Chapter 16. Japan’s Post-World War II Defensive, Mercantilist, Economic Warfare Plan
This is a chapter from the book, Economic Democracy; The Political Struggle for the 21st Century. Visit that link for more information about the book.
Few realize the desperation-bred cunning of Japan’s post-WWII economic warfare. Stopping fast-expanding socialism required rebuilding as allies the countries which lost that war. Besides providing technology and finance capital, America dropped its import barriers while simultaneously permitting Japan and Germany to protect their industries and markets in the same manner as that which had built America’s industry and wealth.1
An American investment banker in Japan for 15 years, R. Taggart Murphy had a catbird’s view and wrote The Weight of the Yen, describing how, in an obvious effort to both survive and revenge the loss of WWII, Japan’s postwar economy was structured under pure mercantilist principles to engender “the greatest transfer of wealth in history” (at that time) from America to Japan.2 Economist Joe Kurtzman’s analysis of Japan’s international trade is worth quoting at length. Japan has
developed long-term strategies for entering existing markets and [has] composed detailed plans spanning 20-to-50 years for gaining a share of existing markets, usually by introducing new and highly refined versions of existing products and then slowly upgrading these products…. Beginning with crude copies of advanced German cameras like the Leica and the Rolliflex, the Japanese honed their skills by continually upgrading their entries into these markets until their level of quality and technology began to equal that of the Germans and then surpass it. In the span of less than twenty years, utilizing this long-range managerial approach, the Japanese were able to gain by far the largest share of the worldwide camera and optical goods market, thereby driving the previously dominant Germans to the sidelines. After the Japanese became the primary power in this huge market, they took aim at some of the other existing markets in which they could use their advanced optical skills. Small copying machines, professional video recording devices, and computerized silicon chip etching equipment are markets that the Japanese went after and now dominate. But this time the firms bested by the Japanese were not German. They were American firms that failed to keep pace with the slow, steady unrelenting Japanese technological and managerial advance…. Planning twenty-four months ahead is considered long term by most U.S. companies, whereas the Japanese routinely look five, ten, and twenty years into the future when developing their approach to entering a market…. [O]ur companies tend to lose out to those Japanese and other foreign companies that take the long-term view and that have the backing of their governments.3
Under protection of Western imperial-centers-of-capital, and even as they “chanted the mantra of free trade and laissez-faire,” Japan’s Ministry of Finance (MOF) and Ministry of International Trade and Industry (MITI) controlled the government’s budget; set monetary policy; collected taxes; supervised banks, brokers, and insurers; and established parameters for credit, asset values, capitalization, and lending. Through cross shareholding, designed specifically to prevent outsider takeover and to further their mercantilist goals, Japanese corporations were owned primarily by each other.4
Japan’s collapsed land and stock markets (at their lowest points down 75%) are not the total failures they are loudly touted to be.a The preceding bubble economy was specifically inflated to create finance capital with which to build more industry. Earlier we described how Japan first industrialized in the 19th-Century through selling government-built industry to Japanese industrialists at possibly 30% of construction costs. After WWII, the same rapid industrialization was accomplished through high product prices being protected from imports by arbitrary health, safety and quality standards which permitted charging Japanese consumers three-times the price for consumer products as that paid by the rest of the world.5 Those high prices were only a hidden tax that, along with other dictated policies and creative accounting, gave Japanese industry the same free finance capital as it received 100 years earlier.
Government financed industry and protected home markets created a comparative advantage that permitted Japanese industry to sell, for a period of time, at what would be a loss for a free enterprise corporation. Now that Japan has built the world’s most modern industry and captured markets around the world, so long as trade surpluses are maintained, losses can be absorbed, up to a point, by those high domestic prices taxing back a part of the economic multiplier gains.
