Blowback, Second Edition: The Costs and Consequences of American Empire

JAPAN AND THE ECONOMICS

OF THE AMERICAN EMPIRE

During the Cold War the Soviet Union lost any number of friends and potential allies by forever hectoring them about Marxism and the stages of economic growth they would have to go through in order ever to hope to live like Russians. Such Marxist rigidity clearly benefited the American side in the superpower face-off of that era. Ideological arrogance turned many countries, like Tanzania and Egypt, against their Soviet economic advisers, and overbearing Soviet behavior contributed heavily to the Sino-Soviet dispute. Unfortunately, in the post–Cold War era it is the United States that is exhibiting a capitalist version of such heavy-handedness and arrogance.

Ideology—that is, the doctrines, opinions, or way of thinking of an individual, a class, a nation, or an empire—is as tricky a substance to use in international conflicts as poison gas. It, too, has a tendency to blow back onto the party releasing it. During the late 1950s, in the depths of the Cold War, many Americans began to suspect that the Soviet Union was actually a third-rate economy; but it still had the world’s most alluring ideology, a body of thought capable of attracting more people in the Third World than the “possessive individualism” (to use the philosopher C. B. Macpherson’s term) espoused by the United States. Soviet intellectual appeals were built around the ideas of Karl Marx—indubitably a man of the West and properly buried in Highgate Cemetery, London—which attracted even the most chauvinistic people on earth, the Chinese. Marxism-Leninism, as espoused by the Soviet Union, provided explanations for the inequities of colonialism, a model of economic development based on the achievements of Russia under Stalin, and the promise of world peace when all nations had passed beyond imperialism, which was the “final stage of capitalism.”

Part of what gave Soviet ideology such power to convince whole peoples in the Third World was the way it assimilated and invoked the single most uncontested ideology of our century, that of science. It claimed to rest not on the hopes of idealistic reformers but on the logic of “scientific socialism.” The Soviets insisted that they were acting in accordance with laws of human development discovered by their patron saints, Marx and Lenin. By contrast, the ideology of the “free world” looked at best like a rationalization of the privileges enjoyed by Americans because of their exceptional geography and history.

Not surprisingly, American leaders came to feel that somehow they had to match the ideological claims of communism in what they saw as a great global battle for the souls of earth’s contested majority. Nowhere did this need seem more acutely necessary than in East Asia, where Communist regimes had come to power in China, North Korea, and Vietnam despite the fact that Marx’s analysis of class conflict in industrializing societies bore only the faintest relation to the actual conditions in any of these countries. At the time, communism was also an active competitor in every other country of the region. Asians were attracted to it precisely because it claimed to be based on science—the ingredient that seemed to undergird the industrial and military might of their European, American, and Japanese colonizers—and because the example of the Soviet Union held out the hope of a solution that might someday be within their own revolutionary grasp.

The American response, never expressly articulated but based on the total mobilization of the American people for the Cold War by President John F. Kennedy and other leaders, was twofold. First, we would do everything in our considerable power to turn Japan into a capitalist alternative to mainland China, a model and a showcase of what Asians might expect if they threw in their lot with the Americans instead of the Communists. Second, academic economics as taught in most American universities was subtly transformed into a fighting ideology of the “West.” From each of these transformations would come fateful consequences for the American empire after its competition with the Soviet Union ended. Because most Americans never understood either policy to be a strategy for pursuing the Cold War, they took both Japan’s achievements and the wealth of the West to be evidence of an ineluctable destiny that made the United States a singularly appropriate model for the rest of the world. Any doubts raised about these propositions were seen as undermining the pretensions of the American empire. Thus, what began as tactical responses to temporary, often illusory or misleadingly interpreted Soviet “advantages” ended up as ideological articles of faith for the “sole superpower” of the post–Cold War world.

From approximately 1950 to 1975, the United States treated Japan as a beloved ward, indulging its every economic need and proudly patronizing it as a star capitalist pupil. The United States sponsored Japan’s entry into many international institutions, like the United Nations and the Organization for Economic Cooperation and Development, well before a post–World War II global consensus in favor of Japan had developed. It also transferred crucial technologies to the Japanese on virtually concessionary terms and opened its markets to Japanese products while tolerating Japan’s protection of its own domestic market. It even supported the Japanese side in all claims by individual American firms that they had been damaged by Japanese competitors. In addition, the United States allowed Japan to retain an artificially undervalued currency in order to give its exports a price advantage for well over a decade longer than it did any of the rebuilt European economies.

