industry’s inner moat of defense technologies. Hence the fact, for instance, that on a fundamental input-output basis, Japan has now passed the United States as the world’s premier aerospace power. (The point is illustrated by the Boeing 787, expected to be the most advanced and efficient passenger plane ever built. Mitsubishi will supply its superlight  carbon fiber wings, its historic comparative advantage. Though at primary contractor level the United States and Japan will each contribute about 30 percent of value-added, the deeper you dig into the layers of sub-contractors and sub-sub-contractors the more Japanese the plane becomes. If the 787 can be described as five million components flying in close formation, probably at least two million of them will be Japanese. Certainly to call it a Boeing is a misnomer: it should more properly be considered a Mitsubishi, albeit one bolted together in Seattle with American rivets.)

As for Japan’s government debt, there are major accounting issues here, not least the fact that the Japanese government uses much of the money raised from Japanese savers to prop up America’s public finances, not Japan’s!

Anyone who credits the “lost decades” story has many questions to answer. How, for instance, is it possible that an economic system that has continued to forge ahead so impressively in export markets – surely the ultimate test of any economic system – can’t “get its act together” at home? After all it is the same system, structured in the same way, regulated in the same way, and run by the same sort of executives, educated, recruited, and incentivized in the same way. Indeed the same commercial groups – with names like Mitsubishi, Sumitomo, Mitsui, Hitachi, Toshiba, Panasonic, Sony, NEC, Nissan, and so on – dominate the commanding heights of the domestic sector just as surely as the export one. How come these groups suddenly became such doofuses at home, given that in earlier decades they had played such an impressive role in raising domestic living standards (remember that the Japanese started in 1950 poorer than many sub-Saharan African nations)?

A final point: it is sometimes suggested that Japan has suffered an inexplicably prolonged “consumer funk.” This is hard to reconcile with the fact that, as a fundamental matter of industrial policy, consumption is systematically suppressed in Japan – a policy shared with China, South Korea, Taiwan, and Singapore, and intended to boost the savings rate. If the financial authorities want to boost consumption, they can do so at a stroke by relaxing consumer credit controls — something that some well-informed observers in Washington have been urging on Tokyo since the 1960s.

History of the “Lost Decades” Debate Initiative

This is my fourth attempt to organize a public discussion of the lost decades story. My first came in 1998 and was undertaken in response to misrepresentations of my work by a group of several posters at a Japan-related internet bulletin board. The group was led by Peter Tasker, the Nihon Keizai Shimbun’s long-time Number 1-rated Tokyo-based securities analyst.  I suggested we meet for a one-on-one debate in Washington. Tasker, however, said he would meet me only in Tokyo and then only if he was accompanied on the panel by one of the other posters, the securities analyst Alexander Kinmont, as well as by some Japanese economists, and then only if the entire proceedings were conducted in the Japanese language (although his earlier internet comments had been in English). The initiative foundered when Tasker’s suggested venue, the Foreign Correspondents’ Club, refused to host a debate in Japanese. He left Japan shortly afterwards.

My second attempt came in 2002. I issued a general invitation to all the top foreign securities industry commentators on the Japanese economy. The only one who came forward was Jesper Koll, a Tokyo-based German-born managing director of Merrill Lynch. It quickly emerged, however, that he was not interested in a focused, potentially decisive one-on-one discussion. Instead he wanted the event to be halted every few minutes to take questions and contributions from the audience. Negotiations continued for about year in which my email messages sometimes went unanswered for months. Then without explanation he withdrew. In a comment recently he said that no money had been forthcoming for his fare to Washington. In reality the understanding all along had been that the conservative tycoon Roger Milliken would fund his travel costs. Had Milliken money not been available, I would have gladly paid his fare myself. Sequel: Within months of withdrawing, Koll, a droll speaker who had previously been noted for hyperkinetic, comic presentations of the “basket case Japan” story, switched to the opposite side and began presenting Japan as one of the world’s most successful economies.

For my invitation to the February ten, click on these links:



For an insight into the problematic nature of academic Japan studies, click here:


For an extended analysis of the Boeing 787 project, click here:


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