• • •
Certainly there were further adversities to bend during Japan’s seemingly inexorable rise. Most serious was the oil shock of 1973 when oil prices quadrupled after Arab members of the Organization of the Petroleum Exporting Countries proclaimed an embargo in response to US help for Israel during the Yom Kippur War. Japan had only four days of reserves. Inflation rose to 30 per cent and consumption slumped. But Japan turned on a dime, both diplomatically and economically. Tokyo sent envoys to the Middle East, distancing itself from US policy and swearing loyalty to the Arab world. At home, workers, tamer than their western counterparts, were persuaded to moderate wage demands. Robots, another American technology, were rapidly adopted and companies strained to reduce their energy consumption as oil prices skyrocketed. MITI promoted ‘brain-power industries’, such as electronics and computers, over the energy-intensive heavy industries it had formerly favoured. A decade later, Japan had nearly halved its energy imports from 3 per cent of GDP to 1.6 per cent.35 The country emerged from the twin oil shocks of the 1970s – there was a second after the Iranian Revolution of 1979 – with greater energy efficiency and faster growth than any other advanced nation.
Yet, as well as enthusiasm for what was being created, there was concern for what was being lost. As early as 1953, cinematographer Yasujiro Ozu’s masterpiece Tokyo Story depicted a rapidly changing urban society in which the communitarian values of rural Japan were vanishing. Two elderly parents from a seaside town visit their children in Tokyo only to find that their offspring have become too self-absorbed to pay them much attention. Against a backdrop of cranes, cars and construction, the parents traipse between households much as King Lear is shuffled between his daughters’ castles. Some social commentators were highly critical of Japan’s ‘progress’, particularly as concern grew about the environmental destruction that accompanied breakneck urbanization. Speaking of the decade in the run-up to the Olympics, Minoru Morita, a leftwing commentator, said, ‘I felt we had created a monstrous society for ourselves. In the city our atmosphere was contaminated, our rivers were dirty, our seas were polluted and our natural environment was destroyed. As far as our people were concerned, they’d come to desire economic profit above all else. They had abandoned all the greater humanistic ideals. I thought it was an era of despair.’36 That was not a typical view. More common was the opinion of Masaya Ito, the press secretary of Ikeda, the prime minister who had initiated the income-doubling target. ‘How far could the economy go on growing?’ he asked. ‘It was like a magic teapot that just kept on pouring.’37
Japan’s growth had inevitably slowed a little in the 1970s, but by the 1980s its living standards had caught up with those of many western countries. The features of industrial Japan first described by Abegglen were widely recognized as important elements of its success. There were even suggestions that western companies would do well to emulate some aspects if they were to survive the Japanese onslaught. In 1979, Ezra Vogel, a US academic, produced a book, Japan as Number One, in which he laid out the country’s social and industrial strengths and suggested America needed to watch its back. The book presented a Japan that was organizationally, educationally and technologically equipped to take on the world. Although primarily intended to wake US policymakers from what Vogel considered their complacency, Japan as Number One was a bigger success in Japan than it was in America. It became, in fact, the all-time best-selling work of non-fiction by a western author. The reasons for that were not hard to fathom. Its very title appeared to be an affirmation of what Japan had so ardently sought for more than a hundred years since the Meiji Restoration, a Japan that could take on westerners at their own game – and win.
• • •
The Japanese became swept up in their own hyperbole. As early as 1967, the year Japan’s economy overtook that of Britain, one professor of Kyoto University had relegated Europe to the status of a nice place for sightseeing. The following decade, books on ‘the British disease’ became popular. One writer defined it as a social disease that causes ‘a diminished will to work, overemphasis on rights and declining productivity’. Books on ‘the American disease’ inevitably followed. The US was said to be wasteful and inefficient, its companies devoted to short-termism. It was also deemed to lack a work ethic. Japanese engineers who visited foreign factories often expressed their amazement at overseas workers’ penchant for tea breaks and knocking-off early. American society was considered to have been corroded by violent crime, drugs and divorce.
In a 1983 government survey, one question revealed the long-held obsession of the Japanese state, the ‘shrill sense’ of inferiority and superiority that had driven its catch-up project for more than a century. ‘Compared to westerners,’ the pollsters asked, ‘do you think, in a word, that the Japanese are superior? Or do you think they are inferior?’ By the 1980s, in a word, 53 per cent of Japanese answered that they thought themselves superior against just 20 per cent who had so responded in 1953 when the same unpleasant question had been asked. In neither survey was there a box asking whether the question itself was objectionable.38
By the late 1980s, many in America were beginning to talk about Japan in terms of threat. Japan’s trade surpluses were swelling to unheard of proportions, its cars were displacing petrol-guzzling US models and its companies were snapping up trophy assets – an iconic building here, a Hollywood film studio there. A group of commentators, who collectively became known as ‘the revisionists’, had an explanation for Japan’s success. They built on the pioneering work of Abegglen to suggest that Japan represented an entirely new way of doing business. Unless the US dropped its laissez-faire approach and adopted some of the same ‘industrial’ and ‘strategic trade’ policies as Japan, they argued, it would continue to lose ground.
