Down but not Out

Japan and the World in Crisis

Plainly and simply, Japan is now in recession. The trouble is that facts and opinions about Japan, or about any other country, are seldom plain and never simple. Throughout the West Japan is variously presented, in the mass media and academia alike, as a model of how to organise an economy or how not to; as a rival in trade and technology often in terms that are more influenced by ingrained racism than most commentators ever admit; or as an exotic non-western country where people do weird things for inexplicable reasons. It is rarely presented as what it is, one of a number of advanced capitalist nation-states, combining many features common to all such states with its own distinctive social institutions and cultural traditions just like every other nation-state, since that is partly what nation-states are for.

Our purpose here is to outline an alternative account of contemporary Japan, its crisis, and its implications for other countries. Unlike most commentators, we shall make no claims either to absolute certainty or to an impossible objectivity (anyone who claims to be capable of making "value free" statements about any human phenomenon is either dishonest, or stupid, or both). Nor shall we conceal our commitment to Marxism, or our hostility to the system that has brought Japan to its present condition, and will soon move into crisis in the West as well.

The Myth of Globalisation

One major obstacle to understanding Japan is the concept of "globalisation", that fashionable mixture of slanted statistics, dubious claims from experts, the not exactly objective opinions of the relatively footloose rich and their lackeys, and some nauseating pieties about moving beyond nationalism and embracing the world. The principal claim of the opinion-formers who propagate this myth is that national economies no longer matter, because globalisation has created, or is creating, or will soon create, a "global economy", in which nation-states are subject to the vagaries of markets. There are several reasons for rejecting this claim (even though we are well aware that Marx himself occasionally came close to endorsing an earlier version of it - but no real Marxist ever said that he was infallible).

First, the production and trading of most goods and services - above all, the educational and cultural activities that create and transmit national identities - continue to be conducted inside nation-states, while the recent explosive growth in transnational communications, travel, trade, investment and technology transfers is no more than a continuation of long-established interactions among them. It need not continue at the same pace, or in the same forms, any more than it has in the past. It is still largely restricted to North America, western Europe and Japan, and some of their clients elsewhere; and the gap between these favoured few and the poorest countries goes on widening.

Secondly, the transfer of many activities to regional and worldwide international agencies does not mean that nation-states have ceased to matter. Such agencies, for all that they are denounced by naive leftists and crazed rightists as embryonic organs of world government, cannot function without the funds, the staff, the policy guidance and the co-operation provided (or withheld) by national authorities - as the wholly predictable failure of the Group of Seven's meeting on Japan's problems, in mid-June 1998, amply demonstrated. All such bodies exist by virtue of agreements among states, which, given the international distribution of wealth and power, have a lot less to do with some idealised "global consciousness" than with heartlessly realistic calculations of how to mesh the interests of the West, in this case including Japan, with the interests of their clients and collaborators elsewhere. Those residents of Jakarta who - enraged both by the IMF and by that former paragon of western values, "President" Suharto - trashed and looted buildings associated with western companies in the spring of 1998 displayed a more subtle grasp of the realities of international politics, and their own need for some freelance redistribution, than the journalists who reported on them or the officials who denounced them.

Thirdly, multinational companies, and the criminal networks that are sometimes hard to differentiate from them, have not broken free from nation-states either, much as some of their controllers might like to. Companies depend for their very existence as active entities on specific national legal provisions, accounting standards (such as they are) and enforceable contracts; and criminality too is first defined and then variously punished, ignored or encouraged by nation-states. Paranoid westerners like to stress how "Japanese" the internal cultures of Honda, Toyota or Sony remain, despite their growing presence in other countries, but are McDonald's, BP or BMW inherently more cosmopolitan?

Finally the capacity of financial markets to compel governments to adopt policies that they prefer, so often taken as the hallmark of globalisation, is nothing new in itself. The markets are much larger and more wideranging than at any time in the past, yet their influence still fluctuates as much as it ever did, in line with changes in the always unstable balances of power among different markets, among different governments, and between the two sets of institutions. In any case, however important a particular market may become, and however much influence is thus acquired by investors and speculators at any given point, it is still governments that issue money, guarantee its worth, or fail to, and regulate its mutations, whether into foreign exchange, stocks, bonds, derivatives or project finance. Investors' and speculators' delusions of grandeur, fostered by the economists who serve as their mentors and jesters, reflect, not a permanent loss of powers by nation-states as such, but recent and reversible choices by the leading governments to give up exercising some of those powers. Financial institutions can and do cajole, deceive, blackmail or bribe the governments of relatively weak economies, and their capacity to do so is enhanced by the encouragement that they receive from the governments of relatively strong economies in the interests of securing national advantages. Governments can do much more, from maintaining selective capital controls (as, for example, Chile does), through regulating, taxing, nationalising or closing corporate entities, to jailing or killing speculators. Their general preference for jailing and killing individuals of much lower net worth merely indicates which interests they serve.

Globalisation, then, is the latest variant of the internationalism of elites. Like the young aristocrats who went on Grand Tours of 18th century Europe, its devotees travel from one major city to another, meet others of their own class, and then claim to be experts on what they have not seen. The myth they have constructed is no more than propaganda for neoimperialism, the latest form of relations among the leading capitalist nation-states, and between them and the rest of the world. Accordingly it resembles the "civilising mission" proclaimed by earlier imperialists, or such once-fashionable myths as "westernisation" or "modernisation": it is not enough for those outside the charmed circle to submit, they must also become as much like those inside it as possible. In respect of globalisation the outsiders include the Japanese variety of neo-imperialism, which has not yet been fully absorbed into the complex of institutions and practices that, for the moment, keeps the western neoimperialist states in uneasy alliance with one another.

