The Rise and Fall of the Great Powers (93 page)

As if these industrial strengths were not enough, they have been complemented by the amazingly swift emergence of Japan as the world’s leading creditor nation, exporting tens of billions of dollars each year. This transformation, which has been under way since MITI’s 1969 dismantling of export controls upon Japanese lending and its creation of financial inducements for overseas investments, is rooted in two basic causes. The first of these is the inordinately high level of personal savings in Japan—over 20 percent of Japanese wages are saved, so that by 1985 “the average total savings of Japanese households exceeded the average annual income for the first time”
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— which has left financial institutions flush with funds that are increasingly invested abroad to gain a higher return. The second reason has been the unprecedentedly large trade surpluses occurring for Japan in recent years because of the explosion in its earnings from exports. Fearing that such surpluses would fuel domestic inflation (if returned home), the Japanese finance ministry has been encouraging the giant banks to invest vast sums overseas.
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In 1983, the net outflow of Japanese capital was $17.7 billion; in 1984, it leaped to $49.7 billion; and in 1985, it leaped again, to $64.5 billion, turning Japan into the world’s largest net creditor nation. By 1990, the director of the Institute for
International Economics forecasts, the rest of the world will owe Japan a staggering $500 billion; and by 1995, the Nomura Research Institute predicts, Japan’s gross overseas assets will exceed $1 trillion.
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Not surprisingly, Japanese banks and securities firms are rapidly becoming the largest and most successful in the world.
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The consequences of this vast surge in Japanese capital exports contain dangers as well as benefits for the world economy, and perhaps also for Japan itself. A considerable amount of these funds is invested into infrastructures around the globe (e.g., the English Channel tunnel) or into the opening of new iron-ore fields (e.g., in Brazil), which will benefit Tokyo indirectly or directly. Other monies are being channeled by Japanese companies and their balances into the creation of overseas subsidiaries (especially for production)—either to have Japanese goods manufactured in low-labor-cost countries so that they can remain competitive, or to place such plants within the territories of, say, EEC countries and the United States in order to obviate protectionist tariffs. The greater part of this capital flow has, however, gone into short-term bonds (especially U.S. Treasury bonds), which if ever recalled back to Japan in large amounts could unsettle the international financial system—just as in 1929—and place tremendous pressures upon U.S. dollars
and
the U.S. economy, since much of this money is going to finance the huge budget deficits incurred by the Reagan administration. On the whole, however, Tokyo is much more likely to keep recycling its surplus capital into new ventures overseas than to bring it home.

The rise of Japan in the past few years to be the world’s leading net creditor nation—combined with the transformation of the United States from being the biggest lender to being the biggest borrower—has occurred so swiftly that it is still difficult to work out its full implications. Since “historically a creditor nation has led growth in each period of global economic expansion, and Japan’s era is just arriving,”
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it may well be that Tokyo’s emergence as the leading world banker gives a further middle-to-long-term boost to international commerce and finance, following the earlier examples provided by the Netherlands, Britain, and the United States. What seems remarkable at this stage is that the surge in Japan’s “invisible” financial role is occurring
before
there is any significant erosion of its immense “visible” industrial lead, as happened (for example) in the British case. Perhaps that may change, and swiftly, if the value of the yen soars too high and Japan experiences long-term “maturity” and slowdown in its manufacturing base and in its rate of productive growth. Yet even if this does happen—and there are reasons (as given above) to think that any decline of Japan as a manufacturing nation will be a slow process—one fact is clear: with the forecast amount of overseas assets in its hands by the year 2000, its current-account balances are bound to
be handsomely supplemented by a vast flow of earnings from abroad. In all ways, therefore, Japan seems destined to get much richer.

