JAPAN'S GROWING POWER OVER EAST ASIA AND THE WORLD ECONOMY: ENDS AND MEANS

Transcription

1 JAPAN'S GROWING POWER OVER EAST ASIA AND THE WORLD ECONOMY: ENDS AND MEANS

2 By the same author JAPAN'S MODERN POLITICAL ECONOMY: Continuities, Changes, Challenges (in preparation)

3 Japan's Growing Power over East Asia and the World Economy: Ends and Means William R. Nester, Ph. D. Lecturer in Far East Politics, School of Oriental and African Studies, University of London M MACMILLAN

4 William R. Nester 1990 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency Alfred Place, London WCIE 7DP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1990 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data Nester, William R. Japan's growing power over East Asia and the world economy: ends and means. 1. Japan. Economic development, I. Title '04 ISBN ISBN (ebook) DOI /

5 To my parents, with deepest love and gratitude

6 Contents Acknowledgements Introduction viii 1x 1 Great Powers, Hegemons and the International Political Economy of the Modern Era 1 2 America's Liberal Hegemony: Rebuilding the World, East Asian and Japanese Political Economies; Responsibilities, Dilemmas and Costs 13 3 Striving to Become 'Number 1': Japanese Foreign Policy, 1945 to Present 46 4 Japanese Hegemony in East Asia: Economic Predominance and Political Impact 81 5 The Cultural Roots of Japanese Neo-Mercantilism Japanese Neo-Mercantilism: Policy-making Japanese Neo-Mercantilism: Policies Japanese Hegemony and the American Challenge The Future of Japanese Hegemony over East Asia and the World Economy 219 Notes 237 Bibliography 258 Index 280 vii

7 Acknowledgements With deepest appreciation to Dr Haru Fukui and Dr Michael Gordon of the University of California and Santa Barbara. Without their advice and encouragement this book would not have been published. Vlll

8 Introduction In just over 40 years Japan has developed from a war devastated country into the second largest and, many argue, most dynamic and properous economy in the world. Although its GNP remains only half that of the United States, its per capita income is greater, and far more egalitarian. More importantly, Japan now threatens to leapfrog the US as the core power of the world economy. Fifteen of the world's 20 largest corporations are now Japanese. With the world's ten largest banks, and Japanese banks in general holding twice the assets of their American counterparts, Tokyo has replaced Washington as the world's banker; in 1987 Japan's net overseas assets of $240.7 billion were the world's largest, while the United States held a current account deficit of over $276 billion, and now owes over $450 billion to foreign creditors, one-third of them Japanese. 1 Japan largely accumulated its tremendous wealth and achieved its growing hegemony over the world economy through exports of high quality, mass consumer goods that have flooded the globe's marketplaces. In part, Japan's tremendous trade success is attributable to Japanese productivity which is among the world's highest; experts laud Japan's factories, management style, consumer-product research and development orientation, and labour relations as models for the post-industrial age. Japan's scientists and engineers are locked in a fierce battle with their American rivals for supremacy in such high technology fields as microelectronics, biogenetics, industrial ceramics, robotics, aerospace, and, most importantly, the race to develop a fifth-generation computer. If Japan can develop a fifthgeneration computer that reasons like a human being and performs thousands of times faster than present supercomputers, and puts it in the hands of its highly efficient bureaucratic-industrial complex, Japan's hegemony over the world economy will be assured for well into the 21st century. The study of Japan's rise from the ashes of the Second World War to its present economic superpower status is becoming an increasingly popular subject for both academics and businessmen. Countless books, articles and seminars have been devoted to examining different aspects of Japan's 'economic miracle'. In-depth studies of such subjects as Japan's industrial policy, management style, or multinational corporations appear yearly. ix

