LAUSANNE, Switzerland — It is natural when one has domestic problems to look for foreign scapegoats. The United States’ paranoia over Japan’s trade surplus and foreign-investment binge in the 1980s is a good example. While most nations reflect this general syndrome up to a point, the Japanese seem to be pretty much in a league of their own. What dispirits a lot of foreign observers of Japan as well as many disaffected Japanese is the absence of vigorous internal debate within establishment circles about the country’s homegrown problems. Talk to officials and they are almost invariably on the defensive. Talk to lots of other people and they are almost invariably resigned and often defeatist.
A recent example of this pattern of looking for external scapegoats arises from the decision by the credit-rating agencies to downgrade Japan. The hysteria it provoked in Japanese official circles, the expressions of great grievance and outrage, were, I believe, a welcome opportunity for policymakers to once again indulge in external witch-hunting as an excuse for domestic paralysis.
The director of public relations for the Ministry of Finance, Yosuke Kawakami, wrote a very long letter of spiteful self-righteous indignation to the Financial Times berating the credit agencies for “undermining their credibility” (“Rating agencies may be undermining their own credibility,” June 12).
Wow! The only justification I can think of for a MOF official — or indeed any Japanese official — to criticize anyone for “undermining credibility” is that it takes one to know one! As the Financial Times rightly pointed out in a leading article the following day (“Rating Japan”): “Instead of rubbishing the messenger, the Japanese government should heed the message.”
Another example has been Economy, Trade and Industry Minister Takeo Hiranuma and his ministry’s pressure to have China revalue the yuan. China’s emergence as an increasingly major global manufacturing and trading nation undoubtedly poses a major challenge to Japan, as it does to virtually every nation. The massive foreign investment (including from Japan) pouring into China, with more likely to flow in the coming years, is likely to transform the country more and more into the workshop of the world.
What distinguishes China from any precedent among developing and newly industrialized countries is that it is assuming simultaneously a formidable competitiveness right across the industrial spectrum — from the very bottom (toys, Christmas decorations, flip-flops, etc) all the way up to high technology (semiconductors, sophisticated automotive parts and components, etc). The Beijing and Shanghai regions are increasingly attracting investment in advanced research.
With the rather demeaning battle over shiitake mushrooms, leeks and tatami rushes late last year, we got a foretaste of a Japanese trading policy defined by myopia and pandering to narrow vested interests. In fact, China could present to Japan the major cause and trigger for thorough domestic economic restructuring.
As China is increasingly likely to be a “shock” to the Japanese system, adopting shock therapy now could act as a powerful preventive medicine, rather than waiting until the patient is really debilitated. Massive deregulation, liberalization and opening up Japan’s borders wide to Chinese imports would prove a really dynamic compound. It would also make Japan appear to be assuming its regional leadership responsibilities.
Of course, nothing of the sort is taking place. Hiranuma is an unknown entity, having provided very little indication of what his own views are. This once again is in contrast with his counterparts in most major trading nations, whether industrialized or developing.
Robert Zoellick, U.S. trade representative, or Pascal Lamy, EU trade commissioner, often must implement policies that they are not necessarily comfortable with, but the world and their counterparts know by and large what they stand for. This also applies to ministers responsible for trade in developing countries; for example, Alec Erwin in South Africa, Sergio Amaral in Brazil, Luis Ernesto Derbez in Mexico and Murasoli Maran in India.
As for Hiranuma, one has absolutely no idea what his views are; nor does one know whether this is because he wishes to keep them secret or because he does not have any. I suspect it may be the latter: The trade minister of the world’s third-largest trading power has no views!
At a time when the multilateral trading system is possibly heading for an irreversible crisis, this is not a very comforting thought. With the absence of leadership and vision, Japanese trade policy falls inevitably into the hands of petty-minded officials who cannot ride above knee-jerk protectionism dictated by narrow vested interests. Hence, the argument for revaluating the yuan.
I have tried to tease out Hiranuma’s ideas by writing to him twice. As director of the Evian Group, a global trade and investment forum and advocacy, I write quite regularly to trade ministers in many countries. Almost invariably I get a reply, sometimes signed by the minister himself, sometimes from a senior official. In contrast, my correspondence to Hiranuma remains unanswered.
In my latest letter, suggesting that the need to revalue the yuan was a red herring, I went on to write: “I have been in recent years very critical of Japanese foreign economic policy and especially what I see as its defensive and reclusive response to globalization. In particular, Japan appears to have no China trade strategy, or if there is one, it is a well-kept secret! This is not only unfortunate, but also dangerous. As China’s accession to the WTO (World Trade Organization) is bound to cause some turbulence and tensions, Japan’s experience and proximity to China should make it especially suited to having a clear strategy well positioned in a global context.”
I went on to say that in that context, “It is all the more disappointing that Japan’s policy now is focusing on seeking to revalue the yuan. This smacks of looking for external causes for internal problems. More specifically, however, given the lengthy and profound experience of Japan in the ’80s when it was being unjustifiably and ultimately counterproductively pounded by the U.S. on the value of the yen, on this issue Japan should be bringing wisdom, not knee-jerk defensiveness.”
I concluded by informing him that in the World Competitiveness Yearbook produced annually by IMD (International Institute for Management Development), many factors are cited for Japan’s continued decline in the competitiveness league. The alleged weakness of the yuan in relation to the yen is not one of them.
It is revealing that when the IMD annual report showed South Korea, Taiwan and Hong Kong slipping in competitiveness, they sent delegations to discuss the findings and means of how they could improve. No such delegation has come from Japan. Whenever the report has been discussed with Japanese officials and even businessmen, their invariable response is to criticize the methodology behind the report. When I ask them if they were also criticizing the methodology when they were on top, I get silence as a response.
It is the Yosuke Kawakamis and Takeo Hiranumas of Japan who are causing the country’s downfall.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.