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Why do Americans keep misunderstanding Japan? Much of the blame must be placed at the door of the State Department. And that is why last week I extended an unusual offer  to  the current U.S. ambassador to Tokyo.

As part of a continuing effort to improve understanding of the Japanese economy, I have issued an invitation to the U.S. ambassador to Japan, John Roos: I will make a donation of $10,000 to his favorite good cause if he will nominate one of his State Department advisers to join me for a discussion in Washington of the contradictions of the “lost decades” story.

There is much to talk about. It is only a slight exaggeration to say that the essence of U.S.-Japan economic relations since the 1960s has been that Japanese officials have pretended to open the Japanese market, and the State Department has pretended to believe them. The Americans have been intent on keeping Japan “on side” in providing largely hortatory support for various U.S. foreign policy initiatives, most notably in relations with the old Soviet bloc and more recently with such problem states as Iraq, Iran, and North Korea.

Up to the late 1980s, the State Department acquiesced in the Tokyo government’s portrayal of the Japanese economy as engaging in “super-capitalism”: America was being beaten at its own game, the story went, and worker productivity in, for instance, the car industry was supposedly as much as ten times higher in Japan than in the United States. Thus the fact that would-be American exporters were thwarted in Japan was their own fault and there were no significant remaining Japanese trade barriers to negotiate away. (This latter point has always seemed anomalous, increasingly so indeed given that as of 2012 even Renault, which ostensibly controls the Nissan car distribution system, still cannot get its own French-built cars into its own Japanese showrooms.)

Since the early 1990s the super-capitalism story has been turned on its head: the Japanese system is now seen as diverging sharply from American capitalism and ipso facto is considered highly dysfunctional and of little account in global competition. Thus all efforts to open the Japanese market have now been abandoned as unnecessary or futile given the economy’s “endless malaise.”

In reality, like the super-capitalism story before it, the lost decades story is largely nonsense. The misunderstandings have  major policy implications, not least because in believing that Japan has “hit the wall,” many Americans greatly underestimate the ramifications of China’s rise. The Japanese model has continued vigorously to build national economic power during the “lost decades” via, for instance, a tripling of the Japanese current account surplus (while at the same time delivering an increase in living standards that has visibly been at least as fast as in advanced Western nations). The Chinese model can be expected to prove similarly durable — and, given China’s 10-to-1 population advantage, its success will prove even more consequential for world trade and ultimately for leadership of the world community.

Below is a link to an article I published recently in the New York Times Sunday Review itemizing a few of the contradictions of the lost decades story.

History note: In February 2011 I offered to make a donation to a good cause if any of the ten most prominent private-sector proponents of the “Japan hits the wall” argument was prepared to meet me. No one accepted. Accountability has been out of fashion in Japan watching for some decades now.

Operational note: I am distributing this to many past and present Tokyo-based diplomats. Also to bankers, editors, foreign correspondents, policy analysts, and other influential economic actors, not to mention friends and intellectual allies.

http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html?ref=opinion&pagewanted=all–
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A message for Richard Katz and other Japan declinists: Look at the big picture.

Probably no commentator has been more outspoken in proclaiming the demise of the Japanese economic model than Richard Katz, author of The System that Soured. While many of his erstwhile comrades in the “collapsing Japan” school have long since quietly acknowledged that their previous extreme views were overdone, Katz keeps on keeping on.

In his latest salvo, Katz has portrayed the Japanese electronics industry as a basket case. “Japanese High Tech’s Five Circles of Hell” is how Business Week’s Brian Bremner sums up Katz’s findings.

Sounds pretty serious. But anyone who checks the facts finds that Japan continues to lengthen its lead over the United States.

Not everything in the Japanese electronics garden is rosy, of course, but — has anyone told him? — there is a global slump on.