By an accident of history this myth happens to overlap with the myth of "Americanisation", which is always available for use, in Japan as in Europe or Canada, by those who would like to oppose globalisation for all the wrong reasons. However, campaigns to defend any given national economy against "invasion" invariably let non-American oppressors and exploiters off the hook of their own crimes, and misrepresent their complicity with Washington and Wall Street as if it was always forced upon them. If Britain was still, or Japan ever became, the leading capitalist economy we would be faced with allegations of "Anglicisation" or "Japanisation" instead, but oppression and exploitation would continue unchecked. That is one reason, among many others, why any attempt to oppose any of these myths by invoking the even more pernicious notion of "national character" must be resisted. The real problem is neither Americanisation nor globalisation, it is the system that extrudes these illusions, and many others.

But why should Marxists be concerned about the details of how any group of capitalists chooses to organise its system of exploitation and oppression? The only rational answer is that in the temporary absence of any greater good - specifically, an international mass revolutionary movement - we must prefer the lesser of many evils. Today whatever promotes collectivism, long-termism, the careful husbanding of resources, institutional variety and genuine devotion to learning is everywhere and increasingly under threat from the extreme individualism, the short-termism, the profligate exploitation of resources, the dogmatism about economic and political structures (greater than any real Marxist's ever was), and the anti-rational mysticism that capitalism now induces and requires. In this sense only what happens in Japan matters to anyone who can see the same processes at work in almost every other country. It follows that, wherever we may appear to be praising Japanese capitalism, we are merely pointing out, first, that even by capitalists' own standards, it does some things less badly than comparable economies do; and, secondly that, by chance and temporarily this has made some of its institutions less malign than they would otherwise be for those whose opinions about it matter most, the Japanese working class.

It may be necessary to add that we are not puffing forward just another variation on the conspiracy theories that increasingly replace economic and political analysis in the mass media. Given the state of the world in 1998, and the successive moods of euphoria, panic and complacency that grip its various herds of decision-makers and opinion-formers, to describe their actions as the results of a conspiracy would be to give them far too much credit for insight and foresight.

The Making of Modern Japan

We shall begin at the beginning, with the dismantling and replacing of the older, classically imperialist Japan during the Occupation years (1945-52). During those years, just as in western Europe and North America, a new balance was struck between maximising national economic growth and minimising national social instability. Officials from the United States and the Commonwealth, working with the conservative political elite, bureaucrats and business leaders, secured land reform, the dissolution of the zaibatsu conglomerates and the revision of the Constitution - all proposed by reformist elements within Japan for decades - thus removing parasitic absentee landlords, rentier capitalists and politically active military officers from their positions of power and influence.

Just as crucially the decisive crushing of militant labour movements during the Occupation years set the pattern that would be followed in the Nissan strike of 1953, the coal miners' strike of 1959-60, the protests against the revised Security Treaty with the United States in 1960 and 1970, the student upheavals of 1968-69, the citizens' movements against US aggression in Vietnam and against industrial pollution, and the railway workers' strikes of the 1980s. None of these episodes attracted much attention in the West, while the "production control" movement of 1945-47, when hundreds of thousands of workers ran newspapers, mines, factories and offices for months on end, has been erased from the history books even inside Japan. Yet the fact that postwar Japan, like the United States, never developed the institutions that some western European capitalisms used to incorporate organised labour into the system should be seen, not as evidence of the docility of Japanese (or American) workers, but as a tribute to their fitful, often diverted but still latently powerful militancy.

Postwar Japan was to be directed, then, by a bourgeois meritocracy, freed from the demands of shareholders for instant profits. The consequent predominance of industrial capital over finance capital has been a central feature of the way in which the Japanese ruling class rules. At present, when the stock market capitalisation of the United States is equivalent to at least 118% of its GDP (while those of the EMU 11 represent 57% of theirs), the figure in Japan is only 49%. These numbers point to one reason why the US government and the international economic agencies that it dominates (along with Bill Clinton's poodle, the current British government) want to "liberalise" financial services.

Consider, for example, the much-reported but little-understood case of pension funds. In most western countries pensions are being taken even further away from any democratic control, and the savings of workers are being entrusted wholly rather than partly to the vagaries of speculation and sheer luck. In Japan about 70% of pension assets remain in the relatively safe hands of the state, which operates the most redistributive pension schemes in the world (partly because they do not discriminate against married women who have never had paid employment). These schemes are in surplus, to the tune of nearly 3% of GDP, and on any of a wide range of predictions they are likely to stay in surplus up to 2050 and beyond. As for the pension schemes of Japanese companies, some of them may be seriously underfunded - although the figures are unclear and disputable - but, at least for the moment, they are used to supplement state pensions rather than replace them; they usefully spread the burden of risk; and most of them are amenable to the influence of those whose deferred pay they are managing. The Japanese have had more than enough experience of private sector fraudsters and profiteers to make them wary of claims that switching to personal schemes, or encouraging fund managers to venture further into equities and derivatives, will give them more security or higher incomes in old age.