The revisionists included Chalmers Johnson, who had written about the state planning undertaken by MITI in 1982; James Fallows, who wrote Looking at the Sun; and Clyde Prestowitz, a former trade negotiator under Ronald Reagan whose frustrations at trying to open Japan’s semi-conductor, telecoms and medical markets confirmed his belief that Japan was playing a smarter game. His 1993 book was called Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It. Prestowitz says he and others were far from the ‘Japan bashers’ sometimes alleged. ‘We were, in fact, admirers of the Japanese system and promoted the idea that in order to compete with it, the US would have to imitate it in important ways. Our frustration was not so much with the Japanese as with the US government.’ Orthodox US policymakers, he says, could not understand how Japan was beating America at its own game. ‘I tried to explain to the top officials of the Reagan administration that Japan was playing football while we were playing baseball.’39
A third book, less about trade and more about Japan’s political and social organization, also depicted a society unlike anything the west had encountered before. Karel van Wolferen’s The Enigma of Japanese Power presented a portrait of a country without central authority in which decisions were taken almost organically. From the perspective of orthodox free traders trying to negotiate with Japan, this meant by definition that the people on the other side of the negotiating table were powerless to affect change. Van Wolferen’s was a subtle take on the story. The more common version, a crude popularization of the revisionists, was of a sinister Japan Inc in which clever planners outsmarted competitors. Abegglen, who tried to portray Japan as having ‘a complex combination of cooperation and competition’, was always opposed to the notion of a government-directed machine. He told one journalist about a widely held notion that somewhere in the recesses of Japan’s bureaucracy was ‘a guy with a long beard and a big computer, and if we could find and shoot him, we’d solve the problem’.40 If van Wolferen’s thesis was correct, there was nobody to shoot.
Whatever the reasons for Japan’s success, the idea was taking hold, in the popular press at least, that it was on the verge of challenging America to become the world’s
largest economy. Given that its population was half the size, that was a bold prediction, requiring that every Japanese on average become twice as wealthy as every American. In 1988, the well-known financier George Soros responded to a huge stock market slide in New York and London by predicting nothing less than ‘the transfer of economic and financial power from the United States to Japan’.41 Just at the time such notions were gaining credence, however, Japan was in the midst of its own grotesque financial bubble. When it burst, the idea of Japanese economic supremacy would be for ever discarded.
6
After the Fall
It was never clear whether Nui Onoue herself or her large ceramic toad was the true oracle. Either way, when Onoue held her weekly séances over which the one-metre-tall, brownish toad presided, there were lines of limousines parked outside Egawa, her exclusive restaurant in the Sennichimae entertainment district of Osaka. This was the height of the 1980s bubble and her clients came for tips about which Japanese companies would perform best and thus on which shares to place their lavish wagers. A former hostess, by then in her early sixties, Onoue had established the exclusive ryotei restaurant in the ardently commercial western city of Osaka. As time went on, her clients came not so much to dine as to invest.
For some reason, in Osaka toads had come to be associated with wealth. Japan’s second-biggest metropolis had been the commercial hub for hundreds of years, a centre of rice trading and home to the world’s first futures market, established in 1730. It was a city where people sometimes greeted each other not with konnichiwa, but with mokkari-makka, ‘are you making money?’ Because of the amphibians’ reputed money-making properties, some Osakans refer to their wallets as ‘toad mouth’, or gama-guchi in Japanese.
Onoue’s toad was extra special. It received trading tips from the gods and at one stage, through the auspices of Onoue herself, controlled a portfolio of some $20 billion, an astronomical sum even for the heady days of the Japanese bubble. Word of the toad’s remarkable track record – for it was rarely wrong – spread far and wide. The sort of people who came for advice were executives of some of the country’s most prestigious financial institutions. They included officials from Industrial Bank of Japan, the crème de la crème of the banking world and, at the time, one of the largest financial institutions in the world. Executives from Yamaichi Securities also regularly attended. A prominent securities trading firm, Yamaichi was to become one of the biggest casualties of the stock market crash, ceasing all operations in November 1997. A financial subsidiary of Matsushita, the company that made the Panasonic brand, was another firm that put its faith in Onoue, entrusting her with Y50 billion. When the bet went sour, Matsushita’s humiliated president did the honourable thing. He resigned.