Much of his analysis is just a case of “lies, damned lies, and statistics.” He reports, for instance, that Japan’s share of world electronics exports has fallen. He fails to mention that he is referring to gross exports, whereas what matters is net exports — that is, exports netted for imported content. In these days of rampant globalization, gross exports are a meaningless measure. Many nations, most notably China, have huge gross exports because they are just assemblers of components made elsewhere. Netted for imported content China’s performance is underwhelming (as much as 95 percent of the content of typical electronic products stamped “Made in China” is actually made in other nations, most notably Japan, Taiwan, and Korea).  Japan is at the other extreme in that   virtually everything it exports really is made there.

Katz points out that Japan’s share of the global chip fabrication business has fallen. This is  true, but again it hardly signals the malaise he suggests. On the contrary the Japanese electronics sector has moved on to more sophisticated activities – activities that he seems unaware of.

Industries go through life cycles. When an industry is young, it typically requires leading-edge manufacturing techniques and thus production is dominated by just a few advanced nations. As it matures, other nations catch up. And this is  what has happened in memory chips and other so-called “commodity” semiconductors. Whereas Japan was the world’s biggest producer in the 1980s, it long ago passed the torch (and much manufacturing technology) to Taiwan, a nation that trails well behind with a per-capita income at market exchange rates  less than half of Japan’s.

This might be tragic if the Japanese had nothing else to do. In fact electronics manufacturing is a fast expanding universe and, while some Japanese  corporations such as Sony are in trouble (by the way, how is  Zenith doing?), the overall Japanese electronics industry has found ever more challenging new worlds to conquer. It is busy making a host of leading-edge producers’ goods that though invisible to the consumer are driving the electronics revolution.  Examples include tantalum capacitors, charge coupled devices, laser diodes, ceramic packaging, and LCD drivers. Such components are essential in countless applications from cellphones and car navigation devices to optical fiber communications networks and avionic systems.

A typical area of Japanese leadership that is completely overlooked by the declinists is the battery industry. It happens to be one of the fastest growing sectors of the global electronics industry. Batteries may seem like an old technology, but the sort of batteries that used in  cellphones and laptops, not to mention hybrid cars, are a world away from traditional alkaline or acid batteries. Today’s nickel-metal hydride batteries, for instance, require super-advanced manufacturing techniques. As Fareed Zakaria has pointed out, eight of the world’s top ten battery manufacturers are based in Japan (and only one, Johnson Controls, is based in the United States).

Then there are such fundamental areas of Japanese leadership as electronic materials. Not the least such material is semiconductor-grade silicon. Two Japanese companies, ShinEtsu and Sumco, enjoy a world duopoly. Monsanto of the United States and Wacker of Germany once successfully contested this geopolitically crucial market but they long ago dropped out: their problem was that every new generation of chip requires ever purer silicon and they just could not keep up with  not-an-atom-out-of-place Japanese quality. The Japanese also are the dominant – and in many cases only – suppliers of a host of precision machinery vital in making electronics components and materials. They enjoy a monopoly in, for instance, LCD steppers, which are the key machines needed in the production of liquid crystal displays.

In the end the way to decide this is to look at overall economic aggregates. This is something Katz seems not to have considered. I have never seen him mention, for instance, Japan’s remarkable trade performance of the last two decades — the so-called lost decades of the popular imagination. It ranks as the most impressive of any advanced nation. Japan’s current account surplus – the widest and most meaningful measure of its trade – zoomed more than three-fold between 1989 (the last year of the 1980s boom) and 2010 (the year before the earthquake). In the same period, America’s current account deficit ballooned more than five-fold. Japan’s performance also contrasts markedly with that of such formerly strong trading nations as  the United Kingdom, France, and Italy, which are now going ever more deeply into debt.

Perhaps more telling is the fact that Japan increased its exports to China more than fourteen-fold in the period. The result was that as of 2010 these totaled $167 billion. By contrast, the United States with considerably more than twice Japan’s population managed to export only $97 billion to China that year. While we don’t have exact statistics because Japanese statisticians often categorize exports in misleading ways (they count semiconductor-grade silicon, for instance, under “Raw materials”), it is clear that one of the biggest contributors – if not the biggest contributor – to the super-strong trade performance is the electronics industry.

As usual the American press missed the real story.

