How Asia Got Rich

Japan, China and the Asian Miracle

Edith Terry

• Publisher: Routledge
• Year: 2015
• Topic: Economics
• eBook ISBN:
  9781317468493
• Subtopic: Business General
• Index: Economics

Within a few short months in 1997, Asian economies that had been considered not only healthy but "miraculous" suddenly fell off a precipice as investors withdrew massively first from Asian currencies and, in rapid order, from equity markets across the region. On October 27 1997, the turmoil in Asian markets spooked Wall Street in the largest single-day decline in history, a drop of 550 points. It was predicted that the Asian crash could drive the US trade deficit from $191 billion to $300 billion by 1998, creating huge new tensions in relations with some of the largest US trading partners. These wrenching changes, following a generation of success, raise numerous questions about the steps that led to the crisis, its likely outcome and the limits and constraints of "Asian capitalism". Edith Terry presents a blow-by-blow account of the crisis, beginning with the 1996 collapse of the Bangkok Bank of Commerce. In her overview, she links the fall of the Asian miracle with the theme of globalization, arguing that the crisis demonstrates the urgency of dismantling restraints to trade, investment, and financial services, and that the United States should take leadership in pushing for new and sweeping reform through the World Trade Organization and in bilateral negotiations with its trading partners. The final section of the book deals with the rise of the "Asian miracle" - how the myth was created, who created it, why it succeeded for so long - and is informed by analysis of the Japanese prototype.

Part One

How Asia Got Rich

When the white waters fill the spring embankments

Migrating geese each year come winging back.

Gabbling in the swift flow they tug the tender cress,

In flocks they swim along, stirring light ripples,

Or singly drift, chasing a lonely sunbeam.

Hovering above in flight some never come to rest,

While others rise confusedly, ranks yet unformed.

And then with flapping pinions, undulating in the air,

In one grand sweep they all return to their old home.

—Shen Yue, “Wild Geese on a Lake”

East Asian policy making is like pharmacology.

A pharmacologist finds the bark of a tree that seems

to shrink tumors in rats. He has no idea how it works.

But thirty years later, somebody gets a Nobel Prize. The

Japanese practitioners have no idea why their policies

worked. They haven’t spent their lives giving a pleasing

verisimilitude to their stories; they’ve just been doing it.

—John Page, chief economist, Middle East and North Africa, World Bank, Tokyo

Yes to Life, No to Debt!

No to Structural Adjustment Programs!

—Street sign carried by protestors, World Bank/IMF Spring Meetings, Washington, D.C., April 11, 2000

1

Coming Home

For much of the 1990s, Japan was like a sumo wrestler on steroids, a spectacular giant, unmindful of its flaws or future retribution. I am gazing at its capital city from the New York Grill, a restaurant and bar fifty floors up in the new and luxurious Park Hyatt Hotel. Its décor includes the exposed racks of a “sky cellar” of 1,600 bottles of imported French and Californian wine. Below is the dense sprawl of west Tokyo. Looming to one side is Shinjuku Station, the world’s largest train terminal, spouting department stores and office towers, hung about with video screens, and laced with a reckless variety of transportation ramps, tunnels, and flyovers. There are construction cranes everywhere. The stores boast the latest and best of everything.

The lights are up as night creeps over a reddened Mt. Fuji and its attendant foothills to the west. Tokyo’s frenetic residents—the sararimen in their dark suits, the office ladies like French poodles in spike heels and the latest Italian and French fashions—pour into the streets in pursuit of a thousand pleasures. At the New Otani Hotel, outlined against the dense black of the Imperial Palace with its moats and shade trees, politicians and celebrities crowd elegantly into a perfect reproduction of the legendary Parisian restaurant, La Tour d’Argent. The New Otani version serves ducklings, pampered according to a French recipe hundreds of years old. Each duckling has a numbered certificate. The luncheon “specials” are $300 a plate.

