TOKYO -- LET'S BE BLUNT. Americans have mismanaged not only their own economy but the world's. And many of us in Japan feel it's about time we stop doing your bidding.
America has been calling the shots and sending conflicting economic signals in the past decade. You have expected the rest of the world -- especially Japan and Germany -- to underwrite your inability to come to grips with your own economic problems. Now, as your problems are becoming critical, you want us to bail you out. You want us to carry a heavy share of your burden. There may be reasons for us to do that -- and we have tried to comply -- but you can't expect to continue to exercise sole leadership. The era of American hegemony has to end. We, along with a few European countries, have the right -- and the obligation -- to share leadership with you.
We need to assert more control of our own affairs and begin to deal with our problems in a way that's right for the world, not just America or Japan alone.
A recent edition of the Asahi, one of Japan's leading papers, carried a cartoon in which Big Brother, the United States, summons a Japanese government official to do something. And the government acts promptly. The next frame of the cartoon shows a package tour of Japanese citizens flying on a jumbo jet to Washington. There they ask Uncle Sam to tell the Japanese government to reduce taxes in Japan, lower real-estate prices, change the education system and eliminate pollution. The joke." that the Japanese government listens to the United States more than it listens to its own citizens.
Another cartoon that appeared during the dollar's sharp fall last spring showed a strong-looking American pushing down the head of a Japanese in a basin of water. The more he pushes down, the higher the yen rises.
These cartoons capture some of the feelings among Japanese today. They are frustrated with their own government's inability to change the status quo -- change it, in fact, in some ways that ultimately would benefit the United States. They note that we have not changed, or amended, even a single sentence in our constitution, which was drafted by Gen. Douglas MacArthur's occupation army after World War II. They see many of our tax, land and educational problems as being "drafted" in those days as well. Second, they ruefully believe that the U.S. government is the most powerful force for inducing necessary and long overdue changes in our methods of government.
At the root of this unfortunate reality, I believe, are the styles of American leadership and Japanese followership. America's remains the overbearing style of hegemony. American leadership style has to change to reflect the growth of its "allies," such as Japan, and the changed attitudes and priorities of its "enemies," such as the Soviet Union. The American conventional wisdom, perhaps coming from the military practice of separating everyone into allies and enemies, is now quickly becoming obsolete in today's world. As the Russian threat diminishes, America has started using such words and expressions as "high-tech enemy" to describe Japan, or saying, "We are at war with Japan, a trade war."
As the pressures built up over the past several years, the American mass media have mostly reported American points of view and American observations about who is to blame. Few Japanese have spoken up, and few Americans were patient enough to listen to a Japanese explain in broken English the "illogical and inscrutable excuses." All along, we had a lot of questions to ask, but we didn't ask them because America was so busy pointing out its problems with Japan.
We Japanese have tons of problems at home, but we can't be honest in describing them to the United States for fear of another round of Japan-bashing. Here are a few illustrations -- I could provide many more -- of what has been going on, and going wrong, between the two countries: In the early 1970s, we had a lot of hot debates on color TVs. Quotas and tariffs on color TVs forced most Japanese companies to produce inside the United States to overcome the trade restrictions. Meanwhile, most American manufacturers exited their own country to produce in Mexico and in Asia. The United States is frustrated with its huge trade deficits. When we had our deficits with the United States for 20 years after the war, we tried hard to increase our exports, despite all the odds that such a small country as Japan would ever be able to compete with such smart giants as the United States. Now the United States one-sidedly gives the reason for the imbalance: Japanese markets are closed to the Americans. So our government has come up with a series of "action plans" to rework tariffs and other trade restrictions. Today, Japan has one of the most liberal trade practices in the world.
So the American argument changed to focus on non-tariff barriers, claiming that it is the long chain of distribution and inscrutable trade practices that make it difficult for the Americans to succeed. What about IBM, with $6 billion in sales in Japan? What about Coca-Cola with a 70-percent share of the Japanese soft-drink market? Well, they say, they are exceptions. They are no longer American companies. They are multinationals.