The American press has made much of news that Japan last year recorded a deficit of $32 billion on its visible trade. Supposedly this is the beginning of the end for the Japanese trade engine. Some of us have been around a while and have seen that same story written dozens of times over the years — yet always said trade engine has not only recovered but has gone on to ever greater achievements.

The first thing to note is that the figures are  incomplete in a way that crucially  distorts the real news — of an extraordinarily strong performance in the face of unprecedented challenges.

The proper way to measure a nation’s performance is not by the visible trade balance alone but by the current account, which is the widest and most meaningful measure of a nation’s trade. The current account includes financial flows such as interest payments,  dividends, insurance premiums, and patent royalties. The balance in such items has been positive for Japan since the 1960s and the net invisible surplus has grown astoundingly in the last two decades. This reflects not only the fact that the underlying economic performance in true invisibles has been strong but because of so-called transfer pricing, which is now rampant in Japanese industry and results in massive understatement of exports.  (In a typical maneuver, goods might be shipped to China via Hong Kong. The goods are exported from Japan at heavily discounted prices and a Hong Kong subsidiary takes a huge profit in selling to China. Such profits constitute hidden export revenues that are not caught in the visible trade numbers. The maneuver makes sense because Japan’s corporate tax rate is one of the world’s highest.)

As for the numbers as officially presented, the effect of temporary factors is hard to exaggerate: the earthquake, tsunami, power shutdowns, and then late in the year the Thai floods all contributed to severe supply chain disruption that curtailed exports. Meanwhile oil imports have temporarily soared as almost the entire nuclear power industry has been closed for maintenance.

Then there is the “minor” matter of a 1930s-style recession across much of the world, which has drastically cut demand for Japanese exports, particularly capital goods.

For me  the  Wall Street Journal‘s coverage was particularly notable as an exercise in  spin and double-think. Not only did the Journal not make any mention of transfer pricing but it did not refer to the fact that the current account figures, due in a few days, will show a strong surplus — a truly remarkable performance given the circumstances of 2011.

The Journal only covers Japanese trade figures when they are bad. (The $196 billion current account surplus of 2010, announced this time last year, did not merit a single sentence in the Journal.) By the same token when it comes to reporting America’s trade performance, the Journal thinks the numbers count only when they are good.

Another inconsistency is that while huge U.S. trade deficits are dismissed as not important or are even presented  as evidence of the “strength of the American economy,” bad Japanese numbers — however obviously fleeting — are given big play as a “historic” turn towards economic decline.

I have a modest request for the Journal: when the current account figures come out, please give them at least as much attention as you have given the visible figures.

It is past time Paul Krugman visited “basket case” Japan.

I have been under the weather these last few days, hence my delay in replying to Paul Krugman’s critique of my recent article on Japan’s lost decades.

He writes: “Fingleton is right in this: the data don’t match the picture of relentless decline that is so widely held.” That is putting mildly but it is certainly better than the  ”basket case” view  that has for so long been espoused at even the most intelligent levels of American society.

He still needs convincing that Japan has done better than the United States  and provides a chart suggesting that, measured in real GDP per working-age person, the conventional wisdom holds. Fine. But, as he well knows, there are countless hidden and quite controversial assumptions in such a comparison. Given the rise of services as a proportion of GDP, not to mention the conundrums involved in accounting for qualitative improvements in  electronic gadgetry, the inherent measurement problems are far greater these days than in former times when economic output consisted largely of fungible, easily countable items such as tons of coal and bushels of wheat. Moreover even with the best will in the world, the problems are compounded where we are trying to make comparisons between nations so fundamentally different as the United States and Japan. In any case there are differing political agendas:  in the US there is a strong imperative to make the numbers look as good as possible. By contrast the key agencies of Japanese power, the Ministry of Finance and the METI, are  trying to talk the yen down and keep Western trade negotiators at bay. The lower Japan’s economic profile, the better, from their point of view.

