Volume 1, Number 5
19 April 2001

Is Japan Quakerly?

Dear Friends,

Ever since World War II, Japan has appeared to be one big happy family, in which all Japanese care for each other and are unusually loyal. The loyalty operates on several levels: nation and emperor, family, keiretsu (or business families) and firm or government. Like the Chinese, Japanese have a Confucian history, but unlike Chinese, their primary loyalty is to the Emperor (or the nation) and only secondarily to the family.

The Japanese protect their friends and colleagues. At present, Prime Minister Yoshiro Mori is widely believed to be incompetent and ought to resign.(He has said he will resign before party elections on April 24). In Britain, he would have been voted out of office long before this. In Japan, he is kept on out of loyalty by his fellow-ministers. The government also protects businesses. Government money is pumped into failing firms to keep them alive. Until recently, firms have offered guaranteed lifetime employment for their workers. In a recession, they would keep their workers by putting them on to make-work jobs. If they couldn't finance this, there would always be help from the banks, which in turn would get their funds from the central bank (Bank of Japan). In the United States, such workers would have been let go.

Competition — common to most capitalist countries — is unpopular in Japan. Innovations in production are often proposed to management by a whole work group so that no one person takes credit, even if one individual thought of the innovating. The head of a department or firm usually takes an interest in the personal lives of employees, just like in a family. In a most desired situation — not always achieved — no Japanese should advance ahead of anyone else. All should move forward at the same pace. (But they compete heartily with outsiders, in the world economy, and in the Olympics).

Before World War II, businesses were formed into families, known as zaibatsu. Each zaibatsu had a bank, a vertically integrated group of industries, and wholesale and retail outlets. Supplies would be bought from a sister-firm within the zaibatsu, even if they cost more than from an outsider. At the end of the war, the victorious powers demand an end to the zaibatsu, thinking that it had supplied power to the military-industrial complex. Ever ingenious, the Japanese re-formed it with minor changes and gave it a different name: keiretsu.

The Ministry of International Trade and Industry (MITI, now named Ministry of Economy and Industry) determined which exports to favor and, through the Bank of Japan, arranged that they would be adequately financed. This action might be like a father encouraging his children into professions of his choice, and financing their education if they agree. The keiretsu banks were kept solvent even as they made loans to less promising enterprises. Rather than drive debtors into bankruptcy, as would happen in the United States, the banks repeatedly renewed the loans. The Bank of Japan would create new money (yen) for this purpose.

Is this Quakerly? Very few Japanese are Quakers, but here I wonder whether their principles are the same as Quakers. (Hint: I used to think so). If you think "Quakerly" means taking care of your friends and neighbors, and making sure that none of them is in need, or falls by the wayside, then surely it is Quakerly. But if you think that "Quakerly" means "tough love," or having little patience with those who make unwise choices and cannot pay their debts, then it surely is anything but. The early Quakers would read out of Meeting those who could not meet their debts, since they had undertaken more than their capabilities. We do not do that today, but our capitalist society drives them into bankruptcy or receivership.

For 35 years after World War II Japan appeared to outsiders to be the world's leading economic power. In fact, however, the strength lay only in exports; the internal economy was inefficient and expensive. The Japanese worked hard but paid high prices for their food, houses, and clothing. Economists today believe that even the choices made by MITI were not the correct ones. The great industrial advances occurred in those plants opposed to central planning — Honda, for example. Ultimately, the system became too burdened by the debts of inefficient industries and agriculture. Corruption is rampant, as scandal after scandal has broken out among government officials. These scandals have led me to wonder whether, in considering Japan as one big family, the officials have failed to distinguish between what belongs to the public purse and what belongs to them personally.

Japan is now a country of failing banks, replete with bad-debt assets, propped by government. Unlike the United States, where bank reserves are held in deposits with the Federal Reserve, Japanese banks often hold reserves in equities (stocks), which have lost value in market crashes. Their loans are often secured by land whose value has also crashed. "Bankruptcies are mounting while corporate earnings, exports and asset values are falling, all of which constrain the ability of Japanese companies to repay their debts" (New York Times, 4/3/01).

The keiretsu are dissolving, as their members either fail or are forced to trade outside the family. Firms are failing, and unemployment — heretofore always low — is rising. Lifetime employment is becoming a thing of the past. Firms are merging to stay alive. Economists and diplomats are now wondering whether Japan will drag down all of Southeast Asia, where it has financed many precarious industries. If the United States also goes into recession (which some are predicting now), Japan and the United States together might drag down the world economy, since together they account for 40% of the world's output and employment.

The United States has been urging Japan to use Keynesian instruments of fiscal and monetary policy, to prop up demand. Spend, spend, spend, we have told their government (although President Bush seems to be reversing this advice). Complying with U.S. wishes, the Japanese government has built unneeded bridges, parks, and public works, just to put people to work, to give them income with which to perk up demand. Lower interest rates are proposed, to encourage businesses to borrow and invest. But — believe it or not! — the interest rate has gone down to zero, and still firms do not borrow enough, even when doing so is free. Some say Japan is in a "liquidity trap" — people and businesses hold scads of yen but are unwilling to invest them because the prospects are not good. Again, believe it or not! — prices are actually going down. Japan is deflating.

Princeton Economist Paul Krugman argues that even if the interest rate is zero, Japan should print more money to encourage spending. This (he says) would reverse expectations, from deflation to slight inflation, and cause demand to increase. Michael Porter, professor at Harvard Business School, finds this policy far-fetched. The problem, he says, lies with the ways Japanese do business. Encouraging demand will do no good, and might even be negative, if industry is inefficient and wasteful. The Japanese must change their fundamental ways, he argues, to create an economic structure efficient enough to compete with the world. (Note: "Efficient" means, among other things, "not wasteful.")

