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The Great Japanese Misunderstanding

A less well-known but more portentous case is that of a small company called Fusion Systems. Through the last two decades, Fusion has done exactly what management experts say American business should do to save the nation’s economy. Its technologists came up with a genuine breakthrough: a new kind of ultraviolet lamp; which can produce unusually intense, direct light. The Fusion light was enormously attractive to the printing industry, which could use it to dry ink on plastic labels instantly, and to semiconductor manufacturers. Fusion sold successfully around the world, including in Japan, where Mitsubishi Electric bought one of its lamps in 1977.

Soon thereafter, Mitsubishi began filing patents for an ultraviolet lamp of its own that bore a marked similarity to the Fusion model. By the mid-1980s it had more than 250 related patents registered with the Japanese patent office. Patent law in Japan works from entirely different premises from America’s, rewarding those who file a claim first (rather than those who can show they came up with the innovation first), and allowing numerous separate patents for minor variations. The American patent system might grant a patent for a bicycle gear shift; the Japanese system could allow patents for a red bicycle with that gear shift, a bicycle with lights and that gear shift, and so on. Mitsubishi did not challenge or copy Fusion’s central patent, but it filed the equivalent of “bicycle-with-lights” patents—patents for the Fusion system with a new casing, the Fusion system with some new attachments, etc. “These applications may cover what are, taken individually, relatively insignificant aspects of the new invention,” Maureen Smith, a Commerce Department official, said about the Japanese patent approach. “However, if enough of these ‘nuisance’ patents are filed, the inventor of the original product may discover that he is unable to produce his [own] product if these [nuisance] patents are granted.”

This was exactly the prospect Fusion faced. Mitsubishi raised the threat of a patent-infringement fight, but then said that it would be so much nicer, so much more in keeping with the Japanese tradition of sharing, to avoid such unpleasantness through a “cross-licensing” agreement. Each side could use the other’s technology, with no petty feuding over proprietary rights. At that point what had been a competition over patents would become a straight contest in manufacturing efficiency between Mitsubishi and Fusion, and Mitsubishi would undoubtedly win.

Fusion wanted its case to be seen as a policy question—as a symbol of what happened when two very different patent systems prevailed in the world’s two most advanced economies. Mitsubishi was just as eager that this remain a strictly commercial dispute, which the two belligerents (one of whom was roughly one thousand times larger than the other) could work out. To promote this message, it hired James Lake, who was press adviser to Ronald Reagan’s presidential campaign in 1984 and George Bush’s in 1988. Through a complicated process that Choate describes, Mitsubishi won the policy battle—the US government stayed out of the Fusion dispute. (Fusion still refuses to grant a cross license to Mitsubishi.) Choate concludes this episode with a quote from Donald Spero, Fusion’s president: “Mitsubishi and its lobbyists are just sitting there laughing at us. If they can continue to pick off the little guys like me, you can just wave goodbye to America’s creative power.”

Choate’s account of the Fusion case, and of several other episodes of which I have first-hand knowledge, rings true. But even the most vivid lobbying tales he tells strangely suggest the limited importance of Japan’s lobbying efforts. Yes, lobbyists turned the trucks into “cars.” But it was the nature of Japan’s industrial strategy that made its companies so formidable when producing vehicles of any kind. Yes, lobbyists apparently scared the US government away from Fusion’s side, but deeper trends, which had nothing to do with lobbying, concentrated such wealth and engineering adaptability in Mitsubishi’s hands. If Japanese companies fired every lobbyist—as they would if they were smart, either to avoid recriminations like those that Choate’s book may provoke or as a good-will gesture to improve ethics in American government—the economic relations between the two countries would barely change at all. Those relations depend on the deeper differences between the American and Japanese economic systems.

In the last third of his book, Choate describes what is probably the most consequential form of Japanese influence: the effort to shape not US government policy but the general American view of the differences between the two nations’ systems, and of the meaning of Japan’s economic strength. In particular, Choate says, money is given to academics, journalists, politicians, and think-tank members who promote the idea that Japan’s economy isn’t really much different from America’s, and who allege that to say it is different is to be racist, intolerant, and destructive.

This argument may sound peculiar to those who have not been engrossed in it. On one side is a group saying, in effect, that economic imbalances between Japan and America are temporary, and if they are not they are mainly the result of America’s internal failures. In any case the imbalances don’t really matter, since they merely reflect the deepening interdependence between the two countries. The other side says that the imbalances are chronic, not temporary, because the two systems have different goals, and that instead of “interdependence” what we’re starting to see is a one-way shift in dependence, parallel to the process in which Britain became deeply dependent on the United States in the course of the last seventy years.

Reasonable people can disagree on these questions. Choate’s point is that huge sums of Japanese money go to support those in the first camp, since the practical result of their view is to keep American trade policy toward Japan more or less unchanged.