Beyond the moat, thousands of other Tokyoites are tossing back cold sake in fashionable izakaya pubs, crowded with red-faced office workers yelling over the noise. Some will be weary from shopping in eponymous Versace or Armani, Isse Miyake or Yohji Yamamoto boutiques. Others will be fretting over the difficult decisions of where to go next, what to do, what to see. Tokyo is an endless festival. The possibilities seemed limitless, even in the dog days of the 1990s, a time when recession, unemployment, corporate restructuring, and political failures rotted the veneer of Japanese self-confidence. Anxiety entered into the creative cauldron of Tokyo and was reborn in the strained, edgy, volatile Japan of the new century. The sumo wrestler invisibly shifted balance; the decade caught him in the moment just before a lightning lunge. The outcome was as yet uncertain, but the gamble was taken. Japan in the new century would be something new, no longer the Japan of Meiji, Taisho, and Showa eras, no longer the empire or the kingdom of bureaucrats or Japan Inc. It was passing beyond the breakdown and confusion of the 1990s. It was a time of extreme volatility, of heightened risk. The one link with the past was that Japan’s fate would drag with it America’s future in Asia, because Japan, unlike Vietnam, Thailand, Singapore, the Philippines, or South Korea, was the one indispensable country to American security interests in the region, its island aircraft carrier, its protégé and most brilliant student.

Endangering America, the decade was one in which Japan initiated a revolution in its relationships with its neighbors, particularly with China. Like many other aspects as the nation limped from the 1990s into the 2000s, these new relationships encapsulated polar opposites, generating a nerve-wracking tension, but also muddying events in the eyes of beholders. America saw mainly the ambiguities, overlooking the threat it presented to its own position in the region. At a time when, by most objective measures, Japan had taken on a central role in shaping the Asia-Pacific regional economy and its attendant political and economic institutions, its body language remained that of a peripheral power. As China grew in power and prestige, Japan seemed to shrink inwards, even as it remained Asia’s giant in terms of both economic output and international trade. Its bolder geopolitical moves—such as nurturing a strategic dialogue with the Association of Southeast Asian Nations (ASEAN)—were discounted by Washington as feeble and ineffective. And Washington failed to reckon with the threat to the global system as Japan wandered, groping for a new core.

Washington was not alone in its disregard. Many, perhaps most Asians viewed Japan as a diplomatic lightweight in the region. In their view, Japan remained significant only as a proxy for U.S. interests, despite the new post-Cold War reality of reduced U.S. commitment both to Japan and to the region. China shouldered Japan aside with ease in the geopolitical arena, as it grew stronger economically and gradually began to assume the stature of an advanced industrial nation after its acceptance into the World Trade Organization in 2001. Asians accepted Japanese money and financial aid but were quick to criticize its insensitivity to the history of Japanese military aggression in the first half of the twentieth century. Japanese bureaucrats and businesspeople knit together a comprehensive plan to relocate Japanese industry to Asia, while their politicians regularly paid homage to symbols of Japanese militarism. Asians admired and adopted elements of Japan’s economic model, yet despaired of Japan’s inflexibility and rejected any suggestion that Japan might serve to “orchestrate” Asian growth. Japan’s Asian neighbors saw more clearly than Japan that its economic model was obsolete, yet remained intrigued by the concept of an East Asian economic strategy reflecting indigenous solutions to the age-old pursuit of wealth and power.

Japan’s evolving relationship with Asia, rich in ambiguities, was at the foundation of Japan’s equally complex experience with the pressures of globalization as they intensified at century’s end. In order for Japan to perpetuate a pluralistic global regime, against strong pressures for convergence and homogenization, it needed Asia as ally, prize exhibit, and power base. At the beginning of the 1990s, such goals seemed well within Japan’s grasp. By the end of the decade, Japan had formally given up the effort to impose a blueprint on the Asian economy, was cutting back its foreign aid drastically, and was falling far behind China’s inventive diplomacy.

