MOF bureaucrat - graduation from the law faculty of the University of Tokyo, 25
years at the MOF, and then a senior position in Japanese politics or banking -
is that of the typical investment banker at Goldman Sachs with his Ivy League
college and Harvard Business School degrees, two decades or so at Goldman, and
then a slot in the upper reaches of American government or finance.
Certainly the power and perks of the two are comparable, although, to be sure,
their earnings diverge widely. The monetary rewards that accrue to MOF
bureaucrats, even in their post-MOF years, are sufficiently modest that these
men can do without the contorted mental gymnastics of their Americans
counterparts
required to square personal holdings with notions of selfless devotion to the
public good.
An even more significant difference: there is no practical means in the
Japanese system by which outside institutions - whether legislative, judicial,
or more broadly political - can impose any kind of formal oversight or
accountability on the MOF.
It is true that the MOF's failure to maintain control of events in the 1990s
led to something of an open season on the ministry, up to and including the
devolution of some of its powers to the new Financial Services Agency (FSA).
But the MOF is still, essentially, unaccountable and at least some analysts
argue that the forming of the FSA - staffed as it is largely by MOF "graduates"
- actually increased the MOF's reach in the Japanese power structure.
There is no such ambiguity at least with respect to the US Treasury, not to
mention members of the White House staff. Geithner and Summers serve at
President Obama's pleasure; both Obama's two immediate predecessors replaced
Treasury secretaries with whom they were unhappy. By contrast, a Japanese prime
minister or finance minister can neither remove nor appoint a MOF
administrative vice minister (jimu jikan). To be sure, the institutional
grounding of the Federal Reserve more closely resembles the Japanese set-up;
although theoretically Congress can instruct the Fed to do as it says, in
practice, the Fed's lack of accountability and freedom from oversight resemble
that of the MOF.
This raises the troubling possibility that despite Obama's manifest skills as a
politician and his seeming commitment to the wider good, that he too is unable
to resist the cognitive and financial capture of Washington by Wall Street -
or, what is worse, does not even see it.
The absence in the administration of any economist of major stature - Joseph
Stiglitz, Paul Krugman, James K Galbraith - who has criticized Wall Street's
overweening influence in today's Washington helps, alas, to support this
conclusion.
Katz writes that "the ideological excess and power of financial-industry
lobbyists" led directly to "the subprime mortgage fiasco of 2007-8" and he is
surely right about that. But Katz is a little too quick to praise the current
administration for its "speed and efficiency" in tackling at least the
financial crisis; indeed when one considers the opaque clouds of verbiage that
cloak the various bank-rescue schemes announced by Geithner, one is reluctantly
led to the conclusion Richard Madsen reaches in his response to Katz's article
to be published in the upcoming edition of Foreign Affairs, "The ad hoc
policymaking and official vacillation displayed by the Bush and Obama
administrations resemble nothing so much as the behavior of Japan's leaders in
the early 1990s."
Even more troubling than Katz's attempt to give the Obama White House a free
pass on its reluctance to bridle Wall Street is his contention that America's
problems are a result of fixable policy errors rather than "intractable
structural problems", while Japan's "malaise was woven into the very fabric of
its political economy."
Few knowledgeable observers would dispute Katz's latter point, or his fingering
of the ultimate root of Japan's troubles in the country's "economic anorexia" -
the secular downtrend in real household income as a percentage of GNP that he
discusses - and the resultant shortfall in demand. "To pump up business
investment," as Katz puts it, the authorities were essentially forced to blow
bubbles. And Katz, who chooses his words with care, is absolutely right to
suggest the 1990s was a crisis of Japan's "political economy" (emphasis
added) with the implication that any permanent escape from that country's
predicament lies beyond narrow, technocratic policy-making.
But when Katz turns his attention to the United States, suddenly the worst
economic downturn since the 1930s is "the result of discrete correctable
mistakes" that can be fixed by "aggressive reform of (American) financial
architecture and CEO compensation system" rather than the "thorough overhaul of
its political and economic institutions and practices" that Japan must face.
Perhaps so. But only if one does not see as "intractable structural problems"
the evisceration of the American manufacturing base, the collapse of stable
middle-class employment, the 50 million-plus people without health insurance,
not to mention the financial capture by private interests of the machinery of
government - what James K. Galbraith calls "the predator state" in his book of
that title.
We are dealing here with the criteria by which economic success is measured.
Japan's power holders have so often infuriated received opinion outside Japan
because it has long been obvious that while they gave lip service to the
conventional criteria - corporate profits, GDP growth - what really mattered to
them was something else entirely.
