Reckoning
Page 88
Maxwell believed the price had gone up too quickly, at the end exceeding market realities, and would eventually come down, although perhaps not as quickly. He was certain that the economic impulse would soon overtake the psychological one. At the height of the fever, when the spot price was $34 a barrel, he estimated that the real price—if there was such a thing in a world gone mad—should be about $24. At an OPEC meeting in late March 1983 the Saudis pleaded with their colleagues to bring it down, and the price was reduced from $34 to $30. The spot price was then hovering around $28 or $29. Soon the price went to $22.
Maxwell saw a number of factors contributing to the steady decline in price that ensued. One was slower economic growth on the part of the industrialized nations. Numbed by the exorbitant price of oil, their economies had quickly slowed down. Another was the West’s new consciousness of conservation, which began to show up in the market by 1983. A third was the increase of substitutions for oil: A world that had been blithely turning from coal to oil began to reverse that procedure. The last factor was considerable growth in production among non-OPEC nations like Angola, Denmark, Greece, Tunisia, and India. By 1985 roughly 6 percent of the world’s total oil was being produced by new non-OPEC countries.
In September 1985 the Saudis, frustrated by what they felt was systematic cheating by other OPEC members and feeling serious pressures on their own domestic economy, announced that they would substantially increase their production. The effect of that on the price of oil had to be dramatic. In the first place, OPEC was held together by the most tenuous of adhesives; in fact, one reason the Saudis decided to move was to punish the cheaters in the producing cartel. But Maxwell knew there were many and varied other reasons. For example, the Saudis wanted to lower the price because they did not want to help support the war machine of Iran in its prolonged war with Iraq. Iraq was the Saudis’ ally, Iran its sworn enemy, and Saudi Arabia wanted to make sure that Iran was economically pressed. There were still other considerations. A number of powerful Saudi families were finding themselves in serious financial jeopardy as massive construction and extensive real estate programs, commissioned in an era of plenty and high oil exports, suddenly floundered because of the limited OPEC-directed production. The Saudis in mid-1985, when the decision to increase their production was made, were pumping only 2 million barrels a day, down from a norm of 4.3 million. But that was not even a real 2 million: 800,000 barrels went for internal needs, 200,000 were ticketed for Iraq, and another 200,000 went to poorer countries, primarily Muslim, on notes the Saudis never expected to be paid. Thus in real terms the Saudis were pumping only 800,000 barrels a day, consequently depressing their economy. (When they went up to 4.3 million barrels, some skeptics argued that they were, because of the lower price, pumping twice as much oil to make the same amount of money. That was not true, Maxwell believed; in effect, the equation was 3.5 million barrels a day at roughly $16 a barrel against 800,000 barrels at $27, or $56 million a day against $21.6 million.)
In addition, the Saudis were made edgy by the number of non-OPEC countries that had decided to pump oil because of the inflated price per barrel—and by the degree that the West was both practicing conservation and turning to other forms of fuel. The cut was designed to drive out the peripheral producers by making the market price so low that it did not make sense to pump it (among the early casualties were a number of smaller American producers) and to make sure that oil was cheap enough to remain the basic commodity for industrialized states that otherwise might turn to coal.
The Saudi decision sent the price tumbling. It fell below $20. Then it fell below $15. It kept falling. Essentially it bottomed out at $10 a barrel in the late winter. By spring of 1986 it had begun to come back, to a price of $15 and $16 a barrel. OPEC seemed once again more divided than united over the most basic of its issues. It was like the OPEC of fifteen years earlier.
In the Wall Street Journal reporter Youssef Ibrahim told of the dire consequences for some of OPEC’s more vulnerable members. Ibrahim was standing with Javier Espinosa Teran, the Ecuadoran minister of energy, during a recess in the Geneva meetings when Teran spotted his Venezuelan colleague Arturo Hernandez Grisanti looking at a display of watches for sale. “Hey, Arturo,” he called, “oil is too cheap. Don’t look at things we can’t afford.”
