Thirty-five years ago, allied military power crushed Germany and Japan. Today, those two countries are outperforming the rest of the industrialized world in combating a different global menace -- inflation.
To be sure, there are ominous clouds on the horizon, and Japan is not doing as well as West Germany in battling inflation. But both countries seem to be maneuvering their way through the economic storm better than all other major industrialized nations.
Why has that happened? How do Germany and Japan, countries that import 97 and 100 percent of their oil respectively, manage to keep fuel-fired inflation to levels roughly one-third of those afflicting the United States?
Some of the answers stem from differences in the political systems. The government leaders of Germany and Japan, for example, are chosen by a majority of their parliaments and generally are assured of support when they want to implement anti-inflation measures quickly.
In contrast, the president of the United States often must struggle to get programs through a balky Congress and scores of special interest groups.
Some of the differences are cultural. The horrendous inflation of the 1920s that destroyed the Weimar Republic and gave rise to Hitler has made inflation a public evil in today's West Germany to a degree unduplicated elsewhere.
This scar has led to a far greater consensus between government and citizenry, and greater cooperation between labor and management, than has been possible in more freewheeling America. West Germans are much more likely to accept a rise in unemployment and a slowdown in the growth of their purchasing power in the name of fighting inflation.
This is how Bonn, using a combination of higher interest rates and credit restrictions that reduce the urge to buy, got through the first oil price-induced crisis in 1974-76 in better shape than other countries.
Traditional conservatism drives Germans to put 13 percent of their take-home pay in the bank. Japanese put away nearly twice as much. Americans save about 3 percent.
When bank savings are high, governments can borrow to finance budget deficits without placing a strain on the financial markets or being forced to print more money -- two factors that contribute to inflation.
High savings also mean that banks are better able to finance new business investment, which is running at higher rates in West Germany and Japan than in the United States.
With more money available to borrow, German and Japanese firms are less dependent on the stock market for raising capital than are their American counterparts. That, in turn, makes them less beholden to stockholders for quick, maximum profits and more able to strive for long-term gains.
Productivity rates -- the output for each hour worked -- have climbed in West Germany and Japan for the past several years, although the gains are slowing down a bit in Germany now. In the United States, productivity declined last year. As wages rise and productivity drops, goods cost more and inflation increases.
Labor negotiations in both countries are carried out annually, usually on an industry-wide or regional basis, and do not include the automatic cost-of-living raises that are found in pensions that are linked to the general wage guidelines and don't include automatic cost-of-living raises. This practice, Europeans feel, avoids built-in, multiyear inflationary momentum.
The conservative German mentality means that, although use of credit cards is expanding, they still are relatively rare, and people tend to pay cash.
"The United States has created the most sophisticated means to create money by new credit systems," says one European economist here. "You are the most inventive people in the world." The problem is that easy use of credit cards makes it hard for the Federal Reserve Board -- which controls only the banks -- to ever get the total money supply under control, he says.
The ability of West Germany and Japan to finance their oil bills comes in large measure from their consistent performance as international trading superpowers. Roughly 25 percent of Bonn's gross national product and 14 percent of Japan's come from exports.
Those earnings abroad have allowed Bonn and Tokyo more flexibility to handle economic downswings at home and have strengthened their currencies abroad. That, in turn, has helped keep domestic inflation under control.
Indeed, the 20 to 25 percent decline in the value of the dollar compared to the German mark in the last three years has offset a large part of Bonn's costs for oil and other raw materials, most of which are calculated in dollars. c
America leads the world in the export of agriculture, aircraft and computers. But only 9 percent of the U.S. gross national product is derived from exports. The U.S. economy, with its vast internal market and natural resources, traditionally has been self-sufficient. Huge payments for oil in recent years have changed that.
The emphasis on foreign markets is increasing. But here, too, the Germans are spending twice as much on new research and development in relative terms as the United States is spending, which may mean a continued weak position abroad for some U.S. products.
Because of fears in the 1960s that U.S. technology would dominate Europe and Japan, Bonn, Tokyo and some others tended to pick new markets carefully, spend heavily on building good products for them, and put their money on new industry rather than old.
There are, however, exceptions, including European agriculture and steel, both of which are inefficient and heavily subsidized. The same can be said of Japanese agriculture.
