12 – Taking Japan Seriously (4 feb 09)

    I just heard that Newsweek will no longer have a bureau with correspondents in Tokyo, and that the Los Angeles Times has begun to cover Japan out of Seoul, Korea. When the Newsweek bureau chief goes, Tokyo loses one of its most thoughtful foreign correspondents. These are merely the latest developments in the gradual marginalization of Japan as a source of news and stories about how things might be done differently in different civilizations; in other words: of Japan as a source of knowledge. TV, the main source of information for the vast majority in most places, lost interest in Japan some years ago. It illustrates the unfortunate fact that our sources of knowledge and the way we go about gathering this knowledge are quite heavily dependent on fashion.
     Not so long ago it was believed that if you wanted to know our contemporary world you could not do without knowledge of Japan, especially if you wanted to do business. Most of that kind of attention reserved for Japan, as reflected by books, articles, and general discussion, has been switched to China.
     This is not difficult to understand. Editors do not find Japan sexy enough anymore, nothing much appears to be happening there, while China presents itself as an inexhaustible reservoir of human-interest related tales, quite aside from the spectacular economic metamorphosis it has undergone. But such editorial decisions remain shortsighted even so, because reporting from Japan can be very sexy indeed, if you know where to look. Especially now questions resonate through the popular media in the United States and Europe as to whether capitalism has a future, whether nationalization of banks is acceptable or inevitable, or whether a new form of capitalism will emerge from the current crisis, you can find things here that are very relevant.
     You want to see alternative capitalism in action? There is no better place to do this than in Japan.
I would be the last person to denigrate the present-day interest in China. There is no question that its importance as a world power will only grow. But it appears to have occurred only to a very few that the cause of knowledge on China is actually served superbly well by a thorough understanding of the way things work in Japan. Not because they have comparable economic systems, but because the wider perspective on things political and things economic that an attempt to figure out Japan forces you to adopt will have more room to accommodate the Chinese puzzles.
     The reason why this is not immediately obvious is related to a problem that goes further back, the problem of an unquestioned faith among editors, supported by their intellectual environment, that whatever needs to be found out about countries like Japan and China is best found out by approaching them with the frames of reference installed in their minds by their own education. The idea that for solving puzzles one first must discover what it is that you actually want to find out – discerning the question rather than the answer, in other words – which is common enough among my physicist friends, has not caught on much among practitioners of political science or mainstream economics.
     Thus, rather than asking pertinent questions prompted by open eyes and open minds from within Japanese experience, most reporting by journalists, as well as academics, has for long consisted of answers to ready-made questions. The journalists have an excuse – usually their editors would not have it any other way. Readers are blissfully unaware of the sometimes titanic battles that may ensue when a reporter wants to get a point across, a point deserving at least 500 words, which his or her editor refuses to understand.
     The marginalization of Japan as a source of knowledge is too bad, especially at this very moment, when the world and in particular Washington could learn a great deal from Japan in connection with the credit crisis. This quite aside from the fact that Japan remains the world’s second largest industrial power.
     What makes Japan so important and interesting as a source of knowledge? It forces anyone who is serious about its complexities to rethink matters long taken for granted in the United States and Europe. The kind of knowledge one can gather from Japan, aside from the kind known as marketing, is conceptual. Again and again, when considering things Japanese, I can get excited about the way in which its ways undermine commonplace beliefs about politics, about social life and, especially, about economic matters.
     How that came to be is an interesting question. I am inclined to think that the combination of Japan’s highly sophisticated culture and the three centuries of isolation in which it developed has much to do with it. In any case, Thailand or Malaysia, or France, or most other countries you care to name, including China, are not intellectually electrifying in that same way. The outcome of Japanese political development under its earlier hothouse conditions provides us with a kind of laboratory in which we can test fundamental assumptions about the world in general.
     This applies very much to assumptions in mainstream economics and business organization. Look at what we may call the crowning assumption of the economics that is taught at universities practically everywhere. According to that assumption all countries have private and public sectors. They are, as it were, endowed by nature to have them, as a pair. At least that is the case according to economics professors, and editors at financial publications, along with practically everyone else writing about economic subjects.
     The story that has become an article of faith for those who have never known any other economics than what is today taught almost everywhere portrays a market existing in the private sector. Wise citizens according to that story make sure that the government stays put in the public sector. Never the twain shall meet for business. That last point was until the current crisis believed, and simultaneously emphatically advocated, by only the purists, while experienced businessmen and politicians have long known that private enterprise and government are in bed with each other much of the time. But these cynics, again until the credit crisis broke, thought that this was their dirty secret, and the purists more or less controlled the open discussion about anything related to the economy.
     The terms private sector and public sector denote abstractions of course, which are tools enabling us to visualize things that cannot be seen or touched. But in commentators’ minds they tend to take on a rather concrete character: things separated by a fence that should be a wall, with bureaucrats and entrepreneurs jumping over it when they are allowed to get away with that. The philosophical term for imagining abstract things as if they were concrete is ‘to reify’, and in my experience students do it all the time, along with many of their professors. In this particular context, private and public sectors are habitually seen as solidly concrete features of countries, just like a capital city and national flag.
     Now, an understanding of the evolution in the ways we do things will lead us to see that these categories – private and public – have a history. They are not natural phenomena. Not alll countries share that history. In Europe they took centuries to develop, slowly emerging from the fierce and often chaotic hierarchic order of feudal life. And in Japan … well, here we come to something that has made Japan very controversial for businessmen, academics, foreign politicians, and especially international trade negotiators.
     The assumption, not only spoken out loud but in times of “trade friction” shouted from the rooftops, has been that Japan ought to and will change. So far it has done nothing of the sort. Not essentially. And that makes Japan a fabulous mirror for discovering questions related to details of what governments elsewhere are doing when they are bailing out banks. Questions about the circumstances under which such things will work or not. Questions about motives and incentive structures. Questions about the political position of large politically powerful corporations. Questions of extralegal rights.
     In a contribution (and pdf) to a conference about the poverty of economic thought that I co-organized almost ten years ago, I tried to lay out how Japan is a wonderful training ground for conceptual jumps. It is an account of a system in which “bailing out” is as it were structural and continuous. A system in which intersecting organizational structures keep order, and the practical consequences of a private-public division are dim. It offers a nutshell history of Japan’s famous “bubble economy”, and what caused it. Along with a great source of Japanese industrial strength that I call “credit ordering”, enabling large corporations to plan for the future without too much regard for market conditions. Along with a lot more on themes worth revisiting in future jottings.