Even as its industry is running at only 65% of capacity and its real estate and stock markets have collapsed, Japan’s trade surpluses have been consistently in excess of $50-billion a year with the United States alone. Many East Asian countries trade surplus with America were once offset by an equal trade deficit with Japan and those captured markets are released only when forced.6 (By 20005 China had $162 bullion in U.S. trade surpluses.) Through health, safety, and quality standards which are never met, instead of tariffs, Japan prevented others from selling on its home market, and—with the exception that this accumulated wealth was invested in the world’s most modern industry, Western financial instruments, and real estate instead of gold, silver and jewels—that is pure mercantilism.7
Even though it has the added features of planned industrial financing and good pay for Japanese labor so the economic multiplier will develop a strong economy, mercantilist scholars will easily recognize Japan’s wealth-siphoning formula: Buy resources for industry cheaply, build and maintain the most efficient industry in the world, educate their citizens, pay Japanese labor well, charge Japanese citizens above that for the same exported product, price exports just under the products of other nations, and sell enough on the world markets to pay for it all with a substantial cushion to spare.
Japan’s Mercantilist policies would appear to be against free trade rules. But Most Favored Nation agreements only required that a nation treat all signed participants the same and all face the same arbitrary health, quality, and safety standards.8 This accounts for current attempts to, through the WTO/MAI/GATS and FTAA, to require all nations to treat domestic and foreign corporations equally. However, while these rules will be enforced onto weak nations, they will not be enforced upon Japan. To do so would force Japan to close out its worldwide investments in real estate and bonds. If done quickly this could collapse the world economy just as it almost did in 1987 when Japan liquidated some of those equities.
The American/Japanese Debt/Equity Embrace
Japan invested its accumulated surplus values (once half the industrialized world’s savings), above that needed for building industry, in U.S. treasury notes and other financial and real properties in the United States. This has locked both Japan and America into a debt/equity embrace that neither knows how to get out of. Japan has only to drop those treasuries and other properties on the market and the U.S. dollar crashes. It was just such a sale of U.S. Bonds by Japan which lowered financial liquidity for all markets and caused America’s 1987 stock market collapse.9 Since then, Japan’s continued purchase and holding of those treasuries has been an unwritten agreement between the two countries to maintain the health of both economies. (Europe, China, and oil producing nations have joined Japan as America’s creditors.)
The United States has the choice of doing what the entire industrialized world did when OPEC raised the price of oil: just print the money to cancel the debt. America’s gain would be their creditor nations’ losses but there could be much worldwide distress from such an inflationary binge even if America won that financial warfare battle.
Americans would initially have all those TV sets, computers, recorders, automobiles, and resources for the cost of printing the money. When those devalued dollars were spent Americans would have to work, at inflated prices, only a fraction of the time creditor nations’ labor had previously worked to produce the products and services.
While the Soviet Union was viable, Americans and creditor nations had to protect each other or allied periphery nations could not have rebuilt and America’s ability to finance the Cold War would have been severely weakened. Now that the Soviets have collapsed, the only need America has for protecting some of the creditor nations is to protect the reputation of Adam Smith free trade.
Care for another’s Economy is only between Allies
Care for another nation’s economy is between allied imperial-centers-of-capital only. There is no sincere concern over economic collapses in either a resource-providing or a competing country. Such collapses mean lower resource prices and higher profits for the imperial centers and are the primary policies of powerful developed nations even if unrealized by second-tier planners.
Except as an ally against China if it threatens to establish a competing trading empire, Western imperial-centers-of-capital no longer need Japan. But letting it collapse would be seen as a failure of Adam Smith free trade and loss of philosophical support for capitalism worldwide. So, unless again needed as an ally to contain China or forming trading blocs, the forecast is for a far less robust Japan. (As discussed above, developing world trading blocs, anchored to China, India, and/or Russia as industrial centers, are forming.)
Some grand strategists are discussing America, Japan, and China allying together to bring East Asia out of its financial and economic crisis. But the United States is not going to be signatory to a trade agreement which would result in China’s, Japan’s, and Southeast Asia’s 1.6-billion people (nor the 1-billion in India) becoming equally powerful. Not only will Asia be the world’s superpower long before that equality is reached, there are not enough world resources to support the waste of an American style economy for half that many people. However, there are enough resources for a high quality life for all under democratic-cooperative-(superefficient)-capitalism.