We proclaimed Japan a democracy and a model of what free markets could achieve while simultaneously helping to rig both its economic and political systems. We used the CIA to finance the ruling party and engaged in all manner of dirty tricks to divide and discredit domestic socialists.¹ In this process there was much self-deception. For far too long America’s leading officials insisted that Japan could never be an economic competitor of the United States’. President Eisenhower’s secretary of state John Foster Dulles was, for example, convinced that while the Japanese might be able to sell shirts, pajamas, “and perhaps cocktail napkins” to the American market, little else was possible for them.² Americans did not wake up to Japan’s competitive challenge until their steel, consumer electronics, robotics, automotive, camera, and semiconductor industries were virtually extinct or fighting for their lives.

After the “security treaty riots” of 1960, when a Japanese mass movement tried to prevent the signing of a treaty that would perpetuate the basing of American troops in Japan and Okinawa, the United States moved its campaign to portray Japan as a model democracy into high gear. It appointed as ambassador the well-known Harvard historian of Japan Edwin O. Reischauer, who was married to a Japanese woman from a distinguished political family. His job was to repair the damage to the image of Japanese-American amity caused by the 1960 riots, which to many Asians appeared to be a Japanese equivalent to the Budapest uprising of 1956. Reischauer was to “reopen a dialogue” with the alienated Japanese left while shoring up the conservative Liberal Democratic Party, its aging rightists from prewar and wartime governments now screened from public view while it emphasized economic growth over democracy.

Perhaps Reischauer’s most influential step was to endorse in his own extensive writings and speeches of the time a movement among American academic specialists to rewrite the history of modern Japan as a case study of successful “modernization.” So-called modernization theory flourished in the United States during the 1960s just as the Japanese economy “took off” (to use that famous term of the modernization theorists), achieving double-digit growth rates. This new approach to Japan traced the country’s course of development from the Meiji Restoration of 1868, which was Japan’s debut as a unified nation rather than a collection of feudal states. It contrasted Japan’s achievement of great-power status with the dependency and susceptibility to colonialism of the rest of Asia, particularly China. It stressed how the initial authoritarianism of the Meiji oligarchs evolved into a toleration of political parties during the 1920s, producing at least the possibility of parliamentary democracy. The theory drew attention to how the “liberal” 1920s, although ultimately destroyed by reaction and militarism after 1931, provided precedents for reform that many Japanese leaders seized upon when genuine democratization got under way during the American occupation.

Japan emerged from this stirring tale of political and economic development as an exemplary nation, the only country in Asia that avoided being colonized. The fact that it did so by joining the Western colonialists in victimizing the other countries of Asia was underemphasized in such accounts. Japan’s kuroi tanima, or “dark valley,” from 1931 to 1945, in which it warred with China and the United States, was explained away as due to a unique concatenation of international factors—the Great Depression, the closing of European and American colonies to Japanese exports, Japan’s fear of bolshevism, and American isolationism. What actually went on in the “dark valley,” from the rape of Nanking to the Bataan Death March, was incidental to the tale of economic growth and political consolidation and best forgotten, since Japan’s aggression was now understood to be but a temporary sidestep on a long march toward modernization. The emperor of Japan, who had reigned since 1926 and presided over much military aggression and brutality, emerged as a simple marine biologist and pacifist who had opposed the war from the beginning and had actually brought it to an end in 1945 through his own decisive action. It was said that he was a man of few words in view of the fact that from the end of the war to his death in 1989 he was never again allowed to utter many in public.

The American public, like its policy elites never very well informed about Japan to begin with, bought this rosy picture of that country as the chief bulwark against communism in Asia. John Dower and a few American academic specialists argued that modernization theory was incomplete and that Japan’s militarism had domestic roots every bit as deep as its commitment to modernity, but they were easily ignored.³ Japan was now entrenched in American consciousness as a full-fledged democratic ally with a system rooted in free-market capitalism and certain eventually to “converge” with the United States as a liberal, consumer-based state.

To be sure, there were occasional “misunderstandings” as one nation’s capitalists sought competitive advantage over the other. In dealing with such “unfortunate” developments, the task of diplomacy and the mission of the American embassy in Tokyo became not to champion American interests but to ameliorate the conflict itself, usually to Japan’s advantage. Nothing seriously wrong could come of such policies, it was argued, because, as modernization theory taught, the two societies were on the same developmental path toward common economic ends.

