For years I have held that Japan’s “slump” is a media myth. I have twice in the past extended an invitation to the principal proponents of the slump story to join me in a live one-on-one debate. I have had no takers. This time, as I have announced in a guest blog at the Atlantic, I am adding an extra twist that should have them banging down my door.
An invitation to:
• Kenneth Courtis, investment banker
• Bill Emmott, author of The Sun Also Sets
• Robert Alan Feldman, author of The Weakening of Japan
• Richard Katz, author of The System that Soured
• Alexander Kinmont, author of The Irrelevance of Japan
• Paul Krugman, author of It’s Baaack! Japan’s Slump and the Return of the Liquidity Trap
• Edward Lincoln, author of Arthritic Japan
• Michael Porter, author of Can Japan Compete?
• Peter Tasker, author of Can Japan Survive?
• Gillian Tett, author of Saving the Sun
As 2011 marks the 20th anniversary of the great Tokyo real estate crash, this is an appropriate time to review what has really happened to Japan during its alleged “two lost decades.”
As you know, I am the only Tokyo-based observer who can document a record of having publicly predicted the crash. I have moreover been almost alone in arguing since the beginning that the crash was a purely financial affair that did not hinder progress in the real economy.
Only the most obvious evidence of such progress is that in the twenty years to 2010, Japan multiplied its current account surplus more than five-fold — and did so in the teeth of intensifying competition from South Korea, Taiwan, Germany, and, of course, China.
As for the United States, by a remarkable coincidence, it also multiplied its current account balance more than five-fold — its current account deficit, that is!
Evidence of Japan’s progress is also apparent in currency markets. Although from the early 1990s on, a resurgent America supposedly turned the tables on an egregiously mismanaged Japan, the yen has not fallen against the dollar. Quite the reverse, it has rocketed by more than 65 percent. Japan’s economic leadership is notably reflected in China’s import numbers. Not only is Japan China’s largest source of imports ($160 billion worth as of 2010, according to the CIA Factbook) but it is almost unique among manufacturing nations in running a balanced trade account with China (actually on Beijing’s numbers Japan enjoys a bilateral surplus). China’s numbers testify to the fact that even with some of the highest wages in the world, Japan is the world’s leading or only supplier of a vast array of state-of-the-artmanufactured products.
Many other similarly impressive statistics could be cited. So how do we reconcile such statistics with the story of Japan’s alleged two decades of “stagnation”? We can’t, of course. Surprising though this may appear to unacclimatized Westerners, all the evidence is that the Japanese economy’s true growth performance has been systematically, if counterintuitively, understated in the last twenty years.
For Japanese officials this is a matter of national security: Japan’s previous image as the juggernaut of world trade had proved dangerously counter-productive by the late 1980s. Since then the myth of an often absurdly dysfunctional Japan has been assiduously projected into the Western press. The result is that Western policymakers who once feared Japanese economic expansionism switched to pitying the “basket case.”
At a stroke, the once-intense diplomatic pressure on Japan to open its markets all but disappeared. Meanwhile key Japanese markets remain as impenetrable as ever, not least the car market. It is instructive to note that even Renault, which, through a stake in Nissan, ostensibly controls the second largest distribution chain in Japan, cannot get its own cars into “own” showrooms. (It is also instructive to note that though France consistently runs one of the largest trade deficits in the world and suffers chronically high levels of unemployment, French officials have never complained publicly in recent years about Japan’s barriers to French-built cars.)
Each of the ten recipients of this invitation has played a particularly influential role in presenting the Japanese economy, or important elements within it, as egregiously mismanaged. It is past time for an accounting.
I ask each of you whether you still stand by your analysis. If you do, I invite you to join me in a public one-on-one debate. By the same token, if you have come belatedly to realize that Japan’s problems have been greatly exaggerated, I appeal to you — in the interests not only of your own reputation for intellectual honesty but of genuine mutual understanding between nations — to acknowledge your entirely understandable misreading of the Japanese tea leaves. We can then move on in a spirit of amity and in rueful recognition of Japan’s incredible capacity to confound and confuse (I claim no special immunity incidentally, having more than once misread the Gilbertian outward presentation of Japanese public affairs in my first years in Tokyo in the mid 1980s).