For me by far the most problematic statement in Krugman’s commentary is this: “Current account surpluses aren’t necessarily a sign of success.” An ivory tower economist can, I suppose, imagine circumstances in which rising surpluses might be considered a sign of weakness and deficits a sign of strength — but such circumstances are  temporary blips and  don’t apply to a Japanese trade policy that, except for a break in the early 1940s, has been consistently pursued for 140 years now. Krugman seems to forget that the soubriquet “Juggernaut Japan”  was coined in the 1980s precisely because  Japan was so successful in boosting its trade surpluses.  (Reality note: Unlike some other commentators,  Krugman to his credit does not cite last year’s decline in Japan’s surplus as evidence of a fundamental change. There are several things going on in the decline, of which the earthquake, the tsunami, the nuclear meltdown, the power shutdowns, and the Thai floods are only the most obvious. A key reason why Japan’s merchandise trade is lower than formerly is because of massive transfer pricing — a point that The Economist missed in a recent analysis.)

In incurring deficits, the United States has been going ever deeper into debt to other nations. In earning surpluses, Japan by contrast has been acquiring ever larger assets abroad, not least in the United States. This is ultimately a matter of national security: debtor nations increasingly must defer to creditor nations. Even if this is not fully appreciated in the West, it has been central to Japanese policy thinking since at least as far back as the 1870s. It was also well understood by President John Kennedy, who said the two things he feared most were nuclear war and trade deficits.

The striking contrast in trade performance — with Japan increasing its current account surplus more than threefold while the United States increased its current account deficit nearly five-fold in the two decades — is a development of literally pivotal historic significance.

Evidently overlooked by Krugman, the world has experienced the fastest and most astounding  industrial revolution in  history in the last two decades. The world total of cellphone subscriptions alone has rocketed from 12 million in 1990  to 4.6 billion in 2010. And Japan — a nation whose economy turns much of U.S. free-market ideology on its head — has led virtually every aspect of the revolution. That is because it dominates the upper reaches of the world supply in most of the producers’ goods involved, not least the key components in cellphones.

Japan’s manufacturing leadership is obvious in the fact that its exports to China alone run more than $120 billion a year. Much of what the Chinese import is available nowhere else. The Japanese have deliberately targeted ever tougher manufacturing challenges, thereby pioneering the production of a succession of ever more miniaturized components that are far beyond the unaided competence of the Germans, let alone the Koreans and Taiwanese (and, of course, of the Americans and the British, who started dropping out of capital-intensive, know-how-intensive manufacturing a generation ago). Of course the pattern is for the Koreans and Taiwanese to follow in  Japan’s footsteps  after a lag of about 10 years but they do so with machines and manufacturing technologies acquired from Japan. It is a win-win for all involved.

In “crown jewels” technologies moreover, the Japanese have actually strengthened their grip over the years. Take, for instance, something as seemingly mundane as silicon for silicon chips. Each new generation of computer chip requires an ever more refined version. It is a challenge that has required ever more rarefied production technologies. The last remaining American producer was Monsanto, which dropped out decades ago. Even Germany’s Wacker Chemie, the only European supplier, no longer can make the real thing and contents itself with making a semi-purified form known as “poly.” These days two Japanese companies, ShinEtsu and Sumco, make virtually all the world’s supplies of semiconductor grade silicon crystal. One tiny American company is still technically in the business but its key factory is in Japan and its entire operation is a figleaf for Pentagon contracting purposes. (It is worth pointing out that several American companies make silicon wafers but that is a separate, less sophisticated activity that depends on crystal sourced from Japan.)

Paul Krugman has already extensively and skillfully debunked the ideologues in U.S. domestic economic policy and rightly enjoys enormous political influence. If he were to use this influence to explain to Americans what globalism really means, he might change history. A journey of a thousand leagues begins with the first step. It is time Paul Krugman visited us in Japan and saw for himself  what this “basket case” economy really looks like.

The BBC  has followed up my recent article in the New  York Times.

Last Thursday Gillian Tett, a top editor at the Financial Times, joined me for a discussion of  the Japanese economy with Emily Maitlis on the BBC’s Newsnight program. You can watch it here. The topic was an article I published last week in the New York Times Sunday Review. I am happy to say that though she and I have not always agreed in the past (she is an author on Japan who formerly served as the FT’s Tokyo bureau chief ), she was generally supportive of my argument this time.