Further, about two thirds of corporate output in Japan (and Germany) is produced by companies that are not listed on any stock exchange, as compared with less than half in the United States. As a result most Japanese (and German) corporate decision-makers have been less vulnerable to rapid rises and falls in the value of stocks, and less free to enhance their own incomes by means of "financial engineering", mergers or other diversions of funds away from productive activity. Such comparisons do not, of course, indicate any inherent moral superiority on the part of Japanese capitalists, who can be as vicious as any other capitalists. They are, however, strong evidence that the liberalisation of stock markets, and other capital markets, has been neither a necessary nor a sufficient condition for economic growth or social stability within capitalism.

Instead of submitting to finance capital, the decision-makers in Japan's larger corporations were aided by government direction of banks' lending policies as recently as the 1980s. In the nature of such systems, this allowed business leaders to influence policy-making in return, while the government frequently failed to push companies where they did not wish to go, as, for example, when Toyota and Honda rejected the government's plans to "rationalise" the car industry in the 1960s. Managers quickly learned how to co-operate with the state, the providers of credit, and other companies, in ways that have been familiar in other capitalist economies, including the United States. They also learned how to head off any revival of militancy among workers by giving them relatively "generous" material incentives (by previous Japanese standards) and, in most of the larger companies, relative job security.

In the other half of Japan's "dual economy" the small and medium-sized enterprises that have long employed about three quarters of all workers, and produced about two thirds of all output, have benefited from cheap state loans, extensive subcontracting relationships with the large corporations, and their own intimate knowledge of local and regional conditions. Such businesses still account for a higher proportion of GDP in Japan than in any other OECD economy except Italy; they also tend, of course, to offer workers longer hours, lower pay and less advanced working conditions and equipment than most large corporations do. As large corporations have moved up the ladder of increasingly advanced technology they have taken their subcontractors with them, but they also tend to squeeze them in recessions, including the present one, and to harass them in booms. Nowadays, however, the vast majority of small businesses have several customers, and more than 40% are not subcontractors at all.

Alongside the small businesses agricultural and fisheries co-operatives have played important roles in rural communities, at the cost of complicity in political corruption and financial speculation, while the consumer co-operative movement has also helped to compensate for the destruction of traditional institutions of mutual aid, becoming the largest and richest such movement in the world. Such islands of human-scale capitalism and mutualism - which should not be romanticised, any more than their western counterparts should be - have had real social significance in the face of Japan's rapid transformation into one of the most heavily urbanised societies in the world. As in other countries, this process has been accompanied by massive transfers of capital, information flows and decision-making institutions away from individuals and localities, to regional and national centres of wealth and power. This in turn has helped to reinforce the universal tendency of capitalism to increasing abstractedness from the lived reality of most human beings. Capitalists today can tolerate levels of mysticism in culture and brutalism in politics that the best among their own forebears would once have tried to combat, if only because they could not seal themselves off from the everyday so effectively. The murderous antics of the Aum Shinrikyo cult, uncovered in 1995, were only the most disturbing case of "the return of the repressed" that capitalist crises always engender; and the current recession may yet reveal even worse cases.

For the moment, however, Japan remains the least violent, the least atomised and the most egalitarian large capitalist country in the world, partly because its ruling class still have some grasp of the interconnections among these three conditions - indicating, again, their commitment to enlightened self-interest, rather than inherent virtue. In 1997 the purchasing power of the (granted, notional) average Japanese was equivalent to about 83% of the US figure (up from 65% in 1975), as compared to about 70% in the EU 15 (up from 68% 22 years before). The average Japanese is thus considerably better off than in the mid-1970s, even as the recession bites, and better off than the average citizen of any other country except Switzerland - and neither Switzerland nor any other western country now has a tax system as progressive as Japan's still is.

Japan's (strictly relative) egalitarianism is itself a significant strength of the system, to the extent that it encourages workers to believe that their interests coincide with those of their exploiters, and therefore that all will make sacrifices together in the "national interest". Thus, for example, presidents of Japanese banks and corporations do not resign their posts, after their errors and crimes have been revealed, because they have better consciences than their western counterparts. They usually do it because it sets what their colleagues see as a good example for the staff who will be asked to depart soon afterwards.

Not that many such presidents have had to do this until very recently In Japan the distribution of income and wealth is closely linked with the distribution of employment Its welfare state has not been as large as in western Europe, not because the rich are less "compassionate" but because full employment has been maintained for decades. Even now Japan's official unemployment rate, at 4.30/o, is lower than in all but three other OECD countries. Even assuming, as many commentators do, that the true figure for Japan is about twice as great - and why should we not be at least as sceptical about the others? - that would still be a burden that the country can bear without major strains, especially if the unemployed prove to be, regrettably as deferential as their counterparts in the West have mostly been. More to the point, those who subscribe to the neo-liberal consensus in the West share responsibility for its effects and therefore have no standing to advise Japan on employment policy - which does not stop them trying, of course.