Just how powerful, economically, will Japan be in the early twenty-first century? Barring large-scale war, or ecological disaster, or a return to a 1930s-style world slump and protectionism, the consensus answer seems to be:
much
more powerful. In computers, robotics, telecommunications, automobiles, trucks, and ships, and possibly also in biotechnology and even in aerospace, Japan will be either the leading or the second nation. In finance, it may by then be in a class of its own. Already it is reported that its per capita GNP has sailed past those of the United States and western Europe, giving it almost the highest standard of living on earth. What its share of world manufacturing output or of total world GNP will be is impossible to say. It is worth recalling that in 1951, Japan’s total GNP was one-third of Britain’s and one-twentieth (!) of the United States’; yet within three decades it had risen to be double Britain’s and nearly half the United States’. To be sure, its rate of growth over those decades was unusually swift, because of special conditions. Yet according to many assessments,
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the Japanese economy is still likely to expand about
1½
to 2 percent a year faster than the other large economies (except, of course, China) over the next several decades.
*
It is for that reason that scholars such as Herman Kahn and Ezra Vogel have argued that Japan will be “number one” economically in the early twenty-first century, and it is not surprising that many Japanese are fired by that very prospect. For a country which possesses only 3 percent of the world population and only 0.3 percent of its habitable land, it seems an almost unbelievable achievement; and but for the possibilities inherent in the new technology, one would be tempted to assume that Japan was already close to maximizing the potential of its people and land and that, like other relatively small peripheral or island states (Portugal, Venice, the Netherlands, even Britain in its time) it would one day be eclipsed by nations which had far larger resources and merely needed to copy its successful habits. For the foreseeable future, however, Japan’s trajectory continues to rise upward.

No matter how one measures Japan’s present and future economic strength, two facts are overriding. The first is that it is enormously
productive and prosperous, and getting much more so. The second is that its
military
strength, and defense spending, bears no relation to its place in the international economic order of things. It possesses a reasonable-sized navy (including thirty-one destroyers and eighteen frigates), a home-defense air force, and a modest army, but it is clearly much less of a military power, relative to others, than it was in the 1930s, or even in the 1910s. More pertinent still for the debate upon “burden-sharing”
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is the fact that Japan allocates so relatively little for defense. According to the figures in
The Military Balance
, in 1983 Japan spent $11.6 billion on defense, compared with $21–24 billion spent by France, West Germany, and Britain, and a colossal $239 billion by the United States; per capita, therefore, the average Japanese inhabitant had had to pay only $98 for defense that year, compared with the average Briton’s $439 and the average American’s $1,023.
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Given its current prosperity, Japan seems to be getting off lightly from the costs of defense—and in two related ways: the first is that it shelters under the protection of others, namely, the United States; the second is that its low defense outlays help it to keep down public spending and thus provide more resources for the Japanese manufacturing effort which is so hurting American and European competitors.
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Were Japan indeed to respond to the pressures of the U.S. government and of other western critics and to increase its defense spending to the level allocated by the European NATO members—averaging around 3–4 percent of GNP—the transformation would be dramatic and would turn it (along with China) into the third-largest military power in the world, with expenditures on defense of over $50 billion a year. Nor is there any doubt, given Japan’s technological and productive resources, that it could build, for example, carrier task forces for its navy, or long-range missiles as a deterrent. That would certainly benefit domestic firms like Mitsubishi, as well as providing a counter to Soviet power in the Far East, thus rendering help to an overstretched United States.

What is much more likely to happen, however, is that Tokyo will endeavor to escape those external pressures, or at least to maintain defense spending as low as it possibly can without provoking a rupture with Washington. The chief reason has not been the purely symbolic one of wishing to keep Japanese expenditures on defense within the ceiling of 1 percent of GNP; by NATO definitions (i.e., by including military pensions), it had already broken that barrier, and in any case, it spent a considerably larger percentage of its GNP upon defense in the early 1950s. Nor has it much to do with the conditions of the 1951 U.S.-Japan security treaty, which is the legal basis for the American military presence in Japan, and which further encouraged Tokyo to think of trade rather than strategic power; for the circumstances of the 1980s are now quite different from those of the Korean War. The real
reasons, in the view of the Japanese government, are the domestic and regional objections to a massive increase in its defense spending, and to a revision of the constitution, which forbids sending troops (or even selling arms) abroad. The memory of the militaristic excesses of the 1930s, of the wartime losses, and (especially) of the horrors of the A-bombs has ingrained upon the Japanese consciousness a dislike and suspicion of war and of the instruments of war which is at least as strong as western pacifism after the First World War; and while that may change in time, with the coming of a younger, more assertive generation, the prevailing opinion in the near future is much more likely to constrain the Tokyo government to keep increases in spending on the aptly named “self-defense forces” to modest levels.
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To these moral and ideological reasons there can be added economic ones. Among Japanese businessmen and politicians there is considerable opposition to increasing public spending (which, as mentioned above, is much lower in Japan than in any of the other OECD countries): to them, a doubling or trebling of defense expenditures must be paid for by either adding to the large public-sector deficit or raising taxes—and both are acutely disliked. Besides, it is argued, a large army and navy did not bring Japan “security,” whether of the military or the economic sort, in the 1930s; and it is difficult to see at present how an increase in defense spending could prevent a possible cutoff of Arab oil—which is a far greater danger to Japan strategically than, say, the hypothetical nuclear winter, and explains Tokyo’s desperate efforts to “lie low and say nothing” whenever there is a crisis in the Middle East. Is it not better, then, for Japan to abjure the use of force and to resolve all international disputes peacefully, as a cosmopolitan “trading state” should? Since modern war is so costly and is usually counterproductive, the Japanese feel that there is a lot of merit in their
zenhoi heiwa gaiko
(“omnidirectional peaceful diplomacy”).