9 X Introduction Yet, despite this avalanche of research, the bulk tends to examine Japan from one of two perspectives. The most common approach seems to concentrate on the internal factors, like culture, institutions or politics, behind Japan's success. The other approach highlights the impact of Japanese competition on the United States or Europe. But these approaches only partially explain the reasons behind Japan's economic success. To fully understand Japan's transformation into an economic superpower, one must examine America's postwar policy toward Japan. In many ways it was the United States that, both intentionally and unwittingly, created the conditions for Japan's present economic superpower status and hegemony over the world economy. During the Occupation ( ) the United States provided vital economic reforms and aid, military procurements, and an open world economy, while encouraging Japanese industrial policies and trade barriers. Japan's return to economic hegemony over East Asia was a central pillar of American policy. By making Japan the new 'workshop of Asia', Washington would succeed in achieving the interrelated goals of rebuilding the world economy and containing communism. Japan would provide an engine of growth to East Asia under the protective umbrella of American nuclear and conventional military power. 2 But Japanese hegemony over a prosperous East Asia did not occur quickly or easily. In the early postwar era, it took tremendous efforts by the United States to rebuild the shattered East Asian countries and integrate them into a regional economic system. The United States concentrated first on reviving triangular trade between itself, Japan and Southeast Asia. A regional division of labour evolved with the United States supplying the capital and technology, Japan, mass consumer and capital goods, and Southeast Asia, raw materials. As the East Asian countries became more deeply involved in the increasingly dynamic world economy, the region as a whole became more prosperous and Japan's presence in it more pervasive. East Asia is now one of the powerhouses of the world economy with growth rates double those of any other region, and in the past 40 years Japan has steadily eroded American and European economic influence in the region. Today Japanese trade, investments and capital have dominant foreign shares in almost every country. Japan has clearly replaced American economic predominance in East Asia with its own. A new division of labour has emerged in East Asia. The United States and Japan compete as industrial powers; both supply capital

10 Introduction Xl goods and finance to the region. Japanese mass consumer products have largely edged out their American rivals but now are challenged by similar and cheaper products pouring out of factories in the New Industrial Countries (NICs)-South Korea, Taiwan, Hong Kong, Singapore and China. The Newly Exporting Countries (NECs) Thailand, Malaysia, Indonesia and the Philippines-form the bottom layer of the system. They supply the region's raw materials and are beginning to build export-oriented consumer industries of their own. Washington's nurturing of Japan back to economic health through the painful but essential Occupation reforms, and its sponsorship of Japan's return to prominance first in East Asia, and then the world economy are the key reasons for Japan's present economic superpower status. With the United States providing open international markets and military security, Japan's ruling corporatist triad of conservative party, bureaucracy and big business were able to concentrate on leading the economy to ever higher levels of export volumes and technological sophistication through rational industrial and neo-mercantilist trade policies. All the while, despite Japan's rise to economic superpower status, the United States continued by and large to tolerate its neo-mercantilist policies. As a result, the benefits to Japan of its membership in the world economy have been enormous and the costs minimal. The United States continues to bear the military, economic, political and humanitarian burden of upholding the system, despite the fact that Japanese hegemony both in East Asia and the world economy as a whole grows more evident daily. By 'free-riding', Japan has developed to the point where it now threatens to achieve its goal of economically and technologically surpassing the United States. As will be seen, Japanese hegemony has enormous implications for American national security and the future of the international trade system. This book analyzes the reasons behind and implications of the rise of Japan to its present economic superpower status, its hegemony over East Asia, and its growing hegemony over the world economy. The first chapter places Japanese hegemony in a historic perspective. 3 A nascent global economy first emerged in the late 15th century as European navigators began sailing to the far ends of the earth in search of riches and colonies. Since then the world economy has experienced two distinct phases and appears to be entering a third. The mercantilist era lasted from the first explorations until the early 19th century. This era was dominated by a succession of hegemons Portugal, Spain, Holland, France, and, finally, Britain-who de-