William Holstein provides a number of similar illustrations in his book, The Japanese Power Game. For instance, he notes that the economist C. Fred Bergsten, an intelligent and honorable man, argued strenuously in the mid-1980s that the overvalued US dollar was killing American exports, and that as soon as the yen rose and the dollar fell, the trade problems between the US and Japan would melt away. The years have not been kind to most of Bergsten’s projections, but Holstein says that German and, increasingly, Japanese organizations have shown greater interest in funding the economic research organization he directs. “There is no hint” that Bergsten and others have “changed their public policy pronouncements simply because they either profit from or obtain funding from Japanese-related sources,” Holstein says.

The point, rather, is that Japan has advanced their weight and their prestige in the marketplace of ideas at least in part because they sing the right tune, and this has advanced Japan’s agenda as well. Bergsten, in particular, has been valuable for the Japanese…. It was his argument that the dollar-yen relationship was the key problem in redressing the trade imbalance that helped prepare the intellectual groundwork for the dramatic strengthening of the yen. His assumption was that Japan would respond to this kind of market force. But it did not, and does not. Without identifying his Japanese funding, he also publishes studies that support the view that foreign investment in general and Japanese investment specifically do not require any new policy responses.

In these American discussions of Japan, something is possible that would be very unlikely in arguments about policies toward Germany, or Mexico, or even about education or medical care within the United States. Because the barriers of language, distance, cost, and experience are so great, most American participants in this debate simply posit what Japan must be like, in order to conform to Western theories and expectations. Americans and Germans stopped working long hours when they became rich; therefore, the same change must be about to occur in Japan. American and European women have demanded greater equality in business and politics; therefore, so must women in Japan. The American economy is geared toward defending the consumer’s interest, and Americans know that protectionism is bad because it inflates the prices that consumers must pay. Therefore Japanese consumers must also rise in protest against protectionism in Japan. Meanwhile, a relatively small group of economists, policy makers, and journalists observes what is actually happening in Japan.

The Economist and The Wall Street Journal show the results of this tension in almost every issue. Their reporters, who are based in Japan, turn up information about how its system works, while the editorial and “leader” writers, in Manhattan and London, assure their readers that the Japanese system cannot deviate for long from Anglo-American theories of market rationalism. In the September 29 issue of The Economist, for instance, the business section carried a story on the impending “amorphous metals” war. An American company, Allied-Signal, had devised a way to form certain new alloys that had very attractive technical properties. When used in electric transformers, for instance, they cut transmission waste by as much as two thirds. The Japanese government has in various ways discouraged the importation of amorphous materials (which the Japanese electric industry would love to get)—while MITI has encouraged thirty-four Japanese companies to cooperate in developing amorphous materials of their own. The story’s concluding words were: “Japan agreed last week to acquire 32,000 amorphous-metal transformers between now and 1993—less than 0.5 percent of the Japanese market. The rest will be supplied in due course, by Japanese companies.”

In the same issue of the same magazine, a book reviewer asserted with Oxford-Union-style confidence that government efforts to guide technology or control trade were bound to fail. The proof was, after all, to be found in the example of “the East Asian dragons, whose stunning growth was built on efficient investment and innovation, which, in turn, owed everything to openness to trade.” The success of the East Asian “dragons” is indeed due to investment and innovation—and to open markets somewhere else. The reporter who wrote the amorphous metals story clearly understood this; but somehow not even evidence contained in its own pages can shake the magazine’s prevailing (and influential) editorial faith.

The amorphous metals and fusion stories obviously do not prove that The Economist’s approach to Japan is wrong. But Choate and Holstein both emphasize that America’s Japan debate is distorted because so much foreign money props up one side.

To what end? Choate tends to speak sweepingly about “Japan” doing this and “the Japanese” doing that, when specific and often competing firms are involved. But I think he is right in saying that the overall goal of the lobbying and politicking is to shift the balance of dependencies, so that the United States needs Japan so much—to cover its deficit, to make high-tech products, to provide markets for grain, beef, and timber, to dangle investment offers in front of Ohioans and Tennesseeans—that it dare not criticize the aspects of Japanese policy it dislikes. The plot of a forthcoming novel, Something To Die For, by James Webb, the former Navy secretary and Vietnam War hero, turns on just such a possibility.2 American and Japanese officials disagree deeply on a policy question, but the Americans are afraid that, if they push their point, Japanese investors will pull out and the US stock market will collapse.

The continuing shift in dependencies is the central theme of William Holstein’s book. He says, “The Americans are rapidly accumulating dependencies on a single nation, Japan, which is working diligently to build its own room to maneuver and to strengthen its identity, rather than submerging its interests in the international scheme of things.” Perhaps because it has slipped into the bookstores so much more quietly than Choate’s book, Holstein’s is if anything more startling.

Holstein is an experienced Business Week reporter, who has worked in Japan and China, and his book is breezily written as if it were one very long news-magazine article. The first half contains a long, illuminating discussion about the past two years’ worth of political upheaval in Japan, centering on the “Recruit Cosmos” scandal.