The second aspect of the ideological challenge to the Soviet Union was the development and propagation of an American economic ideology that might counter the promise of Marxism—what today we call “neoclassical economics,” which has gained an intellectual status in American economic activities and governmental affairs similar to that of Marxism-Leninism in the former USSR. Needless to say, Soviet citizens never understood Marxism-Leninism as an ideology until after it had collapsed, just as Americans like to think (or pretend) that their economics is a branch of science, not a fighting doctrine to defend and advance their interests against those of others. They may consider most economists to be untrustworthy witch doctors, but they regard the tenets of a laissez-faire economy—with its cutthroat competition, casino stock exchange, massive inequalities of wealth, and a minor, regulatory role for government—as self-evident truths.

Until the late 1950s, academic economics remained one of the social sciences, like anthropology, sociology, and political science—a non-experimental, often speculative investigation into the ways individuals, families, firms, markets, industries, and national economies behaved under different conditions and influences. It was concerned with full employment, price stability, growth, public finance, labor relations, and similar socioeconomic subjects. After it became the chief ideological counterweight to Marxism-Leninism during the Cold War, its practitioners tried to extract it from the social sciences and re-create it as a hard science.

Its propositions were now expressed less in words than in simultaneous equations, the old ideas of Adam Smith reappearing as fully mathematized axioms, increasingly divorced from empirical research. Its data were said to be “stylized facts,” and economists set out to demonstrate through deductive reasoning expressed in mathematical formulas that resources could be allocated efficiently only through an unfettered market. By now all these terms (“resources,” “efficiency,” “markets”) had been transformed into abstractions, not unlike the abstract formulations (“the proletariat,” “the bourgeoisie,” “class conflict”) of its Soviet opponents. English-speaking economics became such a “hard science” that in 1969 the central bank of Sweden started giving Nobel Prizes to its adepts, virtually all of them American academicians. This ensured that virtually all aspiring economists would in the future try to do so-called theoretical economics—that is, the algebraic modeling of markets—rather than old-fashioned empirical and inductive research into real-world economies.

Economics split from the social sciences and took up a new position somewhere close to mathematics. Economists were now endlessly called upon by governmental bodies to testify that the American economy was unmatchable, even if it sometimes behaved badly because of overspending liberals, pork-barrel politics, or greedy monopolists. Alternatives to it were understood to be either converging with it or destined to fail. Economics no longer studied the economy; it spoke ex cathedra about what was orthodox and what was heresy. Meanwhile, empirical research on economic phenomena migrated to business schools, commercial think tanks, and the other social sciences.

Unquestionably, after the first two decades of the Cold War, in a purely dichotomous choice between an economy based on Marxism-Leninism and one based on free-market capitalism—as exemplified by the economies of the Soviet Union and the United States—most people around the world would have chosen the free market. But in East Asia, at the height of the Sino-Soviet dispute and the American war in Vietnam, neither ideology was working out according to either superpower’s script. The Chinese were discrediting forever whatever attractiveness might have remained in the forced-draft economic achievements of the Soviet model. Through bungling, megalomania, and deep ideological confusion about what Marxism and the Soviet experience taught, the Chinese Communist Party managed to kill thirty million of its own citizens and then, in a paroxysm of mutual blame, came close to destroying its unmatchable cultural legacy in the so-called Cultural Revolution. Today this period is recognized—even in China—as a monumental disaster, but at the time many Americans, from idealistic leftist students to presidents and other political leaders, failing to understand what was happening, retained a sentimental attraction to Mao Zedong and Zhou Enlai, the mismanagers of the Chinese revolution.

The truly surprising development in East Asia, however, was that America’s “non-Communist” satellites, protectorates, and dependencies were starting to get rich and to compete with their superpower benefactor. All of this was camouflaged by the Cold War itself, so that the enrichment of East Asia occurred almost surreptitiously. The year-in, year-out record-breaking growth rates of such previously poor places as Japan, South Korea, and Taiwan were not precisely what American elites had expected, but they were explained away as nothing more than confirmations—even overconfirmations—of officially espoused free-market ideology and so were greeted with parental pride.