If the price drop depressed the economies of certain OPEC nations, it also depressed the economies of certain American states. In early 1986, as the price of gas began to come down, the pleadings of the governors of Texas and Oklahoma for federal assistance and the urgings of Vice-President George Bush that the Saudis put the price up did not go unnoticed in Detroit. It had been only four years since the oil states had been booming, Detroit had been depressed, and Texans had mocked the auto makers. The collapse of the Texas boom led to a certain amount of gloating in Michigan.
Among oil analysts there was talk about when and how far the price would come back. The new magic figure was $20 a barrel; some analysts believed the price would reach $20 in 1987. Charley Maxwell was more cautious than most; he thought the change would probably not come until the winter of 1988-89. In the meantime he wondered what this change would do to Detroit’s long-range planners. He was sure that among the principal beneficiaries of the change was Japan, a nation without oil.
49. THE UPSTARTS
JAPAN DID NOT WEAR its new success gracefully. By the mid-eighties, its staggering victory in automobiles assured, it was the most insular of international giants. Trade with Japan was so one-sided as to smack of reverse colonialism: The Western nations shipped raw materials to the Japanese, who turned them into finished goods that they sold back to the West. What came back to the West was an uncomfortable sense of Japan’s financial strength. The Japanese became the greatest customers for U.S. Treasury bills. Some of Japan’s oldest friends were troubled that the power conferred by its success was not accompanied by the willingness to accept the diplomatic and political responsibilities that normally went with it. We Japanese, one Japanese intellectual told writer Frank Gibney, treat the world like visitors to one of these great outdoor animal parks, a place where they can drive around at will and stare all they want but must never leave their cars.
As the insular side of Japan showed more and more, so did resentment over its trade practices grow. The relationship between America and Japan became increasingly delicate. Significantly, the greatest concern was not among would-be Japan bashers but among those who had been Japan’s oldest and most forthright friends. No one in postwar America had been a better and more committed friend of Japan than Edwin Reischauer, the distinguished Harvard professor of Japanese studies. He had served during the Kennedy-Johnson years as ambassador to Tokyo, where he had been unusually sensitive in representing Japanese as well as American interests, to the point where a number of American businessmen in Tokyo had become exasperated with him, feeling that he had been too soft in pressing the American case to make the Japanese open their market. But by 1985, even as true a friend as Reischauer was exhausted by the Japanese slow-walking on trade issues. Reischauer met with a group of fifteen traveling Japanese editors, and he warned them of the gravity of the trade situation and of the failure of the Japanese to move more quickly to open their markets. What stunned and angered Reischauer that day was the lack of response on the part of the visiting editors, and he became, as the session went on, angry, lecturing them in the end about how dangerous and explosive the trade imbalance had become and how politically untenable it was.
At almost the same time Henry Rosofsky, a former dean of Harvard, wrote a letter to the New York Times warning about Japan’s protectionism, particularly in the areas of high technology and biotechnology. To many Americans these fields—where the best of American scientific research was married to the most vital part of America’s venture capital system—reflected much of the future hope of the American economy. What was especially troubling about Japanese protectionism in fields like this, the tendency to fend off a foreign product unt
il the Japanese could match it themselves, Rosofsky argued, was that it denied the newest and best of American companies the right to make a deserved profit on their entrepreneurial talents and then go on to develop other products.
The Japanese seemed not to understand that with their greater success had come greater scrutiny. More and more Americans were aware now of the duality of the Japanese modus operandi—how fast they could move if a particular decision was in their economic interest and how slowly they would move, citing always the need for patience in the Orient, if something was economically bothersome. The Americans were becoming wiser about a number of Japanese stalling tactics, and the Japanese were not adjusting to it.
Perhaps the classic and most clear-cut example was that of trying to export American cigarettes to Japan. Japanese tobacco was bad and expensive, American tobacco good and inexpensive. Yet it was almost impossible for the Americans to break through the endless levels of protectionism, official and unofficial, that guarded the national interest. Prime Minister Nakasone might meet regularly with President Reagan and announce new programs that would open up Japan’s markets, but once the hoopla of the summit was over, almost nothing happened, and tobacco was a perfect reflection of it.