Much Japanese Industry has been forced offshore
Japan had reached the limits of taxing the public to finance industry (raising sales taxes in Japan the second quarter of 1997 shrank consumer purchases 2.5%) and the lower costs of production forced a part of Japan’s industry off shore which reduces its economic multiplier. Because the multiplication of high wages paid labor for export production multiplying throughout the economy is the heart of Japan’s economic planning,10 this has a good chance of destabilizing Japan’s shaky house of cards.
A simultaneous threat is Costco and other wholesale/retail outlets moving into Japan. Unless historic roadblocks are maintained, efficient supermarkets such as these will quickly replace Japan’s enormously inefficient distribution system, lower those extremely high internal prices through which Japan has historically financed her industry and exports, and idle a massive number of workers. Theoretically Japan could force its citizens to spend money by lowering its value through printing more money to create internal inflation. But such a highly devalued Yen would wreck havoc on the world economy. Only war, outside support (externally supplied Friedrich List protection), or a total reorientation of their, and much of the world’s, economy can save Japan’s bubble from massive collapse.
It is far from Free Trade wherever One Looks
All major powers, including the historically allied trading blocs and China, have social-control-paradigms to keep their own masses in line and a protective negotiating paradigm when dealing with the rest of the world. The Weight of the Yen is a textbook on how social-control-paradigms work. The MOF and MITI present protective beliefs to the Japanese people, parrot Adam Smith free trade rhetoric back at the rest of the world, and all the time they are operating under Friedrich List protection principles.
Any Japanese industrialist functioning outside MOF/MITI rules instantly loses access to capital, resources, and markets. Any individual within the ruling structure who would expose to the world that Japan is not following Adam Smith and that they operate on partial mercantilist and primarily Friedrich List protection policies suffers immediate loss of job, power, and friends, and the “internal embargoes” are so effective there is no recovery for either errant industry or official.11
The major powers, as a group, promote corporate imperialist “free trade” to the undeveloped world to maintain access to their valuable resources while jockeying for advantage among themselves. It is far from free trade or laissez-faire anywhere one looks. Virtually every imperial-center-of-capital has massive subsidies for their industries and agriculture and 70 countries, 66% of the people on earth, are under some form of American embargo or sanction. The world needs others within the other seven nations of the G8 countries and the IMF/World Bank/GATT/NAFTA/ WTO/MAI/GATS/FTAA, world-governing system to defect and tell the whole story. This is a rare occurrence because the primary social-control-paradigms are so pervasive that defectors do not find an audience, they become instantly isolated, each person instinctively knows this, and peer pressure keeps them silent.
Mr. Murphy did not defect: he has an audience because Japan’s mercantilist/ protection principles were so successful they were damaging other members of the G8 nations and the Japan/Taiwan/South Korea/Southeast Asia barrier was no longer necessary to contain fast-expanding socialism. Anyone who exposed Japan’s mercantilist policies 25 years ago would have had no audience because Japan was crucial to the West’s economic warfare defense strategy. The exposure of the same protectionist process today is now welcomed with open arms because Japan is no longer necessary as an ally to protect other imperial centers.
Though he does not use those terms, Mr. Murphy has the best outline of social-control-paradigms (”frameworks of orientation”) we have seen.12 Few books could do more to alert one to what is really going on in this world as opposed to the rhetoric (elite-protective social-control-paradigms) we hear.