If the capitalist economies of East Asia were starting to perform better than the United States itself, this anomaly was usually attributed to mysterious Japanese or Asian cultural or even spiritual factors or to complacency on the part of American managers and workers. By the time the Western world awoke to what had actually happened, economic growth in East Asia was self-sustaining and unstoppable by external actions (although many Asians thought this was exactly what the United States was attempting when its policies toward the area led to the meltdown of 1997). The enrichment of East Asia under the cover of the Cold War was surely the most important, least analyzed development in world politics during the second half of the twentieth century. It remains to this day intellectually indigestible in the United States.

The fundamental problem is not simply that in the Cold War era Japan attained a $5 trillion economy—although that alone was an unexpected competitive challenge to American economic preeminence—but how it did so. It had found a third way between the socialist displacement of the market advocated by Soviet theorists and an uncritical reliance on the market advocated by American theorists. The Japanese had invented a different kind of capitalism—something no defender of the American empire could accept. It was therefore assumed either that the Japanese were cheating (and all that we needed to compete successfully against them was a “level playing field”) or that they must be headed for a collapse similar to the one that had overtaken the USSR.

In turning neo-classical economic theory into a fighting ideology, American ideologues encountered one element of capitalist thought that they could not express in abstract, seemingly “scientific” mathematical terms. This was the set of institutions through which competitive market relationships actually produce their benefits. Institutions are the concrete, more-or-less enduring relationships through which people work, save, invest, and earn a living—such things as stock exchanges, banks, labor unions, corporations, safety nets, families, inheritance rules, and tax systems. This is the realm of the legal, political, and social order, where many considerations that govern the economy other than efficiency contend for primacy. For economic theorists institutions are “black boxes,” entities that receive and transmit economic stimuli but are themselves unaffected by economic theory.

In attempting to forge a fully numerical, scientific-looking model of the capitalist economy for purposes of the Cold War, Western ideologues simply assumed that the institutions of modern capitalism must be those that existed in the United States in the late Eisenhower era. This meant that savings were typically moved from the saver to industry through a capital market (such as the New York Stock Exchange) rather than, for example, through the banking system. They assumed that industrial-labor conflicts were settled by interminable strikes, and not by, for example, offering some workers career job security; and they assumed that the whole purpose of an economy was to serve the short-term interests of consumers, instead of some overarching goal such as the wealth and power of the nation as a whole.

These American assumptions were almost identical to the Soviet assumption that the institutions of “socialism” must be those that existed in the USSR during, say, the Khrushchev era. Neither side ever produced an ideological model to sell to others that could be divorced from their own country. Because of this inability to express the institutions of either socialism or capitalism in some culturally neutral—or at least more varied—way, it is understandable that many observers simply reduced the claims of Marxist-Leninist ideology to the USSR and those of free-market capitalism to the United States.

In finding a third way, Japan’s postwar economic “miracle” reinvented not economic theory but the institutions of modern capitalism so that they would produce utterly different outcomes from those imagined in the American model. Given Japan’s history of catch-up industrialization, its overarching need to avoid the victimization and colonialism to which every other area of East Asia had succumbed, its virtual dearth of raw materials, its dependence on manufacturing and international trade to sustain its large population, and its overwhelming defeat in World War II, it could not ever have become a clone of the United States. Its postwar planners and technocrats instead organized a capitalist economy intended to serve the interests of producers over consumers. They forced Japan’s citizens to save by providing little in the way of a safety net; they encouraged labor harmony regardless of what it did to individual rights; and they built industries based on the highest possible human input rather than simply on some naturally given comparative advantage, such as cheap labor or proximity to a large market like China’s. Their goal was to enrich Japan, if not necessarily the Japanese themselves. They viewed all economic transactions as strategic: theirs was to be an economy organized for war but now directed toward ostensibly peaceful competition with other countries.

Since the 1950s, the United States had seen the entire world in Cold War terms. This meant that Japan was far more important as an anti-Communist ally than as a potential economic competitor. In order to keep U.S. troops and bases in Japan, the Americans provided open access to their market and the government pressured private American firms to relinquish ownership rights to technologies being transferred to Japan. As Japanese trade and industrial bureaucrats took advantage of this deal, trade disputes became inevitable. From the “dollar blouses” that flooded into the United States during the Eisenhower era to the textile disputes of the Kennedy and Nixon administrations, complaints about the costs of “alliance” with Japan became a permanent feature of Washington politics. They also produced a lucrative new field for former government officials turned lobbyists, whom the Japanese hired in increasing numbers to ameliorate or paper over the disputes. Even though Washington remained more or less ignorant of how the government in Tokyo actually worked, the government in Tokyo took a life-or-death interest in Washington’s role in regulating the American economy. Japanese officials also did everything in their power to maintain the artificial separation between trade and defense that the U.S. government had invented and to see that the Pentagon was happy with its facilities.