11 xii Introduction feated their rivals and emerged for a while as the wealthiest seapower in the world economy. Although the tenure and degree of their predominance varied from one hegemon to the next, each followed mercantilist policies, whereby the state took responsibility for developing its economy through subsidies to industry, import barriers and the conquest of foreign lands for markets, raw materials and luxury goods. In the early 19th century, with a comparative advantage in most manufactured goods resulting from its industrial revolution, and the overshadowing of agricultural by industrial interests in Parliament, Britain abandoned its mercantilist trade policies and embraced the idea of free trade. Throughout the 19th century Britain succeeded in convincing the other great powers to open up many of their markets to each other, while Western imperialism forced most of Latin America, Asia and Africa into the world economy. Although world trade was never completely free even at the height of British hegemony, most independent countries accepted at least the principle of free trade. The idea that markets, not the state, were the most effective source of economic development proved a revolutionary change in international economic relations. In the over two decades after 1945, under the guidance of American hegemony, the world economy largely achieved the ideal of free trade. Most countries eventually agreed to gradually open their economies to foreign trade and investment. A host of international economic organizations like the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT), the European Economic Community (EEC), the Organization for Economic Cooperation and Development (OECD) and others were created to facilitate international trade and understanding. But by the early 1970s free trade was in retreat. President Nixon allowed the dollar to float, took the United States off the gold standard, and began retaliating against the unfair trade practices of Japan and others. The United States economy was being undermined by the success of Washington's postwar policies designed to liberalize the world economy. West Europe and Japan were beginning to take over both foreign and domestic markets that had previously been dominated by American firms. This shift in economic power was further complicated when the quadrupling of oil prices by the Organization of Petroleum-Exporting Countries (OPEC) threw the world economy into deep recession and double-digit inflation. In this new era of slow growth, limited resources, and high unemployment and

12 Introduction xiii prices countries began tore-erect trade barriers and export subsidies. Unlike the other democratic industrial countries, Japan had never significantly opened its markets. In response to foreign criticism Tokyo would make a few cosmetic concessions but its elaborate system of rational industrial policies, non-tariff trade barriers (NTBs), and export subsidies, all designed to build up Japanese industries at the expense of their foreign rivals, remained intact. Soon other countries began to emulate Japan's successful neomercantilist policies. Neo-mercantilism differs from mercantilism in the relative importance of the military. Whereas mercantilism used accumulated wealth to increase the country's military power, neo-mercantilism maintains a minimum defence force and instead reinvests its wealth into the economy. With the decline of American and the rise of Japanese hegemony, the world economy appears to be entering a third era characterized as neo-mercantilist. The next three chapters concentrate on Japan's rise to hegemony over East Asia. Chapters 2 and 3 reveal how American and Japanese foreign policy collaborated on the joint goal of developing Japan's economy and re-establishing Japan's hegemony in East Asia. Chapter 4 analyzes the gradual postwar shift in each East Asian country from American to Japanese hegemony through both dependence and dependency theory. Dependence is a purely economic concept that is easily measured by comparing a country's trade, foreign investment, loan and aid ties to those of other countries. Dependency is a political concept that attempts to reveal both the actual and perceived 'exploitation' of a dependent country by a dominant country. Japan replaced American hegemony in East Asia in the mid 1970s, and its continued neo-mercantilist policies toward the region have come under increasing criticism. The next three chapters analyse the processes of Japan's neomercantilism. Chapter 5 reveals how America's liberal and Japan's neo-mercantilist orientations are deeply embedded in their respective cultures, and thus, limit Japan's much proclaimed 'internationalization' and America's ability to revive its economy through neomercantilist policies. Chapter 6 discusses Japanese policy-making while chapter 7 takes an in-depth look at the industrial policies, import barriers, and export offensives that have been the basis of Japan's successful rise to economic superpower status and East Asian hegemony. The final two chapters discuss the future of Japanese hegemony.

13 xiv Introduction Japan faces increasing difficulty as it is squeezed between America's continued but diminishing lead in high technology, and NIC inroads into old industries such as shipbuilding, steel, cars, textiles, semiconductors and consumer electronics. Japan's continued hegemony rests on its ability to technologically leapfrog the United States. If Japan can develop a fifth-generation computer and put it in the hands of its efficient bureaucratic-industrial complex, both regional and global economic hegemony will be assured. Related questions include whether Japan will eventually evolve from a neo-mercantilist into a liberal hegemon as the United States becomes increasingly incapable of maintaining the system; what impact the rise of China and other NICs will have on Japan's hegemony; whether Japan's hegemony will be as short-lived as that of the United States as others emulate Japan's economic success pattern, or whether Japan's organizational and technological ability will defeat other rivals as it has the United States; and finally what the implications of Japan's rise to global economic hegemony are for America's national security and the future viability of the international trade system.