Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, June 29, 1995 TAG: 9506290126
SECTION: EDITORIAL PAGE: A-15 EDITION: METRO
SOURCE: JAMES K. GLASSMAN
DATELINE: LENGTH: Long
The Japanese stock market is down 60 percent from its high of five years ago - a worse decline than our own market suffered after the 1929 Crash. Commercial property values have fallen 50 percent since 1990, putting the balance sheets of huge Japanese banks in severe jeopardy.
Every day brings incredible new figures. Department store sales in May, for example, were down 2.2 percent - the 39th straight monthly decline. Even supermarket sales have dropped.
Meanwhile, interest rates have fallen so low that they're practically nonexistent (one-year government bonds pay 1 percent), so Japanese central bankers can't simply cut rates to pump up the economy.
By one theory - evidently in vogue in the White House - the current weakness of Japan's economy made its leaders more willing to give in to U.S. trade demands. Of course, the opposite theory holds that, at a time like this, the Japanese (even those who believe trade liberalization is necessary) would be more stubborn than ever.
Call me a traitor, but I was cheering for the Japanese to hold their ground. Certainly, relaxing insidious barriers to autos and parts would benefit both countries. But the Clinton administration wanted to force Japan's automakers to increase their purchases of U.S. parts by specific amounts - and for the government to oversee the deal.
``This is strong intervention that should be out of the hands of government,'' Osamu Watanabe, one of Japan's leading negotiators, told The Wall Street Journal last week.
This sounds pretty disingenuous, coming from an official of a nation whose economy has been guided, in large measure, by its Ministry of International Trade and Industry. But Watanabe is absolutely right. More and more Japanese are waking up to the fact that central planning in Japan hasn't been working - and it's probably responsible for the current fix the country is in.
Ironically, the United States has been trying to force the Japanese government to play a bigger role in its economy just when free-market reformers were making headway. As Columbia University economist Jagdish Bhagwati puts it: ``Large numbers of reform-minded Japanese who voted the Liberal Democratic Party out of power wish an end to old-fashioned regulation. Managed trade would turn the clock backward when they want to push it forward.''
The evidence is mounting, for example, that MITI, viewed as a model by Americans who favor more government management of the economy in this country, has produced a string of expensive failures.
The Fifth Generation computer project, a plan to build a nuclear-powered cargo ship and, most recently, the hyped-up high-definition TV effort have all been duds.
MITI's most important job has been to pick winners and losers among sectors, directing cheap loans, tax breaks and trade protection toward industries most likely to grow. But bureaucrats haven't been particularly prescient, or effective.
Last year, Richard Beason and David Weinstein published a paper for the Harvard Institute of Economic Research that found that many of the sectors that were helped the most by the Japanese government grew the least - among them, textiles and mining.
``Our main conclusion,'' write Beason and Weinstein in an article about their study in the current issue of the American Enterprise magazine, ``is that Japanese industrial policy actually seems to have transferred resources out of high-growth sectors and into low-growth ones instead ... .
``Generations of American scholars went to Japan, read government white papers, talked to bureaucrats and managers in targeted industries and came home with stories of how well industrial policy worked. They were wrong.'' One of the most prominent of those scholars, Chalmers Johnson of the University of California, was quoted in an article in the May 1993 issue of the Atlantic Monthly as saying that ``Japan's slump is a fake invented by American ideologues.'' Some fake! It's now entering its fourth year.
U.S. firms are making headway in areas that the Japanese were once supposed to have locked up - like computers. Karl Zinsmeister, the new editor of the American Enterprise and a tenacious foe of MITI lovers in this country, points out that ``the Japanese have been wiped off the desktop in the United States and other markets." ... ``Even in Japan itself, U.S. computer companies have made advances." Last year, they invaded the country aggressively and, says Zinsmeister, in a single year, 1994, doubled their market share in Japan to more than 30 percent. Apple and IBM are now Japan's No. 2 and No. 3 PC sellers.
Far from making Japan invincible, central planning has held the country back. A new paper published by the Centre for Policy Studies in London argues that Japan's success has come in spite of - not because of - industrial policy. As Jonathan Rauch has written:
``What has worked in Japan is what works everywhere: thrift, honesty, hard work, education, property rights, a willingness to sacrifice for tomorrow, and strong families that take good care of children.''
Economics - and especially international trade - is not a zero-sum game. An enfeebled Japan doesn't produce a stronger America. On the contrary: We need an affluent Japan to buy our computers and our jumbo jets. After all, on a per-capita basis, the average Japanese buys about as much from the United States as the average American buys from Japan.
But by promoting trade policies that encourage more regulation and intervention by the government, we do our best to keep the Japanese economy mired in stagnation. Maybe that's what certain misguided Americans really want.
James K. Glassman writes about financial affairs for The Washington Post.
- The Washington Post
by CNB