Japan Tobacco Inc. was government-owned. In 1982, with Japan under pressure to open up its markets, JTI had responded with a deliberate company policy to foil any chance the foreigners had of expanding their market share. There had been directives from the top to subordinate employees telling them to tear down advertising posters for the foreign brands and to put the American cigarettes behind the Japanese ones and keep them in short supply. For a country operating with a huge trade surplus, it was an ugly business, a rare revelation, many Westerners suspected, of the protectionist hanky-panky that went on all the time. Once the scandal broke, the president of the tobacco company offered to resign, but he was told by the minister of finance to stay on. He promised it would never happen again. It did. Though the tobacco market was supposed to be freed in April 1985, the change was almost imperceptible.
One of the most critical methods used by the Japanese in maintaining protectionism was their control of distributorships. In this case the only distributorship belonged, oddly enough, to the offending government company, Japan Tobacco Inc. Not surprisingly, a year later the foreign share had gone up only marginally, from 2 percent to 2.3 percent. The representative of Philip Morris in Tokyo remarked that it was like having Pepsi-Cola distributed by Coca-Cola.
Even more offensive was a subsequent move by the head of JTI: Knowing that the Americans and other foreigners were about to introduce additional brands, the government company had quietly applied for the Japanese trademark rights to some fifty foreign brands. Newport cigarettes, it turned out, was an old and time-honored Japanese cigarette brand. The disgust among foreigners was extraordinary. Here was a nation with so great a trade advantage that trade wars were imminent, doing something so disgraceful. It was a reminder that in Japan it was not so much the laws of the nation that were protectionist and exclusionary as it was its soul.
For despite its overwhelming new international success, Japan was a nation turned largely to itself. “The electronic tribe,” Donald Richie, writer and longtime resident of Japan, called it, catching in that exceptional phrase the culture’s unique combination of high technology and spiritual traditionalism. Although it borrowed constantly from the West in technical matters, it tried to resist social influences. For all of Tokyo’s neon veneer, its air conditioners and modern fashions, it sometimes seemed a vast, shiny tribal village where the past, smoothly updated, continued to dominate. Japan was racing from the nineteenth century to the twenty-first, with barely time for a pit stop in the present.
Japanese insularity had always manifested itself in a variety of ways—from the inability of an American baseball player who was leading the Japanese league in home runs to get a decent pitch in the final weeks of the season (the Japanese pitchers would simply walk him every time he came up) to the difficulty foreigners found in getting their products through customs or establishing distribution systems in Japan, something easily done in other capitalist countries. Japan’s economic success exaggerated that insularity into arrogance: Not only was there a Japanese way to do everything, but it also happened to be the right way; it was about time the world found out that Japanese excellence was no fluke—they were the best manufacturers in the world. So the Japanese went overnight from undiscerning admiration for things Western to contempt for them. A typical example of the Japanese attitude was a comment made by Norishige Hasegawa, the head of a committee to promote U.S.-Japanese trade: “We are already importing what we need: Parker pens, Cross pencils, and French neckties. The Japanese people are satisfied with Japanese goods.”
A certain amount of self-mythologizing went into the Japanese mystique. There had been signs of it as early as fifteen years before, when the American futurist-political scientist Herman Kahn had prophetically analyzed the forces at work in Japan—the social coherence, the primacy of education, the low birthrate, the skillful weaving of personal, communal and business goals, the delicate supportive balance between private and public sector—and predicted that the twenty-first century would be the Japanese age. That thesis, of course, made Kahn an eminent figure in Japan almost overnight. Americans visiting Japan were amazed by how often the Japanese asked them what they thought of Professor Herman Kahn. The answer in many cases was that they had not thought a great deal, if at all, about Professor Kahn. What the Japanese were really asking was, What do you think of Japan?