- Land and stock prices are still too high. Before that collapse, Japanese businessmen proudly claimed (in error) that “a square meter of the Ginza, [a part of Tokyo] was worth more than Seattle (Chalmers Johnson, Blowback: The Cost and Consequences of American Empire [New York: Henry Holt & Company, 2000], p. 203). Back to text
- Alfred E. Eckes Jr., Opening America’s Market: U.S. Foreign Trade Policy Since 1776 (no city named: University of North Carolina Press, 1995), pp. xvii, xix. Back to text
- R. Taggart Murphy, The Weight of the Yen (New York: W. W. Norton, 1996), pp. 13, 109-10, 181, 184, 222, 278. See also: Richard C. Longworth, Global Squeeze: The Coming Crisis of First-World Nations (Chicago: Contemporary Books, 1999), Chapter 5. Back to text
- Joel Kurtzman, The Decline and Crash of the American Economy (New York: W.W. Norton, 1988), pp. 107-108. Back to text
- Murphy, Weight of the Yen, pp. 29-30, 72, 77, 108, 185, 197-200, 206, 212-14, 218, 222, 231, 310; Longworth, Global Squeeze, p. 35 and Chapter 5. Back to text
- Lester Thurow, The Future of Capitalism: (England: Penguin Books, 1996), p. 201. Back to text
- Ibid, pp. 133, 194-208. Back to text
- Murphy, Weight of the Yen, pp. 43, 48, 75-79, 93-99, 106-07, 126, 133, 184-85, 192-93, 195-202, 206, 212, 214, 218-19, 231, 244, 259-69, 279, 286-310, 303, 308; Longworth, Global Squeeze, p. 35 and Chapter 5; Chalmers Johnson, Blowback: Cost and Consequences of American Empire (NY: Henry Holt & Company, 2000), p. 203. Back to text
- Longworth, Global Squeeze, pp. 39. Back to text
- Ibid, pp. 53-54. Back to text
- See endnote 4. Back to text
- Ibid; especially Murphy, Weight of the Yen, pp. 53-55, 72, 98-99, 118-19, 103, 255, 275, 281 and Longworth, Global Squeeze, p. 35 and Chapter 5. Back to text
- Murphy, Weight of the Yen, pp. 118-19, 255, 275, 281. Back to text
- Full Table of Contents
- Chapter 1. The Secret of Free Enterprise Capital Accumulation
- Chapter 2. The Violent Accumulation of Capital is Rooted in History
- Chapter 3. The Unwitting hand Their Wealth to the Cunning
- Chapter 4. The Historical Struggle for Dominance in World Trade
- Chapter 5. World Wars: Battles over Who Decides the Rules of Unequal Trade
- Chapter 6. Suppressing Freedom of Thought in a Democracy
- Chapter 7. The World Breaking Free frightened the Security Councils of every Western Nation
- Chapter 8. Suppressing the World’s break for Economic Freedom
- Chapter 9. “Frameworks of Orientation”: Creating Enemies for the Masses
- Chapter 10: The Enforcers of Unequal Trades
- Chapter 11. Emerging Corporate Imperialism
- Chapter 12. Impoverishing Labor and eventually Capital
- Chapter 13. Unequal Trades in Agriculture
- Chapter 14. Developing World Loans, Capital Flight, Debt Traps, and Unjust Debt
- Chapter 15. The Economic Multiplier, Accumulating Capital through Capitalizing Values of Externally Produced Wealth
- Chapter 16. Japan’s Post-World War II Defensive, Mercantilist, Economic Warfare Plan
- Chapter 17. Southeast Asian Development, an Accident of History
- Chapter 18. Capital Destroying Capital
- Chapter 19. A New Hope for the World
- Chapter 20. The Earth’s Capacity to Sustain Developed Economies
- Chapter 21. The Political Structure of Sustainable World Development
- Chapter 22. Equal Free Trade as opposed to Unequal Free Trade
- Chapter 23. A Grand Strategy for World Peace and Prosperity
- Chapter 24. Adjusting Residual-Feudal Exclusive Property Rights, as per Henry George, Produces a Modern Land Commons
- Chapter 25. Restructuring Residual-Feudal Exclusive Patent Laws Produces a Modern Technology Commons
- Chapter 26. A Modern Money Commons
- Chapter 27. A Modern Information Commons
- Chapter 28. Wi-Fi Empowering the Powerless
- Conclusion: Guidelines for Sustainable World Development
- Appendix I. Expansion and Contraction of Cultures
- Appendix II: A Practical Approach for Developing Poor Nations and Regions
This is a chapter from the book, Economic Democracy; The Political Struggle for the 21st Century. Visit that link for more information about the book.