Such advocates of further job losses (for others, never for themselves) like to prattle about Japan's burden of "overstaffing" and "disguised unemployment". This actually tells us less about Japan than about the West, particularly the United States and Britain. Two decades of "downsizing" and "deregulation" - ugly, stupid words for ugly stupid processes - have made the gaps between rich and poor individuals, and between favoured and depressed regions, even wider, lowered standards of health and safety, and destroyed or damaged public services. They have also undermined the minimum social solidarity essential to the long-term functioning of capitalism itself. This at least has some potential for good, if it prompts more people to question just what solidarity with their exploiters is worth. In the meantime the Japanese should be praised, not blamed, for preferring to live in a society with low levels of violent crime and high levels of genuine (not politically faked) social inclusion, even at the cost of a degree of public conformism. that more and more people in the West would no longer know how to tolerate, let alone (as most Japanese do) disregard and compensate for in their private lives. Indeed, one of the worst outcomes of the present crisis may well be that Japanese corporations and public sector agencies alike seize the opportunity to attack "overstaffing", thus making Japan all too much like the contemporary West.

Some neo-liberals, notably those who used to be "left-wing" when radicalism was chic, also like to highlight the elements of sexism and racism in the Japanese employment system, as if the West, which invented the modern forms of both these ideologies and exported them around the globe, is now a paradise of equal opportunities for all (and not just for bandwaggon-jumpers like themselves). Yet even Japanese capitalists have begun to realise that sexism and racism are obstacles to maximising exploitation. While a great deal is said in the West about the ageing of the Japanese population, little or no attention is paid to the rising numbers of women entering the workforce, more than compensating for the decline in the numbers of school-leavers and new graduates. Just as in the West, this trend is doing more to promote gender equality than any number of articles and speeches by middle-class feminists. The ageing of the population may also put pressure on the Japanese government to relax its immigration controls, and allow more foreign workers in to join the 1.4 million "registered aliens" and the 500,000 or more illegal workers already there. Sadly, given the general tendency of all capitalist states to respond to crises by using racism to prop up nationalism, Japan is more likely to follow the example already set by the European Union, and resort to vilifying and expelling some of its poorest and most defenceless residents.

The use of full employment rather than state benefits to promote what capitalists imagine is "welfare" is one aspect of the complex relationship between "private" and "public" sectors in Japan, where the making of the postwar economy owed much to other initiatives led by the government but sustained by the leading corporations. These have included the maintenance of gradually loosened (and now abandoned) controls on foreign exchange and foreign trade; the expansion of infrastructure through public funding and regulation of largely private construction and transport firms; and the collaborative extension of indicative planning to new industries based on technologies transferred from the West. Nationalisation was never extensive in Japan, and the two largest state corporations, Japan National Railways and Nippon Telegraph and Telephone, have been partially privatised in recent years.

However, these are merely legal niceties, of the kind that appeal to left-liberals, including so-called "socialists", who imagine that changing laws can automatically change society, and ignore the many ways in which laws are selectively enforced in the interests of the powerful. In every capitalist country the key to the public/private relationship lies, not in the overt allocation of assets, but in the networks of influence and assistance that bind the leading agencies in both sectors together, from law courts, departmental advisory councils and business lobbies, to universities, think tanks and high-status leisure activities. Despite the use of the term "government" to cover everything from national finance ministries to elected village councils, or the false but widely accepted claim that such lobbies for big business as Keidanren in Japan, or the CBI in Britain, represent the whole of the private sector, the really decisive elements in both sectors consist of remote, self-serving, bureaucratic institutions easily swayed by herd instincts. Both sets of dominant institutions exploit and oppress the corporate bodies and individuals lower down their respective hierarchies, and more often in uneasy alliance with each other than in opposition. There are only two significant differences between them. First, given the nature and functions of the public sector, its decision-makers are compelled, rather than just well-advised, to have some regard for the general interests of the capitalist order, and in liberal democracies these include satisfying the wishes of the electorate, or at least not completely disregarding them. Secondly within capitalism the public sector is the most efficient mechanism for delivering certain services, as well as the least unjust. (It is revealing that those economists for whom efficiency, narrowly defined, is the only criterion for judging any activity seldom mention the British National Health Service, still the most efficient system of health care in the world - by their measures, not ours - despite all attempts to wreck it in the name of "reform".) Both of these public sector functions are now being undermined by such "globalising" processes as deregulation and liberalisation.

In Japan public/private networks have done much to promote ideas that have been labelled "uniquely Japanese", as if all Japanese businesses are not only the same as each other but also totally different from non-Japanese businesses. In fact the "production system", often represented by Toyota's lust in time" strategy for inventory control, has not extended much beyond large-scale manufacturing even now. Again, "lifetime employment" never applied to more than about 3O% of the workforce, and was never as rigid, or as generous, as most western commentators claim; and only one worker in every five stays with one firm through to retirement The keiretsu groups which succeeded the zaibatsu conglomerates are, similarly not as single-minded or as dominant as they are conventionally made out to be; Sony Bridgestone, Nippon Steel, Matsushita, Hitachi and many other firms never belonged to keiretsu anyway; and few Japanese have ever heard a company song or done company exercises. Of course the networks of crossholdings that have kept the keiretsu together have helped companies to survive difficult periods, while increasing the temptations to complacency and corruption in good times. All this is evidence, not for the grand conspiracy against the West that some commentators have claimed to discern, but for the old familiar habits of collusion and mutual favours that Adam Smith was familiar with and that continue throughout the world today regardless of all the pseudo-Darwinian rhetoric about competition. The trend in contemporary Japan away from such diverse networks towards the recreation of holding companies in specific industries represents a change in tactics, not a new strategy.

