LAUSANNE, Switzerland -- A J.P. Morgan analyst in Tokyo was quoted by The Globalist (Dec. 21) as saying, "Japan now faces the choice: either restructure its economy or become the Argentina of the 21st century -- a spent power." One would not have imagined even just a very few years ago that Japan and Argentina would be uttered in the same breath. The comparison, which of course must not be pushed too far, is nevertheless intriguing, for various reasons.
Sir Harry Parkes, who was the chief British diplomat in Japan in the dying days of the Tokugawa feudal regime (1603-1868) and for the first dozen years of the Meiji Era (1868-1912), advised the Japanese government in its early stages of reform and modernization that it should emulate the Argentine "model." Historians have had a good chuckle over that remark, at least until recently.
In fact, in the late 19th and early 20th centuries, Argentina appeared to be an outstanding success story. It ranked as one of the world's 10 richest countries in GDP per capita, and Buenos Aires featured as a civilized, cosmopolitan and quite glorious capital in architecture, elegance, quality of life, literature, music and the arts. Argentina stood out in quite stark contrast with most of the rest of Latin America, just as Japan stood out for many decades in quite stark contrast with the rest of Asia.
What were the sources of Argentina's success? A rich and highly competitive agriculture, a very dynamic immigration policy, strong export orientation, openness to foreign investments and close ties with its main European markets, are some of the main causes. The success was sustained well into the 1920s, when Argentine per-capita incomes were similar to those of Germany, France and Canada. (Today Argentine per-capita incomes are about 30-40 percent of those countries, and falling rapidly.)
An important difference between Japan and Argentina is that the former was, of course, not a country of immigrants; indeed, under the successive Meiji, Taisho (1912-1926) and early Showa (1926-1989) regimes emigration was encouraged, with a small number of Japanese settling in Argentina. At some 35,000, not quite 0.1 percent of the current population of Argentina (37 million) is of Japanese descent.
Another important difference is that in the longer term Japan was far more economically successful than Argentina; indeed, until a decade ago the word "Japan" was quasi-synonymous with success, while the word "Argentina" was quasi-synonymous with failure.
There are four main reasons for the different results obtained by the two countries. The first, probably the most significant, is that Argentina, unlike Japan, failed to establish a strong industrial base. Argentina remained an agricultural economy and an exporter of primary products, in contrast to Japan, which quite quickly became an industrial power and an exporter of higher-value-added manufactured products.
From its initial advantage in exporting raw silk in the 1860s, by the turn of the century Japan had overtaken France and Italy in the silk industry and as the dominant exporter of manufactured silk goods (a huge business at the time) to world markets. Argentina never attempted, let alone achieved, similar results in wool, processed food, meat or leather products.
The second is that while Argentina did develop a quite advanced tertiary education sector, it failed, in complete contrast with Japan, to establish solid and extensive primary and secondary education. The Japanese population en massebecame far more educated than the Argentines. The third, directly related to the second, is that the Japanese elite was far more serious, entrepreneurial, hard working and patriotic than the Argentine elite, which was more intent on aping snobbish and frivolous European lifestyles than in establishing a strong national cohesion and identity.
Argentina began its decline in the 1930s, when it came under the control of an increasingly militaristic and fascist regime. Japan followed a similar course politically, but was fortunate enough to be defeated in World War II and subjected to thorough reform by the Occupation, including extensive land reform -- the fourth main reason why Japan ultimately succeeded and Argentina failed. Argentina's protectionist, nationalist and either populist Peronist or militarist dictatorial regimes persisted until the 1980s, and serious social or land reform has never been undertaken.
Are there any Argentine lessons for Japan in the 21st century? The imperative of institutional and economic reform, as indicated in the quotation from the J.P. Morgan analyst, is the most obvious one. But there are two deeper lessons.
The first is that Argentina's downfall was caused by a combination of hubris and denial. Argentina had been such a success story that the Argentines perceived themselves as invincible. As the world economy was changing in the postwar decades, Argentina failed to develop alternative markets and industries. Hubris and denial brought on rigidity and myopia. Sounds familiar?
The second has to do with regional relations. Argentina's successful contrast with the rest of Latin America generated arrogance and aloofness on the part of Argentines vis-a-vis other Latin Americans. An Argentine, it is said, does not consider himself Latin American at all, but a European who happens to have been born in the wrong continent. Argentines are not much liked by most other South Americans; anti-Argentine jokes are common throughout the continent.
One important negative consequence is that Argentina failed until very recently to integrate with Latin American economies: the Mercosur project (creating a free trade area between Argentina, Brazil, Uruguay and Paraguay), initiated in 1991, is a belated but hardly successful attempt.
The situation regarding Japan and Asia is in many respects profoundly different. Japan was a colonial power in Asia throughout the first half of the 20th century and since then the region's dominant economic power. But the Japanese are also seen by most Asians as aloof and arrogant. Many Asians argue that the Japanese are "not really" Asian.
Partly as a consequence of all this, Japan is having great difficulty adjusting to (and probably even understanding) the rapidly changing Asian environment, especially the rise of China. Japan's aloof insularity, unless remedied, will further precipitate its decline to becoming a spent power in the 21st century.
With your current subscription plan you can comment on stories. However, before writing your first comment, please create a display name in the Profile section of your subscriber account page.