And yet, the 1990s left behind a tidal mark of profound significance not only for Japan and Asia but also for the world. Japan entered the decade as an outlier in the Asian economy, politically and culturally isolated. It ended the decade, and the century, as a central player in an emerging regional framework aimed at nurturing Chinese growth while deflecting China’s potential threat as it rapidly assumed superpower status. In this chrysalis of regional identity, Japan’s ideas about growth and development, and even economic coordination on a regional scale, remained potent.

In telling the story of Japan in the 1990s, I have woven together two narratives. The first of these is Japan’s diplomatic tilt to Asia, which began formally in the late 1980s with a series of economic initiatives and climaxed with Japan’s huge financial outlay in support of the region after the Asian financial crisis. This was far more than a diplomatic juggling act. Japan’s abortive Asian courtship was part of an ongoing effort to re-shape the Japanese polity in the aftermath of the Cold War. This required simultaneously jettisoning Cold War baggage and screwing new apparatus in place, analogous to remodeling an aircraft in flight. In the broadest terms, I have tried to show how and why Japan failed in establishing a new Asian economic condominium, yet succeeded in leaving its mark on the globalization debate and in crossing an essential threshold in the Japanese psyche. Japan gave the world a brand new perspective on the nature of the East Asian economic model, which became fundamental to policy and practice in developing nations and the advice provided by international financial institutions. Domestically, Japan’s Asian diplomacy represented a rebirth for Japan after a half century in which Japanese political leaders kept their focus firmly on the United States in the service of the war against communism. In pursuing a new set of relationships with its neighbors, Japan aimed not only to revise its alliance structure, but also at cultural and political renaissance. Its success was limited on both fronts, but it succeeded enough to lay the basis for a new regional policy and to begin to awaken the Japanese public to the meaning of global citizenship.

Up until the 1990s, Japan’s regional policy faithfully reflected Washington’s sanctions and prescriptions. Taking refuge in its pacifist Constitution, Japan refrained from adopting any strategic or security role in the region, while it nurtured Southeast Asia, Korea, and Taiwan as resource suppliers and markets. For the most part, Japan refrained from exploring any new terms and conditions in its relationship with China, continuing to accept the old blueprint for Sino-Japanese relations crafted by the United States at the height of the Cold War. Under U.S. tutelage, Japan was to limit its economic ties with China, substituting U.S.-dominated South Korea and Southeast Asia for the factories and infrastructure of former Manchukuo. Even after the Chinese economic reforms began in 1978, Japanese companies limited their investments, while the Japanese government did little to move beyond the festering psychological residual of Japan’s invasion of China in the 1930s. This legacy continued to surface in debates over Japan’s officially approved high school textbooks that delivered a whitewashed version of the period, as well as controversies over the treatment of Asian men and women forcibly drafted as soldiers and prostitutes by Japanese occupation forces. Japanese leaders in the 1990s finally moved beyond the ritual tensions of the Cold War and began to inject a new realism into Japan’s Asian diplomacy.

The second narrative is the story of the Japanese economic model, and how it became the centerpiece of a national debate whose themes of failure and exhaustion were utterly at odds with the efforts by elite Japanese bureaucrats to franchise out the Asian miracle. I argue that the fundamental failure with Japan’s new regional geopolitics was at home, with a domestic social, political, and economic paradigm gone sour. As the model itself was evaporating, Japanese bureaucrats spun an amazing scheme to develop an intellectual and ideological alternative to Western capitalism. Their gaze was turned outward, focused on expanding Japanese influence in the post-Cold War era. They failed to consider the obvious—that few outsiders could believe in a model that was so clearly disintegrating at home. And at an even more basic level, they failed to reckon with the failings of the Japanese people.

Japan’s public was woefully ill prepared for the implications of a closer relationship with the rest of Asia, particularly when it came to accepting other Asians into their neighborhoods, companies, and schools. The Cold War had put pressure on Japan to suppress public debate on foreign affairs or defense issues, limiting the degree to which ordinary Japanese gave any thought to global or regional issues. The very word “strategic” fell under a taboo, according to Sassa Atsuyuki, former director of the Cabinet office for National Security Affairs. These limitations came on top of a century in which Japan saw itself as fundamentally a participant in a Western club of nations, superior to any Asian country. At the same time, throughout the twentieth century, Japan’s relationship with the West was plagued by ambivalence, caused by the humiliation of its defeat in the Second World War and by a nagging racial resentment.

