© Asian Studies Association of Australia 2003. Published by Blackwell Publishing Limited.

WHITHER JAPAN? CHANGING JAPAN,CHANGING ASIA, CHANGING

THE WORLD

Frank B. TiptonUniversity of Sydney

Jean-Marie Bouissou. Japan: the Burden of Success, trans. Jonathan Derrick.London: Hurst and Company, in association with the Centre d’Etudes et deRecherches Internationales, Paris, 2002. xx, 374 pp. US$19.95, paper.

Aurelia George Mulgan. Japan’s Failed Revolution: Koizumi and the Politics of Eco-nomic Reform. Canberra: Asia Pacific Press at the Australian National University,2002. ix, 260 pp. A$42.00 (incl. GST); US$36.00, paper.

Mitsuaki Okabe. Cross Shareholdings in Japan: a New Unified Perspective of the Economic System. Cheltenham and Northampton: Edward Elgar, 2002. xiii, 104 pp. £45.00/US$70.00, hardcover.

Peter Drysdale and Dong Dong Zhang (eds). Japan and China: rivalry or Coopera-tion in Asia? Canberra: Asia Pacific Press at the Australian National University,2000. xi, 182 pp. A$ 25.00, paper.

Greg Austin and Stuart Harris. Japan and Greater China: political Economy and Mil-itary Power in the Asian Century. London: Hurst and Company, 2001. xv, 368 pp.£45.00, hardcover; £16.95, paper.

In 1997 Kozo Yamamura and T. Pempel published papers in a symposium on “continuity and change in Heisei Japan”. Yamamura’s deliberately ironic titlewas “The Japanese Economy after the ‘Bubble’: Plus Ça Change?” and Pempel’sequally provocative characterisation was “Regime Shift: Japanese Politics in aChanging World Economy”. Both became instant classics with those of us whoteach in the areas of Japanese economic and political development. Yamamura’seven-handed treatment of the evidence for both the “convergence” and the “non-convergence” of the Japanese economy toward a market-oriented “Anglo-

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American” model, and Pempel’s careful delineation of “fundamental, deep, and structural transformations” occurring at “a middle level of politics and eco-nomics” have provided six annual cohorts of students with ample ammunition to fire off at each other across the seminar room (Yamamura, p. 295; Pempel, p. 335).

However, over the six years the winds of academic fashion have shifted. Despiteseveral years of recession and low growth, Yamamura and Pempel were ratherrelaxed and even optimistic in tone. As Pempel put it, “numerous importantaspects of the Japanese political economy will remain” (p. 336). The old bilateralrelationship had altered, in that the United States had become the key externalsource of pressure for change, but the United States remained the only foreignpower that mattered to Japan. Then, through the late 1990s the period of nearstagnation extended to over a decade, the Asian financial crisis seemed to showthat the principles of the Japanese-style developmental state were fundamentallyflawed, and the global system seemed to become much more complex and threat-ening. Richard Katz argued that targeted industrial policies had indeed helpedJapan to catch up with Western Europe and the United States, but that thosesame policies had become dysfunctional once Japan had done so. Michael Porterand his colleagues went further, insisting that Japan’s inherited institutions wouldhave to change. As for foreign policy, Akiko Fukushima saw not only a logic butalso an imperative in Japan’s abandoning the “free ride” on the bilateral rela-tionship with the United States in favour of active multilateral engagement acrossa range of issues.

Jean-Marie Bouissou’s book slips into this changing interpretive paradigm. The very successful first edition was published in French in 1992 as Japan since1945. Chapter six, the original final chapter, now the next-to-last, is entitled ‘TheDilemmas of Power (1980–92)’ and includes a section called ‘The Economy: ex-plosion of Power’ that refers to “Japan’s domination of the world economy”, its“monopoly or near monopoly of some sophisticated technologies”, and Japan’s“economic machine” and its “remarkable capacity for adaptation to the uncer-tainties of the world situation” (Bouissou, pp. 228–29). In stark contrast, chapterseven, the new concluding chapter added for the English translation, is entitled‘The End of the Japanese Model (1992–2000)’ and on its first page we read that“[e]verything had to be rethought” (Bouissou, p. 247). Bouissou’s treatment ofthe bursting of the bubble in late 1989 shows the change. In chapter six the gov-ernment, “worried about the overheating and the consequences of too blatantspeculation”, simply “tightened credit . . . unleashed the prosecutors against a fewbusinessmen”, and “left to their fate the small shareholders”. This repeats a themefrom earlier chapters in which ordinary Japanese are sacrificed for the greatergood of economic development, but it has no broader impact (Bouissou, pp. 231–32). However, in chapter seven, the “financial shock” caused by “the

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bursting of the bubble” is said to have “spread to the industrial sector” and“unleashed the longest economic crisis that Japan had known since the war. Theprotectionist and anti-competitive logic of an economy under administrativeguidance gave way bit by bit to the logic of the Anglo-American model of themarket economy” (Bouissou, p. 247).