That "something else " is the maintenance of the discretionary power of Japan's
bureaucratic elites free of outside interference or the threat of domestic
disorder. The overwhelming priority given in the Japanese system to the
preservation of bureaucratic order - that of the large established corporations
and banks as well as the ministries - has, by necessity, dictated the
distortion and suppression of market forces; Japan has certainly paid a price
for that in terms of the conventional criteria.
Even measured by one of their own key criteria - dominance of important
upstream technologies - Japan's bureaucratic elites risk failure because of
their myopia and obsession with maintaining their prerogatives. Andrew de Wit
has noted that Japan is already falling behind Europe and the United States in
the new "green" technologies and he lays the blame directly on the iron
triangle of the heavily bureaucratized major utilities, the Ministry of
Economy, Trade and Industry, and the Keidanren (Federation of Economic
Organizations), the premiere association of Japan's established corporations.
Together, they have blocked any serious move towards investment in sustainable
energy technologies. One could also point to Japan's relative failure earlier
to capitalize on the information-technology revolution spawned by the personal
computer and the Internet as another example of how Japan has lost its touch in
exploiting the commercial possibilities of emerging technologies.
American officials, by contrast, give every appearance of genuinely caring
about the conventional criteria. And it is possible that the stimulus package
and modest financial reforms proposed by the Obama administration will do the
trick within a year or so of returning the US to a successful growth path as
measured by those criteria.
But even if this occurs, and many are not optimistic, it will do little to
solve the "intractable structural problems" noted above. For while Japan's
power holders may treat the conventional criteria as PR for outsiders, their
American counterparts on Wall Street, in the executives suites of major
corporations, in Washington's permanent establishment of lobbyists, contractors
and influence peddlers find the conventional criteria useful because it tells
them whether the economy is generating sufficient cash for them to maintain the
opulent lifestyles to which they have come to feel entitled.
That GDP numbers and corporate profits say little about the economic insecurity
that gnaws at the great majority of Americans or the ongoing and irreversible
destruction of the earth's natural capital on which our civilization depends
does not seem to matter to them as long as they've got theirs.
The US economy is quite obviously run by and for the interests of a relatively
small upper- and upper-middle class and, as long as this is the case, its
beneficiaries will measure its "success" by Wall Street's ability to award
seven-figure bonuses and the extent of corporate cost-cutting, without much
attention to just how and on whose backs those costs are being cut.
Finally, even as subtle and knowledgeable an analyst as Katz persists in
treating the US and Japan's economies as separate phenomena; two unrelated
stories - over here in Japan, a country with "fundamental flaws" - a deficient
political economy that "limited productivity and potential growth"; over there,
in the US, a country with "sound fundamentals" that was led on a destructive
joyride of "discrete, correctible mistakes" by zealots and "powerful financial
lobbyists" but can now be "fixed" by the new team in Washington implementing
"better policies."
But these are not separate stories at all. The "very fabric of (Japan's)
political economy" that Katz decries is a direct legacy of the emasculation of
Japan's political culture that occurred during the occupation and by Japan's
continued status as the "client state" of the US depicted by Gavan McCormack in
his book of that title.
Japan's "economic anorexia" is simply the inevitable result of the trajectory
on which the country was placed in the 1950s - the hoarding of dollars and the
diversion of scarce resources into internationally competitive export
industries [1]. Japan's economic methods are what permitted the United States
to run for two generations now a consumption-driven economy in which the steady
loss of production capacity could be ignored and deficits didn't matter.
And particularly once the rest of Asia began emulating Japan - channeling funds
into export industries and hoarding dollars (that is, putting them into the US
banking system) - a wall of money flooded back into the US that inevitably
found its way into the run-up in asset prices that have now crashed so
disastrously.
True, more-sober regulatory oversight might have prevented the worst of the
financial shenanigans, but there is far more going on here than fixable policy
mistakes. To paraphrase what was written above about Japan, to imagine that
Wall Street would not, finally, do with the floods of cash that were pouring
into the United States what it did, one must presuppose that America's history,
political culture and power relations are something other than what they are.
R Taggart Murphy, a former investment banker, is professor in the MBA
Program in International Business at the University of Tsukuba's Tokyo campus
and an Asia-Pacific Journal coordinator. He is the author of The Weight
of the Yen (Norton, 1996) and, with Akio Mikuni, of Japan's Policy Trap
(Brookings, 2002). He wrote this article for The
Asia-Pacific Journal.
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