The corruption that also binds the public and private sectors together is certainly not uniquely Japanese. Mutually beneficial deals, protected by laws about commercial confidentiality and national security - which, tellingly are usually rigorously enforced, unlike, for example, laws about workers' health and safety - are indispensable to the functioning of capitalism. The fact that Japan's private sector has sometimes had to bribe officials or politicians to get certain things done is at least an indication that, unlike in most western countries. they will not simply do the private sector's bidding free of charge.

Nevertheless, and contrary to much myth-making about how capitalism functions, all these forms of collaboration are fully compatible with direct competition among companies or groups, across a broad range of markets in goods and services. Of course markets can be fixed: it is in the nature of capitalism for competition to become oligopolistic and then give way to monopoly. This is one powerful reason to be very suspicious of those who are paid by corporate giants to advocate "free markets". Still, given that Japan has, for example, nine fiercely competitive car makers, 40 machine tool makers, and comparatively large numbers of entrepreneurial small businesses, it is clear that there is at least as high a degree of market competition in Japan as in any other OECD country. Allowing more foreign competitors to enter Japanese markets, whether through joint ventures such as those now being formed in financial services or through other means, will have a major impact on specific market players, but it will not change the rules of the game.

In addition, most Japanese companies have made a commitment to maximising market share, not, as some outstandingly slow-witted economists suppose, in disregard of the drive to maximise profits, but as a way of sustaining the maximising of profits over longer periods and from wider ranges of activity than short-termists can imagine. They are thereby compelled to compete not only on price, but also on the quality of their products and services, and thus to attend to the satisfaction of their customers. In this respect they come closer to fulfilling the bourgeois idealist's view of what markets are for than most companies in the West do.

The emphasis on market share, and hence on the longer term, may in turn have reinforced the pervasive commitment to high levels of investment, partly in response to long-established tax incentives, partly in order to compensate for the age-old scarcity of natural resources, but partly also to keep abreast, and often ahead, of new developments in technology in other countries. Investment has been running at nearly 29% of GDP, about twice as high as in the United States and one third again as high as in the EMU 11. Similar motives still help to maintain Japan's notoriously high savings rate, even as another powerful motive for thrift - the postwar generation's personal experience of dire poverty - becomes less and less relevant The result is that Japanese savings represent in aggregate about 40% of the world's total. The recession would have to go on a great deal longer before Japan became anything like as complacently heedless of the long-term future as its main rivals already are.

The obvious question is just how much of these savings go towards investments that are likely to be either financially profitable or, what is far more important, socially beneficial. As with so many other questions that appear to be about Japan in particular, this is really a question - and a fundamental one - about capitalist economies in general. The only worthwhile answers are qualitative, not quantitative, since it is not true that "markets" determine investment decisions. Contrary to the prevailing system of illusions, it is investors' expectations, whether reasonable or completely insane, about what conditions might be like at some future point, that largely determine their decisions, and hence help to shape future markets. (It was John Maynard Keynes, not Karl Marx, who pointed that out.) Consider some cases. Is the Channel Tunnel worth more than the Akashi Straits Bridge, and if so, worth more to whom? Is capital better invested in golf courses and opera houses, or in hospitals and schools? Is it better invested even in loss-making ventures, such as coal mines, as in Japan up to the 1960, or in mildly profitable but potentially far more dangerous ventures, such as nuclear reactors, as in Japan since the 1950s (albeit with fewer and smaller accidents than anywhere else)? In practice such choices are usually made, in Japan as elsewhere, by people whose overriding concern for potential (guesstimated) financial gain or loss, to the exclusion of all other considerations, makes them much less competent to make them than even a random sample of the general population would be. The result is that most people in the liberal democracies have about as much impact on the major investment decisions that shape their lives as the people of Chernobyl or Bhopal had on the relatively small ones that ruined or ended theirs.

However, in Japan about one third of all loans are made by public sector institutions, which together account for 37% of domestic financial assets. They have long been at least as profitable and efficient as their private counterparts, and are now much less burdened with "bad" loans. In addition, public sector investment is still running at levels three to four times higher than in comparable economies. This partly reflects the lower level of infrastructure from which postwar Japan started, and the higher costs of construction, but it also has a significant redistributive element: the lower the per-capita income of a Japanese prefecture, the higher the per-capita public investment Finally, as outlined above, the political consensus in favour of full employment was effective for decades and may well become so again. In short, despite all the corruption and collusion that characterises public sector activities, there is at least a slightly greater chance that investment in Japan will have effects that correspond a little more closely with the preferences and interests of the general population.

High levels of investment also sustain high levels of education and research. It is only 40 years since 62% of those entering the workforce, and a much higher proportion of those already in it, had left school at 15 or earlier. Today nearly 96% of young Japanese remain in school up to the age of 18, while about 40% go on to four-year universities or two-year colleges. None of this would mean very much if their education was wholly inadequate to their needs, or inappropriate to their abilities, or aimed more at keeping them off the streets than at preparing them for adulthood and citizenship (however narrowly defined). The key strength of Japanese education is not that it processes such large numbers but that it instills a very high average level of education, instead of over-concentrating resources on an elite and neglecting the majority, as in most western countries. The system has its weaknesses - the curriculum is extremely rigid, and notoriously open to manipulation by the government, while entry to Tokyo University appears to be becoming an inherited privilege in some families, like entry to Oxford or Harvard - but it is a capitalist institution after all.