This artificial separation between trade and defense has been a peculiar characteristic of the half-century-long American hegemony over Japan. Official guardians of the Japanese-American Security Treaty and their academic supporters have maintained an impenetrable firewall between what they call, using the Japanese euphemism, “trade friction” and the basing of one hundred thousand American troops in Japan and South Korea. There was no reason why these two aspects of the Japanese-American relationship should been dealt with as if they were separate matters except that, had they not been, the actual nature of the relationship would have been far easier to grasp.

Until the 1980s, the United States officially ignored all evidence that this compartmentalization of its massive military establishment and its growing trade deficits with Japan was going to be very costly. From about 1968 on, trade deficits began to rise just as the hollowing out of certain industries that the Japanese government had targeted became more visible. U.S. officials then consulted with their Japanese counterparts about these problems and accepted fig-leaf agreements that offered the pretense of remedies to distressed American businesses and communities. With the exception of President Nixon’s 1971 decision to force an ending to Japan’s artificially undervalued exchange, nothing else of significance was done.

During the 1980s, however, pressures for action of some sort markedly increased. The Japanese economy, now a major competitor, was starting to erode the industrial foundations of the United States. Moreover, the Cold War was settling into its final Reaganesque rituals. Despite inflated CIA estimates of Soviet strength, it became increasingly clear to many, even before the rise to power of Mikhail Gorbachev, that the two sides were starting to accommodate each other and that the threat of a superpower war was declining. In this context, a new way of thinking developed about Japan itself and about the nature of America’s relationships with newly rich Asia. Business Week dubbed it “revisionism” and wrote:

No less than a fundamental rethinking of Japan is now under way at the highest levels of the U.S. government, business, and academia. The standard rules of the free market, according to the new school, simply won’t work in Japan. . . . Some people call the new thinking “revisionism,” departing as it does from the orthodox view that Japan will eventually become a U.S.-style consumer-driven society.⁴

The Japanese, who had been very proud of their “developmental state” and its guided economy and who readily wrote about it for domestic consumption, suddenly became concerned when American revisionists, myself included, began saying that “leveling the playing field” was not the issue, since the two economies were different in such fundamental ways. It was one thing for Japan and its lobbyists to parry complaints about their country’s closed markets and the numerous barriers it raised against foreign products ranging from automobiles and semiconductors to grapefruit and rice. It was quite another for Americans to claim that they were playing by entirely different rules. Accusations that the “revisionists” were Japan bashers or racists rose quickly to the surface.

Meanwhile, a number of Japanese politicians and industrialists added insult to injury by claiming that the trade deficit resulted from the laziness of American workers or resorted to racism by pointing to the racially mixed nature of the workforce while characterizing American minorities as indisciplined and ineducable. In 1989, a prominent Japanese politician, Shintaro Ishihara, and the president of Sony, Akio Morita, cowrote a book, The Japan That Can Say “No,” in which they suggested that their country should not share Japanese-developed technologies that the Americans regarded as of national security significance unless the Americans reined in their critiques. In 1998, Ishihara, angry about an economy that seemed to be heading into decline, wrote a sequel, The Japan That Can Say “No” Again, suggesting a halt in investment in U.S. government securities to teach a lesson to Americans who had pushed Japan to open its economy. These views made him sufficiently popular that in 1999 he was elected mayor of Tokyo.

Nonetheless, the American government continued its typical Cold War style of doing business into the early 1990s. In 1988, for example, State Department and Pentagon leaders proposed transferring to Japan the technology of the F-16 fighter aircraft in order to allow the Japanese to build their own fighter, the FS-X. A huge controversy erupted over why the Japanese did not simply buy the F-16 fighters they needed from the manufacturer, thereby helping to balance the trade deficit and keep manufacturing in the United States. One State Department official, Kevin Kearns, who was in Tokyo at the time the FSX deal was negotiated, agreed with the critics and wrote in the Foreign Service Journal, “As long as the Chrysanthemum Club [of pro-Japanese American officials] continues to skew the policy process in our government and paid Japanese lobbyists and academics-for-hire continue to influence disproportionately the treatment of Japan in the public realm, the United States will continue its approach to Japan in the same tired, self-defeating way.”⁵ Following these remarks, Deputy Secretary of State Lawrence Eagleburger publicly denounced Kearns and in February 1990 forced his resignation from the State Department. The Bush administration then transferred the F-16 technology to Japan.

