UNTIL THIS YEAR when Hideo Nomo started throwing fastballs for the Los Angeles Dodgers, most Americans couldn’t even name a single Japanese citizen. A recent public opinion survey named Bruce Lee the single most famous Japanese. Too bad he was Chinese, not to mention dead for two decades now. There’s a lesson in this, and it’s not about how ill-informed Americans are. The reason Americans know little about Japanese individuals is that, in the international scheme of things, Japanese individuals aren’t especially noteworthy. Which is why U.S. policy makers and pundits make a dreadful mistake trying to make foreign and trade policy based on the election of individual Japanese politicians who seem more attractive, more open to change, more western.
White Houses both Republican and Democratic, as well as editorial writers across the country, have been fooled in recent years by their search for a Gorbachev, a Yeltsin, even a Salinas, in Tokyo. Take the case ofMorihiro Hosokowa, who became prime minister in 1993. The American press declared him the man who would free the market and the suffering citizenry from the bureaucrats. Here was a younger man, in his fifties, who had split from the long-reigning LDP party, which had controlled not just the Diet, Japan’s parliament, but the nation’s construction contracts since World War II. Not only was he handsome, he was much taller — a source of pride to younger Japanese whose diet and nutritional standards have permitted them to bridge the literal stature gap with westerners. Just as the youthful and affable Bill Clinton would “reinvent” Washington, Hosokawa was supposed to stir up Tokyo. He lasted less than a year.
Though the U.S. gleefully expected profound change inside Japan as a result of Hosokawa’s ascent, the truth is that the Japanese did not dump the ruling LDP for Hosokawa because they got tired of watching bureaucrats and corporate godfathers managing trade and industry. No, they dumped the LDP because the LDP failed to do a good job maintaining the centrally regulated economic system. If the LDP could have held the pieces together more tightly, that would have been fine. Voters were not calling for Hosokawa to deregulate faster. They were actually asking him to restore the good times that had deserted them after the financial collapse of the early 1990s — good times they attributed to the hand-holding economy of previous decades.
Although the LDP’s reputation has taken a beating, the party’s long- standing conviction that the free market must be closely regulated for the sake of large, traditional employers has not been substantially challenged. That’s partly why the LDP was able to come back to power last year, albeit in a bizarre coalition with the Socialists. The LDI”s newest prospect for prime minister is Ryutaro Hashimoto, an Elvis-side-burned trade minister who catapulted his popularity ratings last June by standing up to the Clinton administration on automobile imports. The Japanese people are certainly not turning to him for the “shock therapy” of quick and massive economic deregulation.
Only market conditions — not personalities in Tokyo, not populist uprisings among the electorate, and not bullying from Washington — can and will force the changes every American president has sought for the past 15 years. Market conditions are responsible for the weakening of Japan’s tradition of lifetime employment, for instance. The unemployment rate, though offcially only 3 percent, is actually closer to 9 percent when calculated by our standards. Almost 20 percent of recent college graduates cannot find jobs; for women, double that number. And Japan is moving factory jobs offshore to China and Malaysia, hollowing out the Floating Kingdom so quickly that the term “doughnut economy” has taken hold.
A more competitive U.S. economy has changed things as well, and to a far greater extent than is usually acknowledged. In market share, the U.S. personal computer companies have now swiped 30 percent of the Japanese market, tripling its share in a decade. Even within the Japanese models there rests an Intel computer chip, made in Sunnyvale, California. In scientific instruments, Japanese imports from abroad have jumped from about 20 percent to about 60 percent.
What this means is that U.S. competitiveness, not high-level trade negotiations between U.S. ambassador of ill will Mickey Kantor and the Elvis- like Hashimoto, has proved the only effective way for us to change market conditions in Japan for the better. One-sided trade deals will only drive the Japanese to become more entrenched in practices we deem odious. Japanese consumers are right to take as an insult the demands of American politicians that they buy large Whirlpool washer/dryers for their small apartments or 8- cylinder Chevys for their tiny garages.
But there is a real use for trade policy, as long as it is used to urge structural reforms that do not give a clear competitive advantage only to the U.S. A sound and innovative trade policy would lead the United States to suggest to Japan that the two countries try to effect parallel changes in their respective economies to ensure that neither side has an unfair advantage. One possibility for change suggests itself: tax reform.
If the U.S. goes the flat-tax route, we could challenge Japan to jointly develop a simpler, flatter tax. American politicians and bureaucrats shouldn’t, and can’t, force this on the Japanese by threatening them, but instead by offering the opportunity for mutual gains. Japan now has a top personal income tax rate of 50 percent. Such a high rate encourages executives to take compensation in the form of benefits, so those customary, rollicking nights at the karaoke bar are picked up by shareholders.
Meanwhile, Japan’s consumption tax discourages its citizens from shopping and keeps the U.S.-Japan trade balance off kilter. If flatter and more uniform tax rates were enacted by both the U.S. and Japan, it would place pressure on other global market competitors to enact better, more effcient tax policies. Just as New York must now worry that the newly attractive New Jersey will steal its jobs away because Gov. Christine Whitman cut tax rates by 25 percent, so other countries would have to be vigilant and competitive about their fiscal policies.
A series of serious discussions on joint tax reform would help anxious voters in the U.S. and Japan much more than screaming at each other over which side of the car the steering wheel should stick out of. And finally, it would call on the best part of Japanese culture — the quest for simple beauty and the devotion to careful workmanship. And finally, if we wait for a dazzling personality — the Ronald Reagan or Clint East- wood of Japan — we’ll first see hell freeze over, or the polar ice caps melt.
Todd G. Buchholz is author of From Here to Economy: A Shortcut to Ecoomic Literacy (Dutton) and is President of the G7 Group Inc., an economics consulting firm.
by Todd G. Buchholz;