Advanced vocational training, however, is still largely in the hands of companies, as it ought to be, since general academic preparation for employment is of dubious value and it is the companies that profit most from the skills that the trainees acquire. This helps to explain why most Japanese managers remain relatively open to the idea - also common in the West once upon a time - that, for example, engineers know more about engineering and chemists know more about chemistry than all the self-appointed consultants and advisers in the world, and should therefore be encouraged to press ahead with research and development in laboratories, run by companies alone or in partnerships with the government, that far outspend and outstrip university research efforts.

As a direct consequence Japan leads the world in the proportion of GDP spent on civilian research and development, closely followed by Germany, which has shared Japan's good fortune in avoiding massive commitments to economically wasteful military research; and about half of all the current patents in the world are in Japanese hands. The difference that this makes is not simply quantitative: the drive towards ever higher levels of automation and advanced technology - typified by Japan's 400,000 or more robots, about 60% of all the robots in use on the planet - affects the quality of life, not just the standard of living. No doubt the results would alarm those nostalgic elitists who equate ignorance of science with concern for the environment, as if anything but the rational application of more advanced science will ever solve the problems that the haphazard application of less advanced science has caused. Given their existing affluence, they have less reason than most workers do to welcome the improvements in living conditions, convenience and choice that such advances offer, even in the distorted forms made available under capitalism.

Crises and Conflicts

Even the most enlightened ruling class remains a ruling class. Its general interests are not always clear to the state machine that is designed to serve them, or to its own members, while the specific interests of its various fractions have more or less impact on the course of events as their relative power ebbs and flows. Occasionally, as in Japan up to the late 1980s and several other OECD economies up to the late 1970s, ruling classes find themselves facing a rare combination of pressures from below, challenges from rival ruling classes, and conditions that favour growth and prosperity. They then make strictly temporary adjustments that improve the lives of most of their subjects as well as their own, while still excluding the mass of the population from any genuine participation in major decisions. Disasters inevitably follow when - as right now in Japan, the rest of East Asia and the West - the greed and incompetence of private sector decision-makers combine with the arrogance and incompetence of their public sector clones, and the fundamental destructiveness and irrationality of capitalism are let loose once again.

The Japanese ruling class managed to postpone such a collapse for more than 40 years, by securing the optimum balance of explosive economic development and enduring social stability. Of course, the optimum for some - the government, the big business elite, most skilled workers - was not the optimum for others - most women, most workers in agriculture and "sunset" industries, victims of industrial pollution. In practice the prioritising of growth and homogeneity over social justice and quality of life has dictated which forms of cooperation are strengthened and which forms of conflict are suppressed. In that sense Japan has long been exactly like every other capitalist economy, including the state capitalist economies of the former Soviet bloc.

It was in the 1960s and 1970s, as the economy moved into the era of very high economic growth, that some of the disadvantages of the prevailing ideology became evident even to those who were trained and paid to deny them. Japan promptly acquired what were then the strictest pollution controls in the world, along with universal health insurance and the state pension schemes referred to above, as well as high-speed rail services, regional and urban development policies, and other features of advanced civilisation as it was understood in the days before Reaganomics and Thatcherism, and their less courageous, less consistent but equally vicious reformulations by Clinton and Blair. As in the West, all of these social provisions have been infected by political manipulation, managerial megalomania and the other chronic diseases of bureaucratised institutions, "public" or "private". Unlike in most western countries, they have not yet been subjected to wholesale denigration or dismantling.

Since those far-off days when millions of people imagined that capitalism might be compatible with securing an extensive measure of social justice, the Japanese economy has been blown or steered off course three times. In the early 1970s President Nixon destroyed the Bretton Woods system of fixed exchange rates, and the oil-exporting countries sharply increased the price of crude. A second "oil shock" followed the Iranian revolution in 1979. Clearly both of these earlier crises originated in events overseas, entirely beyond the control of anyone in Japan, but they coincided with, and helped to accelerate, a recomposition of the Japanese economy and hence of the ruling class and the working class alike.

Japanese decision-makers could no longer rely on technology transfers from the West and workers with low expectations about workplaces, living conditions and social services. The inconsistency (or hypocrisy) of Japanese trade policy - as between controlling imports and launching export drives - had come to be matched and exceeded by inconsistency (or hypocrisy) on the part of the West, which complained of Japanese "invasions" while demanding the right to enter Japan's domestic markets. Newly industrialising countries elsewhere in East Asia were challenging Japan's supremacy in shipbuilding, chemicals and steel, the energy-intensive industries which were most badly affected by the oil shocks and most dependent on state support. As more and more resources were switched into vehicle-making and other assembly industries, and later into knowledge-intensive industries too, new and old fractions of the ruling class started squabbling. Just as in the West at the same time, more and more business leaders began to reinterpret what the state had done for them and the capitalist order in general as "interference", and to press for deregulation and liberalisation in energy, agriculture, transport, construction, telecommunications, retailing, financial services and beyond. As in the West, they have since got most of the changes they demanded, yet what is revealingly called the "real economy" has not been magically transformed; and, unlike in many parts of the West, it has not been possible to conceal this embarrassing fact behind a coincidental upturn in the business cycle.

Most of the Japanese ruling class have at least continued to agree on one major poIicy despite complaints from domestic and US oil and electricity interests. Having been forcibly reminded of their vulnerability, Japanese decision-makers have ensured that the proportion of GDP spent on energy is lower than in any OECD country except Switzerland, ltaly Austria and Denmark. Enlightened self-interest has so far helped them to avoid the economic and environmental profligacy that follows when energy prices are determined by "the market" - which means, as usual, manipulation by gigantic monopolies, despite all the hype about the rise of smaller "independent" producers.