The rise and fall of the Recruit company fits American patterns of entrepreneurial capitalism more closely than it does the Japanese zaibatsu (industrial combine) stereotype. The company was more or less the personal creation of Hiromasu Ezoe, a young, shrewd, good-looking businessman who, Holstein argues convincingly, almost certainly came from Japan’s burakumin, or untouchable, caste and therefore was forced to work outside normal corporate channels.

The Recruit company started as a kind of national help-wanted service, offering job placement information through magazines and computer data banks. Eventually it expanded into vast real estate and financial operations. By the mid-1980s, Ezoe and Recruit were bribing virtually every significant figure in Japanese politics and in parts of the bureaucracy. In some cases the company was paying for specific favors, such as advance word on Ministry of Labor employment data; in other cases, Ezoe seemed simply to be making wholesale purchases of future goodwill. In 1989 Prime Minister Noburu Takeshita had to resign because he and so many of his associates had taken Ezoe’s money. His successor, Sosuke Uno, had not been on the Recruit paylist—and was mocked for that very reason, since he had apparently been so unimportant that Ezoe had overlooked him. A few months later, Uno himself had to resign after his former geisha mistress sold her story to mass circulation magazines.

Outside Japan, especially in America, the Recruit and Uno stories were presented as watershed changes in Japan. Takeshita’s resignation showed that the Japanese public was finally sick of “money politics”; Uno’s josei mondai (“woman problem”) was a symbol that the women’s movement was coming to maturity in Japan. But Holstein, who does a marvelous job of making Japanese politics comprehensible to Western readers, says that quite the reverse was true. The Recruit case amounted to the old “money politics” establishment slapping down Ezoe the arriviste, and Uno was doomed largely because he had been so stingy and unchivalrous to his mistress, rather than because he had a mistress at all.

In discussing Japan’s economic role, Holstein argues that, while Britain is still listed as the leading investor in the US, an unknown but large amount of “British” investment is just passing through London on its way from the Middle East, Hong Kong, and other sites. “It is likely,” he says, “that Japan is already the single largest investor in the United States if one considers that a significant share of what is described as British investment isn’t really British.”

The sharpest note in Holstein’s book, however, is one that is likely to run through all the news from Japan for many years to come. It has to do with markets, and in particular whether American society is capable of saying that anything the market supports (except commercial sex and drugs) could possibly be wrong.

Like Choate, Holstein asks whether a system driven by short-term market considerations—one in which former presidents will make commercials and companies will be broken up as soon as their asset value exceeds share price—can defend its collective interests against a society that places some political and moral issues beyond market bids. Holstein makes clear that Americans created the market, and foreigners, notably Japanese, are simply agreeing to buy what we have put on sale.

One of his closing scenes is of a Fire-stone shareholders’ meeting in Chicago, where the sale of the company to the Japanese tire company Bridgestone was being completed.

I looked for some sense of drama. Here was a once-great American company being sold off. Did anyone care? After the meeting, there was a group of elderly ladies clustered around Firestone chairman John J. Nevin. Perhaps they were misty-eyed, remembering the old days. No, it turned out; they just wanted to know when they could cash in their shares.

The excitement of today’s Japan is that it tests not simply our systems for making tires or running companies but the most fundamental ideas on which our society is based. The upheaval in Eastern Europe has seemed to confirm what many in the United States have said all along: that democratic capitalism works better than socialist tyranny. The growth of Japan and some of its neighbors in East Asia, if we see them for what they are rather than squeezing them into our familiar categories, challenges what most American leaders have said and thought. A limited market system has in some ways proven more effective. A controlled version of democracy has often shown itself more capable of meeting national needs. As Ronald Dore, the British sociologist and author of Taking Japan Seriously, recently said, “The Japanese have never caught up with Adam Smith. They don’t believe in the invisible hand. They believe…that you cannot get a decent, moral society, not even an efficient society, out of the mechanisms of the market powered by the motivational fuel of self-interests.” Perhaps they are wrong, or right only about their own quasi-Confucian system. In any case we should be able to respond to a direct trial of our own beliefs.

Instead of becoming intellectually engaged by the contest, many people in both countries seem to dread having it occur. Japan and America now resemble two huge vessels, steaming not toward each other but passing each other in the night. Japanese officials have “understood” America too quickly, assuming that we are touchy these days but can be handled as long as they avoid talking about blacks and Hispanics, and give us money when we complain. For their part, Americans run out of imaginative energy when it comes to Japan. Rather than summoning the effort it would require to conceive of such a different society, we assure ourselves (and listen to spokesmen who reassure us) that it can’t be that different after all. The world is still bigger and more surprising than we, in our weariness, expect. That is what Japan can show us, if we are willing to look.

Letters

It’s Reagan’s Fault January 31, 1991

The Japanese Power Game’: An Exchange January 17, 1991

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    James Webb, Something to Die For (Morrow, to be published early next year).

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