The relative labor peace in Japan, and especially in Germany, means few big industrial strikes. This means reliable delivery of products, which also feeds the export success.
The export-or-die mentality has been etched into the Japanese and Germans for many years. Government, labor and industrial leadership think along those lines. Even in foreign policy, economic considerations play a greater role than they do in this country. This can be seen in attitudes toward the Middle East -- which now tilt more toward oil-producing Arab states -- and in German emphasis on aid to Turkey, for example, where Bonn has a big stake in business and as a source of foreign workers.
The lack of many natural resources also has given Bonn and Tokyo more long-standing sensitivity in foreign policy toward the Third World countries, which also have become more important to the United States.
Europeans generally also have been more energy-conscious than Americans, though Americans now seem to be outperforming Europeans in cutting back on gasoline use. The price of gasoline, however, has been high abroad for several years, now well over $2 a gallon in Several European countries. But it wasn't much cheaper in Europe last year, so the price of gasoline had much less effect on the inflation rate statistics there than it had in the United States.
Military security provided by the United States is another important factor in the economic success of Japan and, to a lesser extent, West Germany.
Tokyo spends just below 1 percent of its GNP on defense, allowing emphasis on industry that is far more economically productive. Germany spends about 2.6 percent, closer to the 5.1 percent U.S. level, and maintains the largest and most well-equipped armed force in NATO. It was U.S. policy and intention to provide security after World War II, but now there is pressure on both allies to do more for their own defense.
All these factors help explain why Germany and Japan have kept inflation down thus far. There are, however, clouds on the horizon.
In 1978, Bonn's inflation rate was 2.7 percent. Last year it was 4.1 percent. Currently, it is running at 5.6 percent, and there are some fears that it could reach 6 or 7 percent.
While that may look like paradise to Americans, such levels are abnormally high by German standards. In 1974, however, inflation hit 7 percent, and it didn't cause many social ripples.
Last year, for the first time since 1965, West Germany's went into a deficit in its balance of international payments. It is expected to go further into the red this year. This, in combination with tightening markets in the United States and higher U.S. interest rates, could bring down the value of the mark. That would raise Germany's bills across the board and cause a little more Angst where Angst was born.
In Japan, the average increase in consumer prices has hovered around 4 percent the past two years. By this February, however, it was up to 7.6 percent, and it is likely soon to climb still higher. Wholesale prices climbed more than a 20 percent rate in February, and last week the government said it will raise in unison a host of prices it controls, rather than stretch the increases over months or years.
Electricity rates will go up more than 50 percent and natural gas prices 41 percent on April 1. Other prices -- airline and rail fares, postal fees, tuition and prices of tobacco, and rice, still the staple of the Japanese diet -- are slated to rise about 20 percent.
So Japan is just beginning to feel the full effects of the most recent turn of the oil price merry-go-round. But the government hopes to persuade business and labor to behave in order to limit the oil price surge to a blip on the inflation indexes.
The Japanese remember all too well what happened in the wake of the 1973 oil crisis when consumer prices climbed nearly 30 percent a year, the worst inflation among major industrial nations. It took Japan more than three years to get the rate under 6 percent.
Inflation was curbed through a combination of tight monetary policies, a pace of recovery from the 1975 recession that was modest by Japanese standards, a steady rise in the value of the yen, and, above all, rapid productivity gains.
The fact that wages are negotiated annually helped considerably, and will help again this year. In 1974 and 1975, Japanese wages kept pace with the full impact of higher oil prices, and so did prices generally.
This time the government wants the unions to accept a drop in their members' real incomes and not to try to offset the coming rise in consumer prices with higher wages. Because oil is responsible is arguing, if wages start chasing prices, it will be 1974 all over again.
If the coming price surge does not get built into wages, the inflation rate could subside again within a few months as the effects of higher oil costs work their way through the economy. Some observers, such as Brookings Institution economist Lawrence Krause, believe there is a good chance this approach will succeed.
In the end, higher oil prices will take a big chunk out of real incomes in both Germany and Japan just as they will in the United States. But those two countries, so different from the United States in so many ways, have a good chance of avoiding the economic political and social disruptions that can flow from an inability to accept that loss without a debilitating struggle over who loses what.