A stabilizer makes and enforces rules of the economic system, provides a key currency, and also, in a liberal economic system, supplies a relatively open market of last resort—preeminently, in the current context, for the exports of developing nations. Despite Japan’s rising economic wealth, the Japanese political economy appears structurally incapable in the foreseeable future of playing all these roles simultaneously, in the comprehensive way that the United States has assumed them since World War Two…Japan lacks the vital ability to project its military strength internationally…Japan is strongly impeded by both domestic and foreign opposition to rearmament from developing that sort of military capacity. Cultural factors, particularly lack of a transcendent sense of national mission, also complicate Japan’s emergence as a dominant world power. Most importantly, domestic structural constraints persist, which limit Japan’s emerging global role and render it almost invariably reactive. The fragmented character of state authority in Japan makes decisive action much more difficult than in nations with strong chief executive, such as the United States or Fifth Republic France.”

“Halfway to Hegemony?: Japan in a Changing Global Economic Order”

April/May 1989

As the Japanese economic juggernaut lumbered inexorably onward through two oil shocks and beyond, there was a deepening angst at the geopolitical implications of Japan’s persistent rise in the late 1980s. On the more academic side, political scientist Ezra Vogel asked seriously, if rhetorically, about the possibility of a Pax Nipponica in a landmark 1986 Foreign Affairs article, following on the arguments posed by his classic volume, Japan as Number One.

Hegemonic Prospects

In the spring of 1989, just as the Japanese economic bubble was cresting, I argued in the Harvard International Review that despite Japan’s rising wealth, the Japanese political economy would be structurally incapable of fulfilling three critical functions of a stabilizing power in the international system in the foreseeable future. Political economist Charles Kindleberger ascribed these three functions to true hegemons: first, making and enforcing rules of the economic system; second, providing a key currency; and third, supplying a relatively open market of last resort. I argued, in particular, that Japan would prove incapable of filling these globally important functions in the comprehensive way that the United States had done since World War II, sustaining the prospect of more extended global US political-economic hegemony than might otherwise prevail. My contentions regarding Japan thus raised questions about both Japan’s own prospective geopolitical path and the somber predictions of decline, by political theorists such as Paul Kennedy, that the days of US global preeminence were severely numbered.

In my pessimistic 1989 assessment of Japan’s geopolitical prospects, I did not dwell—and I would not dwell today—on the superior economic capacities of other nations. China was still economically small and vulnerable at the time, relative to Japan, and remains so, despite its remarkable recent growth. Even the United States had serious economic difficulties, including low savings rates and massive current-account deficits, that still cast a shadow over its otherwise dominant global role. I conceded the economic scale and potential dynamism of Japan, but emphasized the domestic structural obstacles to a prominent global role that Japan nevertheless then confronted.

Japan’s global rule-making capacity, first of all, was constrained by a distinct lack of offensive military power and the subordinate political standing of the Japan Defense Agency, rooted in the strictures imposed by the 1947 “no-war” Constitution, I argued. Veto players in the complex Japanese legislative process made changes in this embedded status quo difficult. I also contended that cultural factors, particularly the lack of a transcendent sense of national mission, complicated this assertion of rule-making authority.

Despite its formidable economic scale, Japan’s inability to assume key-currency standing also had origins that, by virtue of their structural character, were likely to make its rule-making incapacity prolonged. Problems centered on Japan’s lack of deep, free, and innovative capital markets, I explained. These made it inconvenient for other nations—even those trading extensively with Japan—to conduct trade and investment transactions in yen, undermining the global role of Japan’s currency, despite the huge financial surpluses then emanating from Tokyo.

The third major obstacle to Japanese global political-economic preeminence, I contended, was an inability to serve as a market and lender of last resort. Once again, I saw the most important impediments as structural, and thus likely to be sustained for long periods of time, unless disturbed by major global cataclysm. Interest groups linked to important government ministries, as in agriculture, served as roadblocks to change, I argued, even in the face of international pressures. And Japanese state structures—both bureaucratic and political—were so fragmented that they had great difficulty in constraining powerful societal interests even when they wanted to do so. Japan, I observed, was much more inclined than nations like the United States, France, and South Korea—all with strong presidential executive systems—to be a reactive state in foreign-policy making.

These arguments about Japanese state incapacity were highly controversial at the time. Political scientist Chalmers Johnson, in particular, argued in the Japanese Miracle that the Japanese state was both powerful and highly strategic, generalizing from a narrow, if detailed, study of a single Japanese ministry that simply assumed its institutional dominance and glossed over broader socio-political context. Former US trade negotiator Clyde Prestowitz echoed this emphasis on bureaucratic power and cohesion in another prominent volume of the period, Trading Places. Like Johnson, Prestowitz stressed the elite origins and historically embedded influence of Japan’s “mandarins,” failing to consider differences of interest among them, the “veto power” of non-elite social groups, or the problems of coordination flowing from Japan’s fragmented state structure.

All of my three major contentions have fortunately weathered the test of time, despite their controversial standing fifteen years ago. Japan has not, despite a huge economy that today constitutes one seventh of global gross domestic product, emerged as an effective “rule-maker” in international affairs. For example, the vaunted Miyazawa Plan of the late 1990s, aimed at promoting the financial development of a number of Asia’s poorest countries, never became the standard for developing world debt relief despite its substantial intellectual content. Japan’s initiative was instead preempted and superceded by the United States’ own Brady Plan. Similarly, Japan failed across the 1980s and the 1990s in its efforts to modify copyright protection of software.