Our conversation was preceded by a useful report from Tokyo by the BBC’s correspondent Roland Buerk, in which he echoed several  points I made in my article. You can see his report here.

All this said, it is necessary to offer some counter-evidence on one “basket-case Japan” theme that both Gillian and Roland seem to have bought into: the idea that Japan’s government debt is out of control. This story has been put forward in various guises since the 1980s (I know — I have lived in Tokyo since 1985) and it serves various purposes quite at odds with the truth. For a start the Tokyo Finance Ministry (MOF) likes to portray the fiscal situation in disastrous terms as a counter to domestic lobbies pleading for budgetary handouts.  In truth Japanese fiscal numbers, as officially stated, are full of contradictions. For a start there is the fact — never mentioned in the “basket case” reports — that the Japanese government can raise 10-year money on an interest rate as low as 1.0 percent. That is just a fraction more than the 0.8 percent the government of Switzerland pays and compares with nearly 2 percent for the United States, more more than 3 percent for France, more than 7 percent for Italy, and nearly 35 percent for Greece.  Clearly a lot of investors do not think the Japanese government is going bust.

Japan’s government finances are so strong indeed that the MOF has long quietly acted as the ultimate lender of last resort to the world financial system: this point was made explicit at the height of the world financial crisis in early 2009, when the MOF advanced $100 billion to prop up the International Monetary Fund. And this is only a small part of the total effort by the MOF to borrow from Japanese savers to finance the West. The MOF also is  a huge buyer of  U.S., U.K., French, Italian, and Indian government bonds and thus Japanese government debt makes possible huge fiscal deficits in these other nations. It is not an exaggeration to say that without constant infusions of  Japanese money, these other nations would quite literally be as beleagured financially as Greece and Portugal.

Paul Krugman has critiqued my analysis of Japan

Update: My response is here.

In an article in the January 8 issue of the New York Times Sunday Review, I extensively debunked the story of Japan’s lost decades. My analysis has not only drawn a flood of email but has been extensively noted in  the blogosphere.  I am happy to say that most of the comments have been  complimentary, particularly comments from Americans with a real understanding of Japan (not least the sort of people who have actually visited the country!).

The most common criticism I have had is that I did not address the Japanese government’s supposedly out-of-control debt. Actually the original article did address this as well as several other myths not dealt with in the final edit but my comments  had to be  cut for space reasons (there are so many myths out there you would need to write a book to deal with them — come to think of it I have!). The first thing to note about Japanese debt is that the Japanese government can borrow 10-year money for little more than 1 percent — the lowest rate of any government I am aware of and lower even that the rate at which the British government could borrow  at the height of British financial hegemony in  the late nineteenth century. To say the least buyers of Japanese government debt don’t seem to agree that things are out of control. Basically the issue here is accounting. The ratio of 200+% of GDP often cited involves an enormous amount of double-counting with various government agencies borrowing from one another. The usual figures in other words are phony. It should also be noted that much of  the money borrowed from the Japanese public goes  to finance not  Japanese but American government spending. Much of the rest of it goes to finance various semi-bankrupt European governments.

As for the blogosphere, of particular interest is that my analysis has been critiqued by Paul Krugman. Krugman is not only a first rate economist but a gifted writer and I find myself agreeing with most of his analysis of the American economy. His understanding of Japan, however, is a different matter. I plan to respond to his comments later this week and will deal also with one or two other intelligent interlocutors. In the meantime I am racing to meet a big deadline  for my next book. Watch this space.

My article in today’s New York Times Sunday Review has been generating heat as well as light.

An article I have written on Japan for the January 8 New York Times Sunday Review went live at the nytimes.com website yesterday and already the reaction has been the greatest I have ever known. Virtually all of it has been good but some bloggers have greatly confused the issue.

In particular I am surprised by one Washington-based trade lobbyist for a Japanese corporation who in a 2,000-word commentary has ostensibly rebutted several of my points. On closer analysis his take is just standard-issue ignorance of Japan, plus an evident desire to perpetuate the usual spin.

