Jumping ahead of Japan

Posted: Mar 18, 2002 12:00 AM
Last month, when George W. Bush visited Japan, I thought the president should have thrown up in the Japanese prime minister's lap. First of all, admit it: International diplomacy can always use more vomit humor. Second, it would have been a nice way to let his dad off the hook for doing the same thing in 1992. All of the sudden, Poppa Bush's presidential regurgitation no longer would have resided in the history books as an embarrassing international faux pas. It retroactively would have become a new tradition of American diplomacy, a forceful declaration of U.S. views: "This is what we think of your economic policies!" (If only the Gipper had thought to upchuck on Gorbachev.) If Poppa Bush had put such a positive spin on his intestinal distress a decade ago, not only would Japanese prime ministers be wearing ponchos at state functions, but Japan might have gotten the message that American disgust for protectionism, cronyism and economic planning isn't just so much rhetoric. It's difficult to exaggerate the hysteria about "Japan Inc." in the 1980s. "Future historians," warned Harvard's Ezra Vogel in 1986, "may well mark the mid-1980s as the time when Japan surpassed the United States to become the world's dominant economic power." Yale's Paul Kennedy wrote a blockbuster book, "The Rise and Fall of the Great Powers," which concluded that American policies should be designed to manage our decline "so that the relative erosion of the United States' position takes place slowly and smoothly." "Asian values" and "managed economies" were the new buzzwords. Free markets and free trade were silly anachronisms. After all, America had become "become Japan's granary, like Poland was for Flanders in the seventeenth century," according to Jacques Attali, when he was the head of the European Bank for Reconstruction and Development. We were told that bureaucrats at MITI - Japan's Ministry of Trade and Finance - were better economic decision makers than the free market. In 1953, MITI refused to let Sony buy transistor-manufacturing rights, because its bureaucrats didn't like the technology. In the 1960s, MITI tried to force its car companies to merge, believing that competition was a waste of resources. As late as 1993, James Fallows wrote an article in the Atlantic - humbly titled, "How the World Works"- in which he said of such government-run economics: "The English-speaking world should ... stop pretending that it doesn't work." It turned out that Fallows was the one pretending. In 2000, a government panel of Japanese experts issued a report recommending that Japan become more American. "We shouldn't be afraid of Americanization or globalization," Makoto Iokibe, a political scientist on the panel, told The Washington Post. Since that report came out, there have been few signs that the Japanese have followed its recommendations. The 1990s, the decade when we were supposed to become Japan's Mexico or Poland, is now widely referred to in Japan as "the lost decade." Japan is enduring its third recession in eight years. The Japanese stock market is on the rise these days, but this is largely because stock prices have slid there, almost without interruption, since 1989. In that year, the Nikkei average was at 39,000 and accounted for almost half of all world stock prices. Today it's around 11,000. In other words, Japanese stocks are finally moving because prices were slashed by two-thirds. Meanwhile, the Japanese economy is still a huge white elephant. Its prospects look only marginally better today than they did five years ago. Indeed, Japan's bank stocks are rising in large part because the government has promised to bail them out again. As Newsweek noted recently, "The fact remains that Japan's economy stinks." As late as 1994, Robert Kuttner, the economist and co-editor of the American Prospect, lamented, "As mass unemployment keeps rising and wages stagnate, it is bizarre to watch governments pursue freer trade, more deregulation, limitations on government, balanced budgets, and privatization, as if a free market would somehow restore high growth and full employment." Bizarre as it may be, that's exactly what's been happening. Indeed, our economy is already on the rebound, pulling out of perhaps the shortest and shallowest recession on record. In fact, the last two recessions were little more than moments for America to catch its breath before it resumed its dizzying economic ascent. This is, of course, terrible news for Democrats, protectionists and intellectuals like Kuttner who typically use such breathing spells as an excuse to call for the government to put the economy on a full-blown respirator. Indeed, last week Congress passed a stimulus package little more than hours after Fed Chairman Alan Greenspan told them the recession was over. This was a bit like putting a cast on a broken leg after the bone healed. President Bush's recent outrageous MITI-like decision on steel tariffs notwithstanding, the United States is still in the best position to lead by example on what policies produce economic growth and which don't. Which is why Bush should leave the Pepto-Bismol at home the next time he visits Tokyo.