These feelings are no doubt reinforced by Tokyo’s awareness that many of its neighbors would react with alarm to a large-scale buildup of Japanese military power. That would obviously be the response of the Russians—against whom, after all, the United States wants Japan to “burden-share” in defense matters, and who are still in dispute with Tokyo over the islands north of Hokkaido, and who probably feel that they have enough on their hands in the Far East with the expansion of Chinese power. But it would also be the response of those lands previously subjected to Japanese occupation—Korea, Taiwan, the Philippines, Malayasia, Indonesia—as well as Australia and New Zealand, all of which have reacted nervously to any signs of a revival of Japanese nationalism and
bushido
mentality, and which have encouraged Tokyo to “focus on productive nonmilitary ways to enhance Southeast Asian peace and security.”
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Above all, perhaps, there looms for Tokyo the difficulty of assuaging the suspicions of a touchy Peking, which still
nurses memories of the Japanese atrocities of 1937–1945, and has also warned Japan not to get too heavily involved in developing Siberia (which in turn complicates the Tokyo-Moscow relationship) or to support Taiwan.

Even Japan’s economic expansion (while bringing with it much-needed investments, plus some development aid and tourism) has left many of its neighbors suspicious, feeling that they are being sucked into a newer and more subtle version of the “Greater East Asia Co-Prosperity Sphere” once again—the more especially since Japan does not import very much (except raw materials) from those countries, yet sells a great deal of its own manufactures to them. Here, too, China has been the most outspoken, at first welcoming the late 1970s boom in Japanese trade and investments, then sharply curtailing them, partly because of its own balance-of-payments deficit, partly to avoid economic dependency upon any single foreign country which might take undue advantage of it; America’s trade with China, Deng urged in 1979, “must come equal to Japan’s,”
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and thus prevent any possibility of a Japanese variant of “the imperialism of free trade.”

All of these are, at the moment, merely straws in the wind, but they make politicians in Tokyo worry about how best to evolve a coherent external strategy for Japan as it moves toward the twenty-first century. There is no doubt that with its economic power expanding, it could become a second Venice—in the sense not just of extensive trading, but also of protecting its maritime sea lanes and of creating quasi-dependencies overseas; yet the internal and external objections to a strong Japan are such that not only will it avoid any move toward territorial acquisitions along old-fashioned imperialist lines, but it is also unlikely to increase its defense forces by very much. This latter conclusion, however, will increasingly irritate American circles who are pressing for “burden sharing” in the western Pacific. Ironically, therefore, Japan will be criticized if it does not substantially increase its spending upon arms, and it will be denounced if it does. Either way spells trouble to what has been nicely termed Japan’s “maximal gain/minimum risk foreign policy.”
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This suggests, once again, a Japanese preference for as little change as possible in the military and political affairs of East Asia, even as the pace of economic growth quickens. That, too, compounds the dilemma, for even a non-Marxist would be puzzled to imagine how the profound economic transformation of Asia could avoid being attended by far-reaching changes in other spheres as well.