I have a busy today ahead of me so I will confine myself here to a representative sample of his argument — his first and closing points, which  I take it  he considers to be particularly persuasive. His first point concerns life expectancy. As I mentioned, Japan’s life expectancy at birth increased by 4.2 years between 1989 and 2009. He thinks this does not count because Japanese-Americans are also extremely long lived. Well, yes,  Japanese-Americans enjoy exceptionally good life expectancy but that surely reflects in large measure the fact that they have long ranked among the wealthiest of ethnic groups in the world’s until-recently wealthiest nation (nearly 30 percent of Japanese Americans  have college degrees). They also benefit of course from a good diet. But all this is  beside the point.   I repeat: the 4.2 year increase reflects mainly a major improvement in the Japanese healthcare system and is a powerful indicator of superior economic growth. There is no other explanation and my interlocutor provides none.

Now for his parting shot. He shows pictures of Japanese consumers lining up to buy the new Apple iPhone. This supposedly is evidence that the United States, not Japan, leads in cellphone technology. He omits to mention — something well known to anyone who follows global competition in that industry — that Apple is an outsourcer. Its manufacturing is done in East Asia, particularly in Japan and to a lesser extent Korea and Taiwan, with final assembly in China. Essentially most of the jobs are East Asian.

More generally Japan is by far the largest manufacturer of the key components in all cellphones. And the real technological magic is in these highly miniaturized components (they are why your cellphone doesn’t look like a walkie-talkie). A survey by Deutsche Bank some years ago identified nine key components in cellphones. Of the 36 manufacturers worldwide of these, 29 were Japanese — and just one was American. Japan indeed monopolizes the world supply of many such components and without them Apple, Motorola, Nokia, and so on would not have a business. An example is  capacitors, formerly the size of light-bulbs but now, using tantalum technology, no larger than a grain of salt. They are essential in virtually all electronic devices and a typical cellphone requires half a dozen of them —  all made in Japan, mainly by Kyoto-based Murata. According to the Asian Development Bank Institute, Tokyo-based Toshiba Corporation alone contributes 33 percent of the manufacturing content in the iPhone (in particular its superb touch-sensitive screen). Such manufacturing not only requires far greater per-capita capital investment than U.S. corporations can afford these days but vast amounts of secret manufacturing knowhow, typically built up over decades.

Update:

I have now had time for a few further rejoinders.

My interlocutor says that Japan’s astounding  trade surpluses do not matter, nor do America’s vast trade deficits. We have come a long way since John F Kennedy said the two things he feared most were nuclear war and trade deficits. The idea that these deficits do not matter comes from broadly the same school of economics that told Americans they could borrow ad infinitum against the value of their homes without negative consequences.

My interlocutor tries to gainsay the scale of the remarkable building boom during Japan’s supposed “lost decades.” He cites misleadingly low population figures for U.S. cities to suggest that Tokyo’s skyscraper ratio is not very impressive on a per-capita basis.  The key  fact — one that he has no answer for — is that 81 skyscrapers taller than 500 feet have been built in Tokyo proper since 1990, versus a total of only 12 such buildings up to that date. And this in a country that suffered one of the biggest real estate busts on record (true), an aging population (also true), supposedly idiotically out of control government finances (not true but widely believed in the West), and huge hidden unemployment (obviously untrue but also widely believed in the West).  The issue here again is economic growth: how can such a historically extraordinary pace of building be reconciled with the story of an economy that is supposed to be flat on its back? And why don’t the analysts who have sold us the “basket case Japan” story ever mention such interesting contrary data?

He suggests that Japanese unemployment figures are understated. Wrong. The figures I used have been adjusted by the U.S. Bureau of Labor Statistics to be fully comparable with U.S. statistics. He points out that the labor participation rate is lower than in the United States. This is true but it does not cast doubt on the low unemployment rate. The lower labor participation rate – 59 percent versus 64 percent – reflects (1) a high proportion of retirees; (2) a high proportion of young people at college; and (3) a strong cultural tendency for women to give up work once they have a child. Those of us who read Japanese know that small businesses are constantly advertising for staff. There is no shortage of jobs in Japan, either for women or men. As countless foreign employers in Japan can testify, the problem rather is a shortage of young workers.