Japan’s Nikkei stock average, the one most often quoted on the pages of the business press, came within a whisker of 39,000 on the last trading day of 1989. That proved to be its last hurrah. When the price of shares began to sink the following year, Onoue was presented with a problem that not even her toad knew how to fix. It was then she hit upon the idea of keeping the whole thing going by getting managers of one bank to issue fake deposit receipts, which she used to free up cash and securities lodged with other institutions. It was a convoluted scheme that got her deeper into trouble as shares continued to slide. In August 1991, she was arrested for fraud. An investigation discovered that a senior executive from Yamaichi Securities – not the gods after all – was the true source of the toad’s inspiration. As her financial empire crumbled, it was almost inevitable that Onoue became known as ‘The Bubble Lady’. She was sentenced to twelve years.1
Onoue’s story encapsulates the madness of the bubble, which lasted from the mid-1980s to the end of the decade. Stories from that era are legendary, and quite possibly apocryphal. They tell of how businessmen would think nothing of giving thousands of dollars in tips to a favourite hostess, asking little in return save that she laugh coquettishly at their jokes. They tell of people sprinkling gold leaf on their food like salt and pepper, a practice that – if truth be told – persists in some of Japan’s more upmarket restaurants to this day. They tell, too, of the golf memberships that traded on the secondary market, bought and sold by speculators with no intention of ever actually donning golfing apparel and teeing off.
The bubble was encouraged by the belief, derived from post-war experience, that when it came to property prices, the forces of Sir Isaac Newton no longer applied in Japan. It was further puffed up by a heady mix of easy money, financial deregulation, a strong yen and low interest rates. The main human ingredients, as so often, were fear and greed. The bubble is sometimes presented as proof that Japan’s economic system, so lauded by credulous admirers only a few years before, was deeply flawed. It is true that Japan’s economy chased market share over profits. It is true too that the system worked best during the catch-up years, but less well once Japan had reached a western standard of living. But the country’s bubble was partly just an inevitable consequence of decades of rapid growth, an exuberant overshooting. As Americans and Europeans have themselves become all too aware in recent years, irrational exuberance can grip the western imagination too.
In Japan, property prices were driven ever higher as companies, many with entirely unrelated businesses, borrowed money to put into escalating real estate. Those that didn’t participate found their performance falling behind competitors that were bingeing on property. At one stage, the choicest buildings in Ginza, the most upmarket commercial district in Tokyo, were fetching $20,000 a square foot. By comparison, in 2011, property in London’s Knightsbridge, one of the city’s most exclusive areas, cost a tad over $3,000.2
The other favoured investment was shares. These also seemed a safe bet, partly because their prices kept ascending and partly because their value was propped up by friendly shareholders who held them as cross-shareholdings in the keiretsu system. Share prices rose beyond what was considered normal, but, as usually happens in such circumstances, market gurus came up with explanations for why the Tokyo market was different. Shares in Nippon Telegraph and Telephone, for example, were trading at what stockbrokers call a price-earnings ratio of 300, implying that it would take 300 years of profits to cover the share price.3
Many date the start of Japan’s extraordinary excesses – and hence its drastic decline – to a meeting of the finance ministers and central bank governors of the US, Germany, Britain, France and Japan held in New York’s Plaza Hotel in September 1985. It was a very upmarket mugging. The upshot was that Japan, together with the other countries present, agreed to intervene on the currency markets in an effort to strengthen the yen and weaken the dollar. The idea was to help the US clamber out of recession and to close what had become a yawning trade gap between Japan and America, a cause of increasing friction. The effort proved all too effective. Over the next two years, the yen doubled in value from Y240 to Y120 against the dollar, making Japan’s products twice as expensive for the rest of the world to buy. The Bank of Japan, the central bank, convinced that the higher yen would tip Japan into recession, lowered interest rates to keep the economy afloat. It was also acting in response to western requests – of the sort these days being made of China – to boost domestic consumption and serve as an engine of world growth.
There were domestic reasons for the crisis too. The government had deregulated the capital markets, making it easier for companies to issue debt rather than borrow from banks. That left banks looking for alternative places to invest their deposits. All too often they lent to those who wanted to speculate on property. Japan had also failed to make the transition from exporting powerhouse to what Yasuhiro Nakasone, prime minister in the mid-1980s, called an ‘importing superpower’.4 The post-war political economy had been built around production and exports. Shifting to a consumer-led model was easier said than done. For that, one needed to overcome vested interests and an entire political structure built around big business rather than the ordi
nary citizen. As a result of the central bank’s effort to stimulate the economy, money became easier and cheaper to get hold of, fuelling a speculative frenzy. The price of shares and property began to escalate in what looked to many like a one-way bet. Even Onoue’s ceramic toad appeared incapable of making a wrong move. Of course in finance, as in life, bets can go both ways. When the central bank, realizing how far things had got out of hand, tried to tame the euphoria by raising interest rates, the bubble was pricked. Japan, which had been floating on air for so long, landed with a thud. There would be no return to the economic vigour of the past. The dream of Japan as Number One was over.
Bending Adversity: Japan and the Art of Survival Page 14