In an effort to make this worthwhile, I extend a special inducement to the first invitee prepared to meet for a debate in Washington: I will donate $5,000 to his or her favorite charity. This could be a famously worthy cause such as Save the Children, the American Red Cross, or the American Society for the Prevention of Cruelty to Animals. By the same token, it could also be a little known non-profit such as a university endowment fund that my debating partner happens to care deeply about.
It is surely incumbent on each invitee to give an answer one way or the other. Just how important the issues are is underlined by the fact that, while America press commentators were indulging in constant schadenfreude at Japan’s alleged problems, Japan moved decisively to surpass the United States as the world’s principal source of advanced producers’ goods. The result is that in the midst of the worst global slowdown since the 1930s, Japan last year earned a current account surplus of $194 billion. It is fair to say that Japan now occupies a position of unchallenged dominance in producers’ goods unmatched by any nation since America’s peak years of industrial leadership half a century ago. The truth of Japan’s performance in the last two decades also bears tellingly on Western policy towards China (that policy has been based hitherto on the assumption that China will either converge to Western values or will end up in the same sort of economic train-wreck that Japan has allegedly suffered).
For those who choose to debate me, I am available for a series of events in various cities — with venues determined by mutual agreement — but I ask that the first event be held in Washington. As for rules of engagement, these are best left to an independent chair person working under the auspices of an appropriate think-tank or similarly respected organization. The one thing I ask is that it simply be a one-on-one discussion and that the proceedings be recorded for airing at, among other places, my website.
The debate motion will be determined by mutual agreement and I would be happy to focus on each opponent’s specific published analysis. With Paul Krugman and Gillian Tett, for instance, it might be appropriate to debate their impression that Japan showed absurd tardiness and even stupidity in rectifying its banking problems. If Michael Porter still stands by his Can Japan Compete? analysis, I would be delighted to show him not only why Japan can compete but why it is probably the most competitive high-wage nation in world history. With Peter Tasker and Alexander Kinmont, I would be happy to show them respectively why Japan can “survive” and why Japan is more “relevant” now than ever. With Richard Katz and Edward Lincoln, we could discuss whether an export economy as supercharged as Japan’s is really “sour” or “arthritic.” As for Kenneth Courtis, his appearance on my list reflects in part the fact that he has been identified by Business Week as a “longtime doomsayer” on Japan. Given the benefit of hindsight, is he still comfortable with this description? If not, perhaps he could come forward to correct the record. With others a straightforward discussion of the “lost decades” story might be informative.
As for my own published analysis, if any of the invitees choose this instead as the subject for debate, I would be delighted. I have never wavered from my view, expressed in among other places Blindside in 1995, that thanks to the almost incredible, if unnoticed, speed with which Japan has been building its lead in advanced manufacturing, the United States has lost economic position faster than any Big Power since the implosion of the Ottoman empire a century ago. The basic problem here is that even ostensible experts on competitiveness like Michael Porter do not understand what true competitiveness is in modern conditions. They have failed to notice that the key to competitiveness in advanced manufacturing is not just superior capital intensity but, even more important, superior knowhow intensity. And the knowhow involved goes far beyond the skills of ordinary factory workers. The key knowhow is super-secret settings for advanced production machines that must be tuned over months or even years of trial and error and learning by doing. A near monopoly in such knowhow in former times defined America’s position of leadership in the world community but now leadership has passed to Japan and to a lesser extent Germany.
Nothing has shaken my conviction that already by 2000, the United States had become an economic Potemkin village. Its current account deficit that year reached an astounding 4.5 percent of GDP, up from 1.7 percent in 1990 and a mere 0.3 percent in 1982. By comparison its geopolitically crucial manufacturing sector (manufacturers are by far the largest source of exports in any advanced economy) had dwindled to just 13 percent of GDP, a red alert level that signaled the near impossibility of getting American trade into balance again. The erosion in American competitiveness, so obvious now, was overlooked at the time merely because so many Pied Piper-style commentators, not least the ten highly influential observers on this invitation list, were so successful in proclaiming the myth of Japan’s economic oblivion.
February 26, 2011
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