People have asked me what happened to the Fingleton Invitation. The answer is nothing.

Some months ago I invited Ed Lincoln, a former Tokyo-based economic adviser to the U.S. government, to join me for a public discussion of the Japanese economy. In his capacity as economic adviser to the then U.S. ambassador to Japan Walter Mondale, Ed had been particularly influential in leading the American public to accept that the Japanese economy had somehow lost its mojo after the Tokyo stock market crash of  1990. I have consistently taken the opposite view that, slumping stock and real estate prices notwithstanding, the underlying Japanese economy has done rather well. Indeed, in key ways, particularly in the most rarefied areas of manufacturing, it has raced far ahead of the United States.

Beginning in 1998, I have on several occasions offered to debate the dozen or so leading proponents of the “basket case Japan” thesis. I have had no takers.

Ed would be a particularly relevant interlocutor, and, to cut a long story short, I offered last summer to make a $10,000 donation to his favorite good cause if he would come forward. I mentioned earthquake relief in Tohoku as a particularly appropriate cause. I have not had a reply but my offer is still open.

I have summarized my argument in an article in the January 8th issue of  the New York Times Sunday Review. To read it, click here.

The letter below, to the Clinton administration’s chief Japan economist, is self-explanatory.

Dear Ed:

Having heard nothing from you over the summer despite several private attempts to make contact, I must now press publicly for an answer.

As you know, I have offered to donate $10,000 to your favorite charity if you are prepared to join me for a public discussion of the hidden contradictions in the  “lost decades” story of Japan. On several occasions since 1998, I have extended similar invitations to nearly a dozen other key commentators, most of them securities analysts, yet none has come forward.

As you understand better than anyone, the evidence that the press has – yet again – completely misconstrued Japan is everywhere. You yourself agree on a key part of my analysis that, in striking contradiction to umpteen reports in the great newspapers of record of the English language, the Japanese employment system has not broken down (such reports were particularly prevalent, and were played particularly big, in the late 1990s but similar predictions have been a mainstay of these newspapers’ perennially benighted Japan coverage since the 1960s!). These reports are ultimately traceable to a few questionable sources in the Tokyo foreign community and are intended to forestall demands by corporate Japan’s foreign workers for parity in employment conditions with workers in the home country. For details on just one of several less-than-noble reasons why foreigners in Tokyo are so persistent in pumping misinformation into the English-language press, click here.

As an economist, you are a practitioner in a field that purports to be a science. The essence of the scientific method is not only not to sweep contrary evidence under the carpet but eagerly to investigate it. One of the key contradictions that must be addressed is the evidence of electricity statistics. In 2007 it was discovered that the long-term record in electricity output completely gainsaid the “lost decades” story. Adjusted to a per-capita basis, the figures showed that Japan’s electricity output in the 1990s rose twice as fast as  America’s! And Japan continued to outperform in the new century. As you know, electricity output is widely accepted as an impartial, culture-neutral proxy for economic growth and it is indeed relied on by international organizations such as the IMF and World Bank when a government may not be following international accounting standards in calculating GDP growth.

In contradistinction to others who have propagated the “stagnant Japan” story (who are generally not Americans and in any case are answerable only to their own bank accounts), you have a duty to the American national interest to clarify your position. You know you made serious mistakes in your capacity as the Clinton administration’s chief Japan economist – mistakes which have continued badly to mislead the American establishment in its dealings not only with Japan but with most of the rest of the East Asian region, not least China.

Please admit these mistakes. You would not be the first former public servant to acknowledge error and, if the precedents of Alan Greenspan on banking deregulation or Robert McNamara on the Vietnam war are any guide, you stand to earn great respect in correcting the record even at this late stage.

In any case please afford me the courtesy of a reply.

Best wishes,

Eamonn Fingleton

P.S. For my post of June 28, click here