All Commentary
Thursday, February 1, 1996

Japan: Who Governs? The Rise of the Development State

Japan's Success Has Come in Spite of Bureaucratic Manipulation

“Trade between the United States and Japan can be fair only if we level the playing field.” So say countless politicians and others who decry the obstacles Japan erects to sales of American products in Japanese markets. Threats last year to impose 100 percent tariffs on Japanese luxury car imports are just one of many efforts by our government aimed at leveling.

Traditional trade theory holds that free trade will prompt nations to specialize on the basis of comparative advantage. Following this path means consumers in both countries will benefit from lower prices and producers will find new opportunities for profit.

But the author of these essays argues that the Japanese system has a totally different orientation. Job security for workers takes precedence over satisfaction for consumers. Similarly, because many stocks are rarely traded on the exchange and many large industries are essentially creatures of the government, Japanese managers are more powerful than shareholders and profits take a back seat to market share. And, perhaps most important of all, the power of bureaucrats in the various government ministries far exceeds that of politicians.

When Johnson suggests that our country should emulate Japan by developing more extensive industrial policies designed to favor selected industries, his presentation falters. He has fallen into the trap of presuming that policies which may be successful there would survive a transplant. Even were that permissible, the case for the premise that those policies were successful in Japan is far from airtight.

Moreover, Johnson ignores the implications of the evidence he presents. Surely, Japan’s rapid economic growth is one of the wonders of the second half of the twentieth century. But the cost has certainly been high. Two examples from Johnson’s book are particularly revealing.

One study revealed that in 1989 “a U.S. made sedan selling for $13,507 in Chicago cost about $25,613 in Tokyo.” This illustration shows how Japanese consumers are at a considerable disadvantage relative to Americans.

When one asks why the cost of consumer goods is still so high in Japan, one does not have to look far for the answer. The cost of government in Japan is also high. Johnson notes that fully 10 percent of Japan’s annual GNP goes for infrastructure. By itself, that may not necessarily be a bad thing, but Johnson also points out that the construction industry is the most powerful lobbying agency and that Japan’s politicians typically get a bonus of 3 percent of the value of construction projects that they arrange.

One is compelled, then, to ask, with such high costs, how have the Japanese managed to do so well? Surely, the strong work ethic is one reason. Another, which Johnson discusses in detail, is the fact that Japan was prevented, by the constitution adopted following World War II, from spending more than one percent of its annual GNP on defense. Some readers will surely conclude that Japan’s success may have come more in spite of, rather than due to, extensive bureaucratic manipulation.

Putting Johnson’s own myopia aside, however, one can find much to admire in this book. From his knowledge of the Japanese language, Johnson provides an engaging demonstration of the pitfalls of translation. His detailed discussion of the Lockheed bribery scandal provides a deeply disturbing picture of international economic relationships. He also makes it distressingly clear that we must shoulder some of the blame for the conflicts we have with Japan, as some of General Douglas MacArthur’s policies during the occupation after World War II inadvertently augmented the power of the Japanese bureaucracy.

The Japanese have much to which they can point with pride, but we need not envy them. Similarly, there is much to learn from Johnson’s book, though we need not always agree with him. Most likely, we have more to gain from looking at the positive side of our relationship with Japan and admiring the wisdom of this writer than we do from derogating their weaknesses.

Dr. Shannon is Professor of Economics at Clemson University.