By the early eighties many influential Japanese were proclaiming that the next century belonged to them. Europe was perceived as decadent, and America, if not actually decadent, was certainly tired. Sometimes when they spoke candidly with Americans, Japanese executives said America had weakened itself by tolerating hostile unions and granting special treatment to blacks and women.
Beneath Japan’s sudden affluence and arrogance, the fragility of both its economy and its psyche were only thinly concealed. One of the difficulties of dealing with the Japanese, some foreign experts observed, was how quickly they could swing back and forth from arrogance to insecurity and arrogance again. Unlike some nations whose wealth came readily from the ground (the Saudis with their oil, the South Africans with their gems and ores, the Americans with their bountiful farmland and minerals), Japan’s economic power was not a natural condition. It bore no guarantees and had to be renewed every day. Poor planning and poor work habits could easily undo what had been so arduously gained. Therefore, Japanese affluence was in one sense shallow. The Westernized sections of Tokyo—the Ginza, Roppongi, and Akasaka—were stridently modern and the Japanese businessmen who dined there each night were handsomely dressed, but their prosperity was superficial. A successful Japanese might have fifteen expensive suits to his Western counterpart’s six, but at night he might ride for an hour and a half, first on a subway and then on a commuter train, to a tiny, cheaply constructed apartment in the distant suburbs. Many highly paid businessmen owned relatively little; they had perks, but most of what they enjoyed belonged to the company. The system deliberately made it difficult for Japanese to pass on wealth to their children, in order to limit the psychological damage wrought by too much affluence.
All of these factors fed the tension between Japan and its Western trading partners. The West saw Japan as a powerful, monolithic society concerned exclusively with its own economic aggrandizement: Japan Inc., as the phrase went. The Japanese were thrilled with their success, but they were acutely aware of how tenuous it was and preferred to think of the nation as dependent and put-upon. Knowledgeable Westerners in Tokyo called it the Little Orphan Japan Syndrome. The Japanese wanted to be both powerful and weak. If a foreigner remarked on Japan’s economic strength, the Japanese were quick to plead their vulnerability. If, however, a foreigner was suspected of failing to appreciate their remarkable gains since the war, they were duly offended.
Japan’s ambivalence about its role in the world fostered a tendency to magnify each trade development with the United States. On alternate days America was viewed as so rich and smug it was not worthy of its world position and as so desperate to penetrate the Japanese market that it was ready to start a trade war because of the smallest import barrier. Another manifestation of Japan’s insecurity was an exaggerated fear that its young people would become weak and soft, “victims of the American disease.” Because of this anxiety, every incident of juvenile delinquency was played up, and trends such as the rush of younger workers to leave their offices at closing time instead of staying on into the night, the desire of young Japanese to own a car while still in their early twenties, and the inability of girls to tie kimonos were discussed as symptoms of decline. At the same time, of course, competition was intensifying for the young, and they had to work even harder to get into the right schools so they could get the right jobs. The greatest fear, however, and the most justified, was of the ascent of less-developed Asian countries. Because the Japanese—through ambition, desire, and discipline—had triumphed over wealthier and presumably lazier societies, they dreaded that the same thing would be done to them. As they had pursued the Americans, so other Asian nations how pursued them, using the same formula. The middle-aged Japanese worried that their children, reared in homes that were heated in winter and air-conditioned in summer, would be no match for the hardship-driven children of Korea and Taiwan and Malaysia. They were also aware that with success had come higher salaries, which might make Japan vulnerable in the world market to lower-cost producers. Therefore, automation was a serious issue, for it offered Japan at least a partial hope of retaining an advantage over countries with cheap-labor pools. In the late seventies the business historian Peter Drucker was given a tour of a Japanese auto factory by a management official and a labor leader. The manager explained that the difficulty of automating an industry was that the first 35 percent was relatively easy, but that it got harder and harder after that. It was going to be extremely tough, he said, to reach the high proportion of automation everyone wanted.