In addition, as Aurelia George Mulgan might put it, Bouissou may have beenovertaken by events a second time. His story ends as “Junichiro Koizumi, a mav-erick politician from outside the LDP’s mainstream with a reputation as a strong-willed champion of reforms, was greeted with cheers—possible [sic] opening anew era in Japanese politics” (Bouissou, pp. 249, 300–01). But as Mulgan notes,“[e]very Japanese Prime Minister from the mid-1990s onwards has pronouncedhimself a champion of reform” (Mulgan, p. 4). Koizumi differs from his prede-cessors in the extent of his program and in targeting the vested interests thatsupport his party and the bureaucracy (Mulgan, p. 6), but his accomplishmentshave fallen far short of his announced goals. For Mulgan, this represents not somuch Koizumi’s personal failure, as a failure of the Japanese system as a whole.Mulgan measures Koizumi and Japan’s situation against a schema for successfuleconomic reform developed by John Williamson and Stephan Haggard, and findsJapan lacking. Japan has no “technopol”, a specifically “mainstream” neoclassicaleconomist who exercises political responsibility rather than “merely” serving as atechnical advisor (Mulgan, p. 15; Williamson and Haggard, p. 580).

Mulgan despairs. “Japan’s fatal flaw is the absence of strong executive author-ity, which is a necessary condition for reform in Japan because of the de factopower of the LDP and bureaucracy” (Mulgan, p. 23). A bit more reading mighthave helped. Politics is the art of the possible, and as Gerald Curtis reminds us,“[b]ureaucrats everywhere are experts at defending their prerogatives and resist-ing efforts by their supposed political masters to impose new policies” (Curtis, p. 7). Responsible politics also takes account of the costs of proposed policies.Mulgan believes reduced taxes, along with “deregulation”, “might have turnedthe tide . . . and restored some political clout to big business as an interest group”,making it a stronger ally for “Koizumi and his reform team” (Mulgan, p. 231).Substantially reduced taxes means reductions in subsidies, but also in pensions,a critical area that Mulgan skips over (see Mulgan, pp. 17, 18, 27, 103). The ageingof the population has already sent the social security system into deficit, and theproblem will worsen over the next twenty years. In the meantime there were a record 33,000 suicides in 1998, and 1,600 small and medium enterprises went bankrupt every month in 2000, compared to 500 a month ten years earlier(Bouissou, pp. 234–35, 270–71, 275).

Whither Japan? It may be that new frameworks, Pempel’s “regime shift”, aremore important than dramatic, top-down “reforms” driven through by a strongexecutive. A fascinating example is Mitsuaki Okabe’s study of cross sharehold-

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ings, the well-known tendency of Japanese firms (notably members of the samekeiretsu groups, but also firms in subsidiary or subcontractor relationships) to holdeach other’s shares. Large blocks of “friendly” shareholdings insulate firms frompotential takeover bids and reduce the number of shares in the market. Man-agement is less subject to market discipline, and the market itself is more volatilethan it should be. However, Okabe’s results show that cross shareholding declinedcontinuously from 18.3 per cent in 1987 to 10.5 per cent in 1999, and particu-larly rapidly in the late 1990s. He cites three reasons: the low rates of return oncross-held shares, an “increased risk consciousness” by firms of the dangers ofequity holdings, and new accounting standards that require cross-held shares tobe appraised at their market value, which means that the risk is immediatelyreflected in the firm’s capital base (Okabe, pp. 14, 81; see also Nottage). Thereare other examples, and an optimistic reading would predict more. In his studyof the adoption of the Special Nonprofit Activities Law (NPO, or “nonprofitorganisation” Law), Robert Pekkanen argues that the electoral changes of 1994“led to altered incentives facing political actors”, and the altered incentive struc-ture led in turn to a new style of legislative coalition politics that responded toextensive lobbying by citizen groups. The result he thinks has re-drawn theboundaries between state and civil society in Japan, and “[n]one of this couldhave happened before 1993” (Pekkanen, pp. 112, 142).

There are darker alternatives. Modelling published by the Nihon Keizai Shimbunpredicts that the Japanese population will decline from 2007 onwards, that in theabsence of productivity improvements national product will decline beginning in 2020, and that from 2025 Japan will suffer both trade and budget deficits (Bouissou, pp. 270–71). At the same time ruthless economic reform could create a political backlash. The relatively gentle pace of layoffs by Japanese firms during the 1990s meant “social cohesion was therefore less affected” than in Western countries (Bouissou, p. 275). But there is the potential, as Curtis emphasises, for the rise of a New Right movement, “with a significantimpact on Japanese government policy, especially with respect to security relations with the United States and foreign affairs more generally” (Curtis, pp. 240–41).

