Japan's flight to success was unmanned
By Peter Hartcher
Now that the aeroplane of Japan's economy has crashed into the
mountainside of recession, investigators have prised open the cockpit
door to discover who was flying the plane for all these years.
And they have made a startling discovery. The plane flew high and fast
and appeared to be skilfully navigated for nearly half a century. But
when the wrecked cockpit was opened, the pilot's seat was empty.
Nobody, it turns out, was flying the damned thing, according to a
forthcoming book by Professor Yoshiaki Miwa, an economist at Japan's
elite institution of education, Tokyo University.
"Looking back over the history of the last 50 years, the Japanese
Government did nothing in the way of active management of economic
policy," Professor Miwa said in an interview during the past week.
But what about the thousands of books and academic papers, the hundreds
of conferences, the riot of rhetoric which have ascribed Japan's postwar
success to the brilliance of the country's economic managers?
According to Professor Miwa, who was for the last three years also a
member of a top-level advisory committee to the Government on
deregulation, "it was all just an illusion".
He argues, in a book to be titled The Competence of the State, that once
the fundamental structures of Japan's financial and economic system were
in place by the 1940s, economic policy was just a matter of a technical
maintenance job - the work of a flight engineer perhaps rather than a
pilot's.
This may seem a shocking idea, although it is more shocking to
foreigners than to Japanese.
Ever since Chalmers Johnson's famous 1970s tract, MITI and the Japanese
Miracle, it has been widely assumed in the West that the Ministry of
International Trade and Industry (MITI) masterminded Japan's stunning
manufacturing success.
And its bigger, more powerful brother, the Ministry of Finance, was
credited with such skilful management of the macro-economy that Japan
was able to compress into 30 years the economic progress that took the
US a century to achieve.
The prolific American economist Paul Krugman speaks the Western orthodxy
on Japan when he says: "There is no question that before the early 1970s
the Japanese system was heavily directed from the top, with MITI and the
Finance Ministry . . . push[ing] the economy where they liked."
But Professor Miwa says there is more than a question about this: "Those
views are totally false, and drawing lessons from Japan's experience
could be harmful when it is done on those grounds."
How does he account for the prevalence of views like Krugman's? He has
three main explanations.
First, he says that Japanese mandarins exaggerated their own role and
powers - and that many people, especially foreigners, believed them.
Second, he claims that many of the Western world's Japan-watchers have
invested their entire careers in explaining why Japan is different. They
need some sort of mystical story to tell and cannot tell the simple,
unexciting truth.
And third, he says that in Japan and in the West, many of the
commentators on Japan do not understand the true source of Japan's
success - the working of the market.
"The Japanese who speak publicly to explain Japan are nearly all over
50, and even the economists in that age group don't understand the
market mechanism because most of them were taught Marxian economics."
One of Japan's most eminent and experienced economists, Dr Yoshio
Suzuki, although he is over 50, agrees that credit for Japan's
high-growth phase is due almost entirely to the market.
Dr Suzuki was a senior official in Japan's central bank and then the
chairman of the Nomura Research Institute, and he is now a politician in
the opposition Liberal Party. He says: "Japan developed in the
high-growth era without any management of the economy. It depended on a
virtuous circle; technology was imported or copied and used by a
low-wage workforce to make products for export. The exports grew and the
profits were reinvested and that led to more exports.
"This did not depend on any significant government intervention. Where
the government did intervene was in the service sector. That's why Japan
today has an excellent manufacturing sector and its service sector is
far, far behind."
Dr Suzuki says that Japan's economic structure was a "catch-up"
structure designed to bring Japan up to the development level of the US.
A key characteristic of this system, which has also been described as
"the 1940 system" after its vintage, was the encouragement of savings
from households through the banking system into manufacturing.
This meant that industry got lots of cheap credit but also meant that
workers' money was more likely to flow into savings rather than
consumption. This gave the system a bias to exporting.
And some time in the 1970s, Japan pretty much caught up. "We should have
changed the structure then," Dr Suzuki says, "but we didn't."
When that system reached the limits of its usefulness, it just fell
over.
And this has exposed the emptiness of the cockpit.
So, for example, when Japan needed deft economic management in the last
few years, it hasn't been available.
In its disastrous 1997 decision, the Ministry of Finance killed a
nascent recovery in the Japanese economy. Just as the economy was moving
back to healthy growth rates, the ministry persuaded the Government to
withdraw from the economy about 9 trillion yen or almost 2 per cent of
GDP.
That decision plunged Japan back into recession. Why did the ministry do
it? The reason was that it was concerned that the Government deficit was
too big.
Dr Suzuki says: "They don't think about the macro-economy and they don't
care about it. It's not in their mission. Their primary aim is to do
what they have always done - to try to keep the deficit down."
In other words, Japan's economic managers were not interested in
managing the economy. It exposes the fact that they never were. It tends
to vindicate Professor Miwa's argument that the aircraft was flying on
autopilot. |
