The myth of Japan’s “lost decades”: An invitation to Ambassador John Roos

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.–

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