It is these darker alternatives that point to the importance of work on the rela-tionship between Japan and China. The United States is no longer the onlyforeign power that matters to Japan, and it is no longer the only source of exter-nal pressure on Japan. The United States remains the hegemonic power, with fargreater economic and military resources than either China or Japan, but accord-ing to Greg Austin and Stuart Harris, both China and Japan are “definitely”looking to increase their power and “to have their relative advance in powerreflected in some changes to the structure or order of the international com-munity” (Austin and Harris, p. 1). A Japan that fell victim to a New Right coali-

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tion, or a China frustrated by the contradictions between a one-party politicalsystem and a market economy, could easily become a danger. On the other hand,the United States might regard either China or Japan as a threat if they were tobecome excessively “successful”. To protect itself Japan has re-launched and re-defined its security relationship with the United States and by implication brokenwith its constitutional renunciation of war, but at the cost of difficulties with China(Liu Jiangyong, in Drysdale and Zhang, pp. 95–114). At the same time, Japan’said to China clearly strengthens the relationship, but at the possible cost of difficulties with the United States (Christopher Johnstone, in Drysdale andZhang, pp. 115–36).

Can trade and economic development pave the way to stability? Could Chinaand Japan together reshape Asia? As China has grown it has become an impor-tant trading partner for Japan. In 1998 Japan supplied 20 per cent of China’simports and took 20 per cent of China’s exports, and China supplied 13 per centof Japan’s imports and took 5 per cent of Japan’s exports (Austin and Harris, p. 264). Drysdale and Zhang believe that China’s growth and complementaritywith Japan “have driven the economic relationship to new heights” (Drysdale andZhang, p. 5). Accordingly, Allen Whiting concludes that for China “pragmaticconsiderations of material benefit to both Japan and China are likely to tip thebalance in a positive direction”, and Tomoyuki Kojima emphasises the role ofJapan in “aiding China’s transition from a closed to an open economic system”(Drysdale and Zhang, pp. 30, 39). But in contrast, Austin and Harris presentJapanese economic aid to China as much more important to China than to Japan,Japanese investment in China as “a relatively small item for Japan”, and the tradeand technology transfer relationships as reflecting “the underlying competitive-ness and rivalry between the two governments” (Austin and Harris, pp. 153, 201,243).

Given that Austin and Harris’ chapter on ‘Japan, China and Regional Order’is included almost verbatim in the Drysdale and Zhang volume, one might havehoped for more consistency of interpretation, and that some of the worrying con-tradictions in the statistical evidence could have been ironed out. In contrast towriters on domestic affairs, these foreign policy analysts do not consider theactual mechanics of policy formulation and implementation, except for passingreference to “bottom up” planning by the Japanese bureaucracy or the remarkthat Japanese military leaders are more suspicious of China than Foreign Ministry officials. In addition, Japan’s domestic problems do not really appear tohave been taken on board in these foreign policy pieces. If the Japanese economystagnates or declines, and if it is true that the Japanese domestic policy processis paralysed, whether by weak leadership or by interest groups opposed to reform,then how can we expect that some of the more subtle foreign policy alternativescan be pursued with the consistency and skill required? Or, even if significant

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domestic change can take place in the absence of a strong executive authority, isthe same true of foreign policy? Difficult to answer, these are questions thatshould at least have been raised.

REFERENCES

Curtis, Gerald L. The Logic of Japanese Politics: leaders, Institutions, and the Limits of Change. NewYork: Columbia University Press, 1999.

Fukushima, Akiko. Japanese Foreign Policy: the Emerging Logic of Multilateralism. New York: St.Martin’s Press, 1999.

Katz, Richard. Japan: the System that Soured. Armonk: M.E. Sharpe, Inc, 1998.

Nottage, Luke. Japanese Corporate Governance at the Crossroads: variation in “Varieties ofCapitalism”? N.C. Journal of International Law and Commercial Regulation 27, 2001: 255–99.

Pekkanen, Robert. Japan’s New Politics: the Case of the NPO Law. Journal of Japanese Studies26, no. 1, 2000: 111–48.

Pempel, T. Regime Shift: Japanese Politics in a Changing World Economy. Journal of JapaneseStudies 23, no. 2, 1997: 333–62.

Porter, Michael E., Hirotaka Takeuchi and Mariko Sakakibara. Can Japan Compete?, 2000.Houndmills: Macmillan.

Williamson, John, and Stephan Haggard. The Political Conditions for Economic Reform. InThe Political Economy of Reform, ed. John Williamson: 527–96. Washington, D.C.: Institute forInternational Economics, 1993.

Yamamura, Kozo. The Japanese Economy after the “Bubble”: Plus Ça Change? Journal of Japan-ese Studies 23, no. 2, 1997: 291–332.

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