In an equally telling incident in 1990, the Matsushita Electric Company of Japan bought MCA Inc., the giant Hollywood-based entertainment conglomerate, for $7.5 billion, one of the biggest purchases ever of an American company by a foreign firm. This was less than a year after Sony had acquired Columbia Pictures for $3.4 billion and Newsweek had run a cover showing Columbia’s torch-bearing female icon wearing a kimono.⁶ In addition to by-then-widespread worries about Japanese capital invading the United States, there was the further complication that MCA owned a lucrative concession that serviced visitors to Yosemite National Park. In order to avoid the public relations embarrassment of having a Japanese company own part of a national park, the Department of the Interior suggested that Matsushita donate the concession to the park service. The Japanese, however, did not want to let it go and instead hired an elite corps of Washington lobbyists, lawyers, and public relations specialists to escort their purchase past congressional and government critics.

Leading the Matsushita team was former U.S. trade representative Robert Strauss. According to the Washington Post, he was paid $8 million for successfully brokering the deal and seeing to its public relations aspects, including getting the Department of the Interior to back off. When asked by reporters why he was being paid such an enormous fee for a minimal amount of work, Strauss nonchalantly replied, “I don’t work by the hour anymore. I don’t do windows.”⁷ This remark greatly puzzled the Japanese, although they were pleased enough with what their largesse had bought them. They concluded that Washington was as corrupt as Jakarta or Seoul and that anything could be had if the price was right. Rather than devoting attention to the potential pitfalls of their own brand of capitalism, the Japanese in this instance followed a distinctly American path and convinced themselves that they were invincible, while the United States was in a terminal decline. They therefore marched steadily toward their own decade-long economic downfall.

These alarms and diversions were also effective in turning American attention away from the most distinctive trait of Japan’s type of capitalism—namely, the major role given to governmental industrial policy and its role in a capitalist economy. Industrial policy refers to the attempt by the government to nurture particular strategic industries that are thought to be needed by an economy for reasons of national security, export competitiveness, or growth potential.⁸ As a result, most Americans failed to grasp how crucially Japan’s industrial policy depended on its political and military relationship with the United States and on access to its vast market. Nor did they understand that the Japanese were investing the huge trade profits in American Treasury securities that were, in turn, helping to finance America’s huge debts and making the American financial system critically dependent on Japanese savings. This growing dependency made American officials reluctant to criticize the Japanese in any way. Even when they did so, the Japanese rationalized such criticism as meant only for U.S. domestic consumption.

What Americans, including the revisionists, failed to see was that the Japanese economy, still devoted to exporting a vast array of ever more sophisticated and technologically advanced manufactured goods primarily to the American market, was generating an industrial overcapacity that would eventually threaten the health of the world economy. Moreover, as much of Asia began to emulate the Japanese form of capitalism or become offshore manufacturing platforms for Japanese corporations, this overcapacity threatened to reach crisis proportions. The crisis came to a head in 1997 and has been a continuing feature of the international economy ever since.

Political developments helped precipitate the crisis. In 1992, the Americans elected Bill Clinton on a slogan of “It’s the economy, stupid,” and in 1993, the Liberal Democratic Party in Japan, no longer needed as a bulwark against communism, simply collapsed of its own corruption and redundancy.

The Clinton administration did experiment briefly with policies advocated by the revisionists, including managed trade. The new administration even toyed with convincing the Japanese to join in helping manage Japanese-American trade, but its heart was never in it. The actual work was left to the usual array of Washington lawyers and economists, who had no East Asian knowledge or experience whatsoever, with the easily predictable outcome that the Japanese, much more experienced and better informed than their American adversaries, simply ran circles around them.

Using their huge leverage over American debt financing and Clinton’s need for the appearance of domestic economic prosperity in order to be reelected in 1996, the Japanese got the Americans to back down on most trade issues. The administration covered its tracks by claiming that it could not allow economic disputes to interfere with security and military matters. The difficulty was that except for the bellicose statements and deployments of the United States itself, peace was breaking out in East Asia. In 1992, for example, China recognized South Korea; that same year the government of the Philippines asked the U.S. Navy to leave the major base it had long occupied at Subic Bay. Still, the U.S. government claimed to see threats from North Korea and China, and the Japanese went along, doing whatever they could to satisfy the Pentagon.