It so happens that these "multinationals" have come to Japan to produce and sell some $44 billion worth of goods to the Japanese that America does not count as exports to Japan. That's the reason for the imbalance -- not the access, not the fairness. Recently, American government officials have brought up a new term -- "level playing field" -- to explain why American companies cannot participate in Japanese markets as much as the Japanese in the United States. Well, we have tons of evidence to suggest that the United States is also a very difficult market -- where we cannot participate in defense bids, where we have to meet standards in each state, city and county for engineering products, where we must get Underwriter's Laboratory approval for consumer durables and where we have to worry about the Office of Equal Employment Opportunity and OSHA as well as literally thousands of legal exposures, none of which are concerns for American companies doing business in Japan! Have we ever complained? No. We learn how to do business in the United States -- "when in Rome, learn the Roman way." Former Federal Reserve Board Chairman Paul Volcker and Treasury Secretary James Baker apparently decided to use currency to adjust the U.S. trade imbalance, particularly with Japan. Only two years ago, American officials were saying, "A strong America through strong dollars." Now they say, "Balance trade through weak dollars" -- a 180-degree shift of opinion without any real change in the economies of the United States or its major trading partners.
It is the United States that has unfortunately screwed up the world financial systems, mainly through its bold experimental attitude toward manipulating the currency exchange rate (from Y260 to Y137 to a dollar in a year's time) and huge government deficits.
Instead of correcting the deficits, the United States has been asking West Germany and Japan to lower their interest rates, in order for capital to continue to come to the United States. Why shouldn't America raise its own interest rate? Well, they say they can't without jeopardizing their consumers and farmers. Thus, Japan has been financing one-third of the U.S. government deficit, mainly through the purchase of treasury bills and bonds.
The decline of the dollar's value, however, has hurt the Japanese investor. This past year, the top five Japanese insurance companies had to write off $13 billion in U.S. government securities -- which makes the American banks' write-off on their Brazilian loan look rather modest. Being nervous (rightly so) from the burn, the Japanese financial institutions were quite reluctant to participate in the bid of treasury bills in the summer. However, at the request of the Ministry of Finance, which worries about what Treasury Secretary Baker thinks, Japanese banks had to participate to keep the flow of capital into the United States smooth.
What the American government has been doing is to create an impossible situation. We have basically obeyed them at each stage, because not doing so makes America lose its temper.
But look at the situation that's been created: The United States has asked Japan (and West Germany) to lower their interest rates and keep the spread attractive for capital to flow into the United States while stimulating the Japanese and German domestic economies at all costs. So, our government has pumped in $6 billion for public works. Inflation has become a real threat. Construction materials are in short supply; real estate is climbing sharply. The resultant macroeconomic recovery is a superficial one, helped by financial markets superheating.
Most Japanese companies are severely damaged by lost export competitiveness through the high yen. So our wages don't go up, hence our real economy is not good. To curb inflation, we must increase the interest rate, which America doesn't like. Our standard of living, particularly in big cities, is declining rather sharply. Our investment in the United States sours as the dollar weakens, so we want to keep our money at home as we have done over the last three months. Then the U.S. interest rate goes up, as the flow of additional capital stops coming in. Then the American economy suffers, so the interest rate must be kept low to stimulate the boom. When that happens, U.S. imports soar because, with more than 70 percent of U.S. employment in service industries, America doesn't produce a whole lot.
So the trade statistics don't show any improvement, and of course, that drops the dollar sharply. And we are back to square zero with our industries and tax revenues hampered.
It is the fear of having to face the economic realities of the world that has caused the stock markets' crash in the last two weeks. The world is in no condition to continue the superficial economic prosperity supported only by the money game. The United States should not ask Japan and West Germany to unnecessarily stimulate their economies simply to make its job at home easier. We have all been spoiled by such a process. The reality is that Japan and America have formed an unbelievably interlinked financial and trading relationship. We can no longer use one-sided nationalistic arguments to untangle ourselves. We are all in this together, as we've just witnessed over the stock markets' crash. We can no longer, without coordinating with each other, fiddle with our own interest rate or money supply, or any significant financial parameters for that matter. What we need is a detente in the financial and economic realm, as much as one is needed for nuclear warheads.
Japan and the United States, the two financial superpowers, need to sit down and work out the details of financial detente, or how we can get out of the current mess. Among the items that should be on the table are the potential benefits of forming a common market, the merits of America's issuing some securities pegged to the yen to signal its seriousness about currency stabilization and how Japan's hyperinflated land prices -- which are the root cause of the super-liquidity being exported from Japan -- can be brought down without sending another shock wave through the world's financial markets.
In short, we need to work out long-term solutions in the interest of both countries and the rest of the world. Hopefully, the spirit of the meeting will be a new one: The United States needs to depart from its traditional style of hegemonical leadership; and Japan should graduate from its time-honored habit of excusing itself and play a real leadership role -- commensurate with its economic influence.
Ken Ohmae is the managing director of McKinsey & Company's Tokyo office and author of "Beyond National Borders