However, the third major recession, in the late 1980s, showed that they no longer agreed on much else. The misnamed "bubble economy" that led up to it was a carnival of speculation on shares and real estate, in which private sector financial institutions, seeking to break out of their subordinate position, emulated their western counterparts; the Bank of Japan encouraged them by keeping interest rates low; and the Ministry of Finance responded to renewed criticisms from Washington and Wall Street by liberalising trading in dangerously unfamiliar derivatives, and deregulating capital inflows and outflows alike. The present, fourth major recession is a continuation of the hangover, made worse by the crisis that started in Southeast Asia in 1997, once again beyond Japan's control. In a process familiar throughout the history of capitalism, economic hardship is now being forced upon millions of people as the institutions that engineered the illusory boom, finding themselves unable to recover their bad loans - estimated in January 1998 at ¥76.71 trillion - squeeze credit for all their customers, "good" and "bad" alike. The collapse in domestic demand, reflecting the loss of confidence in the system among its ultimate victims, has been the inevitable consequence, with predictable effects on the real economy.

Incidentally the common claim that changes in taxation somehow caused the recession is a red herring. In recent years Japanese governments have tended to cut direct taxes, and increase indirect taxes, following the lead of the West in chipping away at the principle of redistribution; and, in particular, the increase in sales tax in 1997 may have made a bad situation worse. Yet the recession was coming anyway and, given that the proportion of GNP taken by the public sector has remained fairly constant, at about 38%, it cannot explain the collapse in demand. It is just possible that this proportion might rise a little closer to the OECD average of 50%, if the government became sufficiently anxious about the present rapid rise in support for the Communist Party to resort to such populist measures as increasing taxes on the rich; but it seems unlikely.

In any case, the conditions that prevailed during the era of rapid growth, and allowed investment and savings to run at phenomenally high levels without undermining demand, cannot now be recreated. Lower profits and higher costs inside Japan have driven sections of its ruling class to embrace international investment, trade and aid as solutions to their problems, and hence to seize upon the myth of "globalisation" with much the same feverishness as their western counterparts.

Already in the 1980s many companies, large and small, had made major investments in production overseas, in search of greater profits, and at the expense of underpaid workers and unprotected natural environments, above all in Southeast Asia, which accounted for more than 40% of all Japanese direct investment overseas by 1994. This contrasts strikingly with western investment in the region, which has chiefly been in stocks. The Japanese (and western) companies that make real, usable things there are likely to weather the current storms in better shape than the western (and Japanese) banks and portfolio investors that have poured in more recently hoping to profit from the brief "miracle" without contributing to it. The large numbers of jobs, the expanding infrastructure and the rising expectations that direct investment has brought to Southeast Asia should not be underestimated. Romantics may prefer to see peasants tilling fields, but the peoples of the region are at last moving on into industrialisation. In this familiar story of a more developed country inadvertently helping to accelerate the progress of its own future rivals, "globalisation" is just a rhetorical flourish.

Similarly, international trade continues to be the fierce contest among rival nations and blocs that it always was, three years after the launch of the World Trade Organisation was supposed to have inaugurated a new era. Those Japanese car-makers that discovered, early in 1998, how Canada still discriminates in favour of their US rivals are not the only non-western economic actors to have learned what the new era is really all about. Food producers in less developed countries, manufacturers on the outside of the various regional trading blocs and corporations unable to bribe or bully their way into cosy relationships with governments are all being taught the same lesson. In these circumstances trading patterns are as volatile as ever - though not as volatile as the turmoil in the currency markets may seem to suggest. Indeed, it is a symptom of the intellectual poverty of bourgeois economics that so much emphasis is placed on daily movements in exchange rates, which bear no direct relation to other elements in decisions about imports and exports, such as product quality, delivery times, health and safety standards, environmental considerations, or consumers' tastes. It is the chronic instability of exchange rates that damages confidence and derails investment decisions, not the specific day-to-day movements, and in any case many commodities, from oil to aircraft, are traded entirely in US dollars, the reserve currency of neo-imperialism. Given that only about 9.4% of Japan's GDP is exported, there is room for a lot more to be sold overseas a lot more cheaply - and for Japanese consumers to turn from temporarily more expensive imports to temporarily cheaper domestic products - if that seems to Japanese decision-makers to be the best way out of the recession, and if other ruling classes suddenly stop whining about such "non-tariff barriers" as Japanese dockworkers having weekends off work, and start cutting their tariffs on manufactures down to the level that Japan's have already reached. (Dream on, globalisers, dream on.)

Finally, Japan has also become the world's leading source of development aid for numerous poorer countries. This is not, of course, because Japanese people are naturally more caring and sharing than others. It is partly a statistical mirage, reflecting the long-term decline in aid from western countries. Principally, however, Japanese aid programmes reflect a realisation that linking non-military trade to aid or investment, as the case may be, is cheaper, easier and less dangerous than linking it to that essential feature of neo-imperialism, the arms trade, which Japanese decision-makers are generally quite pleased to be largely excluded from.