In 1993, the Liberal Democratic Party lost its majority in the Japanese Diet for the first time in thirty-eight years. Increasingly irrelevant to Japan’s need to reinvigorate its economy and assume control over its foreign policy, it was not voted out of office but simply disintegrated. At first, a popular coalition government formed among the many new parties in the Diet. It seemed that a long overdue political realignment might be at hand. As it turned out, the Socialist Party, long feared by the United States because of its advocacy of “neutralism,” was so beguiled to be in office that it ultimately abandoned everything it had ever claimed to stand for and forged a cynical coalition with the LDP to control parliament. In the end, all the LDP’s loss of power revealed was that the party system itself had largely been postwar window dressing. In 1997, the LDP returned to power and resumed its stewardship over Japan’s old Cold War relationship with the United States.

At least, though, the rise to power in the 1993-97 interregnum of nonmainstream LDP and opposition party leaders opened up an important debate over how and why the country had become so rich and yet had such an ineffective elected government. Bureaucratic insiders as well as intellectuals and academics began publicly to acknowledge and elaborate on the very points the American revisionists had made. New York Times correspondent James Sterngold reported from Tokyo, “Five years ago, some Western critics were derided by the Japanese establishment as wrong—and probably racist—for declaring that Japanese policy was set by bureaucrats, not politicians, and that Japanese politics was often corrupt. . . . Suddenly, expressions and criticism previously regarded as blasphemous when uttered by ‘revisionists’ and ‘Japan bashers’ are spoken with a surprising matter-of-factness.”⁹ In the process they opened up whole new perspectives for viewing the interlocking Japanese governmental, social, and economic systems. They affirmed that a corps of unelected elite bureaucrats actually governed the country under a façade of democracy. They laid out the ways in which, working within a Cold War framework and guided by their government, the major corporations had invested in productive capacity many times greater than domestic demand could possibly absorb, thereby becoming totally dependent on continued sales to the American and Asian markets. They detailed the methods of the cartels, of restrictive licensing practices, of the underdeveloped system of judicial review, and of myriad other “nontariff barriers” to trade that kept American and European corporate penetration of the domestic market to a minimum.

One impetus for such new, self-critical attitudes could be found in the changed economic atmosphere. Following a binge of big-ticket investments at the end of the 1980s and a bubble of real estate speculation that accompanied newfound wealth, the economy began to falter. After eight years of stagnation, in 1998 it finally plunged into real recession. In an ironic twist, American ideologists used these developments to argue as always that American free-market capitalism was the globe’s one and only path to success. However, they now incorporated revisionist analyses without acknowledgment into their critiques of the Japanese economy. For example, the Wall Street Journal’s Paul Gigot had long maintained that Japan’s economy operated just like the U.S. model. “Japan’s miracle, like Britain’s and America’s before it,” he wrote in 1986, “was largely the product of creativity and enterprise by individuals and their businesses.”¹⁰ A decade later, in a column entitled “The Great Japan Debate Is Over: Guess Who Won?,” he could be found deriding Japan’s “model of bureaucratic-led economic growth,” as distinguished from “American-style capitalism.” His new point: the revisionists may have been right about how Japan worked but they were wrong to think it was a success. To the extent that the Japanese economy might ever stage a comeback, Gigot argued in a fashion typical of his colleagues, it would have to do business “in a framework that more resembles the American model.”¹¹ Put another way, these economic ideologues found convincing proof in Japan’s economic fate that a hegemonic America would continue to dictate the rules of international commerce into the distant future, even if that hegemony were disguised with catchphrases like “globalization.”

As the Cold War receded into history, the United States, rather than dissolving its Cold War arrangements, insisted on strengthening them as part of a renewed commitment to global hegemony. Japan was supposed to remain a satellite of the United States, whether anyone dared use that term or not. Meanwhile, annual American trade deficits with Japan soared. American manufacturing continued to be hollowed out, while a vast manufacturing overcapacity was generated in Japan and its Southeast Asian subsidiaries. Capital transfers from Japan to the United States generated huge gains for financiers and produced an illusion of prosperity in the United States, but in 1997, it all started to unravel. The most severe economic crisis since the Great Depression hit the East Asian economies and began to spread around the world.