It was in this context that Japan’s Asian tilt marked a dramatic new departure, completing an arc that had begun in the first phase of Japan’s modernization with a sharp rejection of its Asian cultural roots. Indeed, it was only as a result of wider changes sweeping Japanese society that Japanese public opinion began to shift toward acceptance and recognition of the geopolitical reality of China’s increasing dominance and the need for social as well as political sensitivity toward Japan’s neighbors. Thus, however much Japan might resist the tide, globalization has had the effect of helping along a historic reversal of values that set Japan apart from Asia. Japan began the century in alienation from the rest of Asia. It ended with a hesitant reunion.

None of the tension behind these developments is particularly visible on a casual jaunt around Tokyo, which, more than any other Asian city, is settled in its success. Here, in the late 1990s, the East Asian economic model appeared to be in full bloom, delivering a rich, diverse menu of experience to a population that was largely middle class, pleased with itself, and immune to the collapse of the nation’s financial and property markets. Few Japanese were investors, and while most owned their own homes, they left property development to speculators, closely allied with gangsters and politicians. Many remained untouched by the collapse of the so-called bubble economy of the late 1980s. Pia, a weekly magazine that lists new restaurants, performances, and other Tokyo “events,” is thick with entries. On any given afternoon in the big city hotels, middle-class Japanese couples and their children throng the carefully tailored gardens and tearooms, consuming like mad, with no sign of the tremors that were holding back the Japanese economy and foiling attempts at recovery. This was Japan at the end of the century—a nation of “glorious might,” wealthy, self-absorbed, unconscious of the fragility of its status in the world and the region.

Yet, beneath the surface glitter, the shoppers and office workers in their pubs and the bureaucrats and politicians in their exclusive ryotei—restaurants that serve no food but feature ample privacy and discretion—had just completed an unsettling time. Journalists called it Japan’s “lost decade,” comparing the period to Latin America in the aftermath of the debt crisis of the early 1980s. Japanese and foreign observers alike began to refer to Japan in terms long reserved for the bargain-basement economies of Africa or the Caribbean. Creeping disintegration attacked the foundations of society, from the myth of the incorruptible bureaucracy to the paradigm of lifetime employment. The U.S. alliance structure began to unravel at the beginning of the decade with discord over Japan’s conduct in the Gulf War; it wobbled, recovered, then wobbled again as Washington instinctively leaned toward China as its principal counterpart in the new, post-Cold War balance of power in East Asia. The foundation never quite collapsed nor was it replaced with anything new. Still, Japan began to change at the margins, accepting new forms of dialogue and a measure of integration with the global economy inconceivable in the 1970s or 1980s and that would drive developments beyond the 1990s and into the 2000s.

In international affairs, Japan aspired to multilateral diplomacy, using economic and technical aid to build confidence regionally and globally. In 1993, the great journalist Funabashi Yoichi, born in China, a veteran correspondent for Asahi Shimbun in Beijing, Washington, and Tokyo, wrote wistfully about the world’s first “global civilian power,”¹ with Japan propelling a new form of civilization dedicated to economic prosperity rather than territorial aggrandizement. Japan moved toward the first broad public debate of shibboleths of the post-war era, ranging from the merits of Japanese pacifism, written into its Constitution by the Supreme Command of Allied Powers (SCAP) in 1946, to Japan...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Foreword
• Introduction-Globalization: One Path or Many?
• Part One: How Asia Got Rich
• Part Two: Japan's Lost Decade
• Conclusion
• Acknowledgments
• Notes
• Glossary: Acronyms and Terms
• A Note on Japanese Names
• Bibliography
• Index