Far Eastern Economic Review
Don't Look To Japan
By Henny Sender
October 15, 1998
It is a gloomy Monday in September in Tokyo. The mandarins of the Ministry of Finance are putting the final touches on their latest initiative, a $30 billion rescue package for Japan's cash-strapped neighbours in Southeast Asia.
On the fourth floor of the ministry's greystone headquarters, where the International Bureau is located, every office has an electric board flashing the latest exchange rate of the yen to the U.S. dollar. This morning, the board is signalling 135.65. The mandarins are confident that the yen is strengthening more than the usual quarter-end transactions when Japanese firms sell dollar holdings and take profits back home.
The mandarins see the upwards move as both panacea and vindication, a confirmation that all is basically well in Japan. A strong yen is a reflection of their nation's sound economic fundamentals and expanding current-account surplus. And it also means that the harsh criticism from their neighbours may wane. From Bangkok to Beijing, there are cries of disapproval whenever the yen weakens, as that makes Japanese goods more competitive with those from elsewhere in the region.
The latest $30 billion initiative, dubbed the Miyazawa Plan after Finance Minister Kiichi Miyazawa, is an acknowledgement of just how closely Japan's economy is integrated with that of Asia. After all, Asia's boom was fuelled by more than $100 billion in direct investment and even more in cheap bank loans from Japan.
But that was yesterday. Today, despite the ministry's optimism, the hope that Japan can lift Asia out of its misery, whether through cash or imports, is no longer realistic. Japan can hardly help itself. The economy has contracted in four of the last five quarters--so dismal a performance has not been seen since 1931.
The mandarins' earlier stimulus plans for the economy were supposed to have kicked in and put Japan on a growth trajectory by now. Indeed, at a conference in June, a senior ministry official had predicted that third-quarter growth would be strong, reflecting the efficaciousness of the fiscal fix valued at ´16.7 trillion ($126.3 billion, at the time).
Not so. The public-works and other stimulus packages are testimony more to the faith of the ministry mandarins in themselves than to their ability to restore public confidence and help Japan grow again.
Japan is a very deceptive place, especially compared with the rest of Asia. Tokyo doesn't look like a place in recession, unlike other regional capitals. But all is not well, as the latest survey of business confidence shows. Even some of the giants among manufacturers are stumbling badly. Hitachi has announced mega-losses, for example. Much more red ink will flow.
In the past, Japan was capable of the most awesome flexibility, tearing up and discarding old formulas. Somehow that flexibility has gone. Hitachi, like much of Japan Inc., is led by old men who have acquired their positions precisely because they don't lead boldly.
In many cases, top positions are occupied by individuals whose principal qualification is loyalty to their predecessors. The old boys who retired years ago retain their grip on both the corporate and bureaucratic structure, with neither visibility nor accountability.
The purpose of the seniority system was to foster cooperation and teamwork; an institutionalized human transmission belt for wisdom and experience. Instead, it fosters an obsequious culture that is light-years from the bold decision-making that Japan needs at both a micro- and macro-level.
What better expression of the lack of reform than that 380 of the 400 staff members at the new Financial Supervisory Agency, set up because of the ministry's shortcomings, actually come from the ministry itself? The Miyazawa Plan is another expression of the lack of creativity in Japan's approach to problems: When in doubt, throw cash at them.
Japan has always been a seductive role model for a region profoundly distrustful of American-style capitalism. Tokyo's distrust of the concept that there are winners and losers in economic life, and that the distinction between them ought to be on the basis of market principles, is echoed in the rest of Asia. Japan's interpretation of the job of the regulators as protection, rather than supervision, has also been widely copied.
Given Japan's influence on Asia's economic decision-making, it's unfortunate that Tokyo isn't likely to show the way out of the current economic morass. Particularly because the power of a government is greater than ever right now because of the private-sector meltdown in both corporate and financial Asia.
In Japan and elsewhere in the region, fiscal policy rather than private-industry activity must kick-start growth and restore confidence. Government intervention in markets can either lead to a transformation of Asia's economies--or be just one more form of manipulation.
Henny Sender is the REVIEW's finance editor.
Louis Proyect
(http://www.panix.com/~lnp3/marxism.html)