What has been genuinely new in the mid-1990s is not any increasing integration of Japan into an imaginary global economy, but its elevation, at least in some quarters - and we shall see how many more in the coming months - to the roles of scapegoat, ogre and/or alien that used to be assigned to the Soviet bloc, until it had its multiple heart attacks and was dragged off stage. The fact that, over the past 10 years or so, China, of all countries, has been recostumed as the world's next major star speaks volumes for the real meaning of the dominant ideology in the West Bourgeois idealists, if there are any might be expected to favour a liberal democracy, committed (for the sake of its own safety) to greater open trade and peaceful resolution of disputes, over a murderous Stalinist dictatorship. However, idealists do not make or influence policy. While China opens its doors to western and, of course, Japanese companies desperate for extremely cheap labour and minimal regulation, the Japanese government, less gullible than Bill Clinton, understandably but alarmingly increases military spending, just in case regional rivalries turn very nasty indeed; and the real value that capitalists place on human rights and democracy is exposed yet again.

All of this was confirmed in June 1998, even before Bill, Hillary and their companions set off to pay court to "President" Jiang, when the US authorities intervened in support of the yen in order to help China (and, indirectly Southeast Asia and Hong Kong), not Japan; and it all tends to confirm the suspicion that neither the United States, nor any other western power, has any intention of helping Japan at all. Fifty years on, the one ruling class in Asia that has done most to ingratiate itself with the powers that be in western Europe and North America is to be left to sort out its problems alone. Who ever said that capitalism was fair? Recessions can offer some small compensations to their victims. The downfall of assorted crooks and their passage through the bankruptcy courts, already crowded with the naive and the gullible, may provide both entertainment and instruction. More importantly, while the increasingly obvious problems of the dominant ideology offer some scope for people to discover, or rediscover, alternatives to it, recessions can also bring price discounts in stores, cheaper housing, and some relaxation of the enormous stress that boom conditions impose on so many workers. It is precisely for these reasons, as well as for the sake of preserving their own power and wealth, that Japanese decision-makers are desperate to find ways out of the recession. The government's various measures to stimulate output and demand may have some effect; the planned rescue of the banks and securities houses from the consequences of their own greed and stupidity may eventually be successful too. The obvious temptation for the decision-makers is to fall into line with their counterparts in the West, and press ahead with all too familiar programmes of deregulation, liberalisation and privatisation. There can be little doubt that they will succumb to this temptation, since the alternative would be to put social justice ahead of their own interests - and what ruling class has ever done that?

Welcome to the 21st Century

The measures that are supposed to achieve or accelerate globalisation have reversed most of the social advances made in the developed countries since 1945, given greater freedom to speculators, fraudsters and profiteers all over the world, and - paradoxically but predictably - made competition among nation-states even more brutal and even more desperate. The ruling classes in almost all the "emerging markets", from Brazil to Hungary to Indonesia, are either engaged in a contest to see which can do most to impress their western patrons, regardless of the costs to their own subjects, or are being blackmailed into implementing "reforms" by the threat that IMF and World Bank funds will be withdrawn if they do not. Meanwhile, in each neo-imperialist country the ruling class is being panicked into making further attacks on the institutions that once made their own variant of capitalism stable and prosperous by the fear that otherwise their "competitiveness" will decline. Japan's version of the postwar economic order was distinctive, in all the various ways discussed above: so is its crisis, chiefly because its decision-makers are only now beginning to contemplate the final dismantling of that order, 20 years or more after the process began in Britain, the United States and elsewhere. The crises that they face will be different, to the extent that they will expose the altogether less coherent social fabric of deregulated economies to the social pressures engendered by market collapse. While US households now hold 28% of their assets, directly or indirectly in the form of shares (and UK households about ~ in Japan (and Germany) shares represent only 6% of household wealth. If individuals in Japan are suffering right now because of the fall in its stock markets, what will happen in the United States and Britain when the business cycle moves against theirs?

This brings us to the heart of the matter. If globalisation is so desirable, why not legitimise it with the support of the people that it will affect? If the growing power of the global markets is a natural and irresistible process, why do so many specific changes have to be made in laws and practices in order td cater to them? People struggling out from under the collapse of state capitalisms in central and eastern Europe have some excuse for believing what western experts tell them, but anyone who has ever been struck by the coincidence between the triumph of "market" versions of capitalism and the degeneration of political debate has none. The worldwide acceptance of the myth of globalisation, by ruling classes if not by their subjects, proves once again that capitalism has no necessary link with democracy, or with peaceful relations between and within states. Japan is one of only 14 countries - out of 193 that over the past 46 years (since the Occupation ended) have not been subjected to colonial or military rule, have not been disrupted by sustained armed internal strife and have not engaged in aggression against other states, but instead have managed for all or most of these years to combine liberal democracy, economic growth and relatively narrow gaps between rich and poor. Yet, as in the other 13, its voters have been presented with strictly limited choices, between one set of politicians advocating faster or deeper changes and another set calling for minor delays or modifications. It is true (though it pains us to admit it) that Japanese politicians have succeeded, up till now, in creating and maintaining a social order acceptable to most of the country's citizens - but they surely deserve better. It is up to them, not economists, officials or any other alleged experts, to decide whether and how to replace what they are now stuck with. In the course of doing so they might even learn - from bitter experience, not from textbooks - what the prophets of globalisation do not want them or anyone else to know: that, "public" or "private", state-controlled, collaboratively planned, or allegedly market-driven, capitalism, which has seemed so beneficial but is now destroying more and more of their lives and hopes, is their real enemy.

"All that is solid melts into air..."

P. Traven

London, August 1998