Power and Strategy in the

Interlinked Economy

By Kenichi Ohmae

Harper Business. 223 pp. $21.95


The Inside Story of the

Legendary Japanese

Financial Dynasty

By Albert J. Alletzhauser

Arcade. 343 pp. $22.95

THE BOOKSTORES in Tokyo have set aside special sections just for volumes dealing with the "Japan-U.S. Crisis." The bitter gripes of the Japan-bashers in the Boston-Washington corridor are at least equalled by the nasty gibes of the America-bashers in the Tokaido corridor. Economic envy and racial animosities on both sides of the Pacific may be leading the United States and Japan to sunder the 45-year alliance that has helped make them the two richest and most successful nations on earth.

But amid this rancorous bedlam there rises the quiet, thoughtful, compelling voice of Kenichi Ohmae, a Japanese national who advises business people around the world for an American consulting firm, McKinsey & Co. A veritable island of sanity in the turbulent Pacific basin, Ohmae has been arguing for years that the bashers on both sides are off base.

Ohmae's latest book, The Borderless World, carries forward his struggle to prove that the United States and Japan can continue to thrive jointly as allies. It offers cogent evidence that some of the basic "facts" at the heart of U.S. policy toward Japan -- including the notorious trade imbalance -- are more myth than truth. It argues that government efforts in Washington and Tokyo designed to improve the nations' relations are really just making things worse.

Ohmae demonstrates, for example, that the strong push in 1985 by then-Treasury Secretary (and now Secretary of State) James A. Baker to weaken the dollar against the yen was one of the prime economic blunders of the age. Talk about self-inflicted wounds! This American "trade" initiative shafted American consumers by raising prices across the board, rewarded the Japanese with irresistible discounts on Rockefeller Center and other "trophy" purchases, and yet did nothing to change the trade figures.

To some extent, Ohmae's new book is an extension of some famous Harvard Business Review articles he wrote arguing that the whole idea of national policies -- and, for that matter, national borders -- is passe' in the modern world. In place of the familiar nation states, he says, market forces are building a global "Interlinked Economy," or "ILE", consisting of the U.S.-Japan-Europe "triad" plus emerging economies like Taiwan and Singapore.

"Nothing is 'overseas' any longer," Ohmae declares. "People are global" in their buying habits, and governments dedicated to "archaic nationalistic sentiments" will find that the old economic models don't work, he says.

As a result, protectionist economic policy -- the stuff the Bush administration is neck-deep into right now -- is hopelessly outmoded, Ohmae continues. "When money, goods, people, information, and even companies crisscross national borders so freely, it makes no sense to talk about 'American industrial competitiveness.' "

Whether or not you accept this sweeping one-world vision of the planet, the book is invaluable for the insights it provides on current U.S.-Japan trade negotiations. Those talks are fatally flawed, Ohmae says, because they're based on a phony statistic. The bilateral trade deficit, he maintains, is "an illusion created by accounting systems that are tragically out of date."

Among other things, the trade numbers basically ignore the service industries that are now the driving force of the U.S. economy. They ignore the hundreds of U.S. companies now producing in Japan; none of the Cokes or Coors or Kentucky Fried chicken consumed in Tokyo every day show up as U.S. exports on the trade books, Ohmae says. They often ignore geography; as Ohmae points out, memory chips produced at a Texas Instruments plant in Singapore are credited to TI's Japanese branch, and thus add to America's trade "deficit" with Japan at the same time they increase American profits.

Having shot major holes in the accepted measurements of trade, Ohmae challenges another statistic that everybody takes for granted: the numbers showing a much higher savings rate in Japan than in the U.S. With some deft analysis, Ohmae maintains that this comparison is also off-base. "It can even be argued that Americans save more than Japanese," he says, and then offers a half-convincing argument for this heretical proposition.

THE JAPANESE have traditionally been prodigious savers, of course, a national predilection that has helped make a Japanese brokerage firm, Nomura Securities, the largest financial institution in the world. Nomura's history is set forth in rambling, repetitive fashion by American stock trader Albert J. Alletzhauser in The House of Nomura.

Alletzhauser calls his book an "authorized family history," which perhaps accounts for the breathless quality of the work and the sense on every page that Nomura can do no wrong. Intriguing anecdotes are sprinkled throughout, and there's probably a coherent story hiding somewhere in the book. But organization and structure are not strong points for this author, so the reading turns into a struggle.

If you have time for only one book on the "Japan-U.S. Crisis," skip the Nomura history and opt instead for Ohmae's brilliant new volume. It will almost surely become a best-seller in Japan -- most of his other books have done so -- and it deserves to be one in this country as well.

T.R. Reid will become chief of The Washington Post's East Asia bureau in Tokyo on Aug. 1.