What do you think? Is it necessary for the citizens of any country (say, Japan) to compete among themselves to bring about the efficiency necessary to survive in a globalized world? (In a later Letter, we will consider whether globalization is a good thing or not). Is world competition necessary to prevent wasted resources, or is there some other method that may be more "friendly?"

A Note on the China Crisis

Quakers may be aghast to discover that the United States is monitoring the coast of China. "Everybody does it," is the usual response, "including the Chinese, who monitor us." Actually, I don't know of Chinese aircraft buzzing up and down the California coast, though the Russians have certainly invaded our space, and we theirs (remember Gary Powers, who flew over the Soviet Union in a spy plane in 1960?). But all that is irrelevant. If we want peace, we should keep our planes at home.

Just as the more modern or "western" world is overcoming our obsession with borders, the Chinese remain territory-conscious. As the Middle Kingdom, between Heaven and Earth, in the nineteenth century they considered themselves superior to earthly beings and would not trade internationally or open up diplomatic relations. The Western powers, wanting Chinese products — primarily tea and silk — found they had nothing to offer the Chinese in exchange. In the 1830s the British managed to get many Chinese addicted to opium, so they could trade Indian opium for Chinese tea. The result was the Opium War, in which the British took Hong Kong (1840). For the rest of the century, Westerners made inroads into China, demanding special trading zones — Shanghai, Canton, Manchuria. The Chinese are still sensitive to these exploits and continue to believe that Westerners are trying to encroach upon them. The best way to treat this paranoia would be not to feed it.

At present, the Chinese need us as much as we need them, if not more. Investing heavily in China, American businesses bring new technology and capital to modernize their economy. Approximately 54,000 Chinese study in the United States. We buy $40 billion a year of their exports. The Chinese want very much to join the World Trade Organization, to get permanent normal trading relations with the rest of the world (See Letter No. 1). All this goes against their traditional culture of border-consciousness — a dilemma of unbelievable (to us) proportions.

Under international law, our plane had every right to be where it was. But it was not very intelligent to insert ourselves into the struggle the Chinese are waging with themselves over coming to terms with the modern world.

Do you have any comments on that?

Sincerely your friend,

Jack Powelson

Readers' Comments

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The extent of lifetime employment in most of postwar Japan has been, I think, overstated. Large corporations in the keiretsu characteristically outsourced to small sweatshops the production requiring most of their employment. When demand for their products fell, disemployment was concentrated on the sweatshops which, if composed of family members may have maintained workers but were producing nothing. It was found, for instance that Nippon Steel, a number of years ago, had 26,000 workers of which only 6,000 were actually employees of the parent company receiving lifetime employment. The rest were sweatshop employees subject to the vagaries of the market.

The major problem of the export-oriented firms financed by low interest loans from banks was that "share of market", not profits, were their objectives. Domestic producers and consumer goods distributors were highly protected and so inefficient that the standard of living for the Japanese always lagged behind that of Americans. To say that for "35 years after WWII" Japan was "the leading economic power" seems to have been based on Mercantilist criteria: they maintained the highest positive trade balance.

Krugman's basic argument was that by maintaining a believable rate of inflation, real rates of interest could be kept negative — it would pay people to borrow and consume. Recent pronouncements of the Bank of Japan seem to be subscribing to the argument.

Kenneth Boulding: "Bankruptcy was the greatest invention of capitalism."

— Herbert Fraser, Richmond (IN) Friends Meeting

Our Friendly attitude toward others should not be restricted to just those in our family or group. We should treat all human beings with dignity and respect, no matter how distant or unrelated they might be. So my answer is that Japan should compete among themselves to become more efficient. But compete with fairness and compassion.

— Virginia Flagg, San Diego (CA) Friends Meeting

Jack, I commend two recent items as an extension of your remarks on Japan and Quakers if you have not already seen them.

  • "Our Debt to Bankruptcy" New Yorker, April 16, 2001, page 32.
  • Review of "Culture Matters: How Values Shape Human Progress" Foreign Affairs, Jan/Feb 2001, p 209-211.

— George Sinnott, Sandy Spring (MD) Friends Meeting.

I would expect the issuance of an apology in the China/US aircraft incident should depend more on the facts of the mishap, and not on "posturing" or politics. Is there no impartial mediator that is in a position to bring light to this incident? A UN agency? A world court?

— Steve Willey, Sandpoint (ID) Friends Meeting

Kenneth Boulding: "Bankruptcy was the greatest invention of capitalism." The Torah tells Jews that every 7 years all debts are to be forgiven. This "sabbatical year" was called shmitah, a year of release. This practice is not followed, at this time, but I would say that this is a form of collective "bankruptcy" protection, so that folks can get back on their feet. It worked in the days when all who followed the rule were treated like family.


— Free Polazzo, Atlanta (GA) Friends' Meeting


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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board

  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Herbert Fraser, Richmond (IN) Friends Meeting.
  • Asa Janney, Herndon (VA) Friends Meeting.
  • Gusten Lutter, Mountain View Friends Meeting, Denver (CO).
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor.
  • J.D. von Pischke, a Friend from Reston, VA.
  • Bob Schutz, Santa Rosa (CA) Friends Meeting.
  • Wilmer Tjossem, Des Moines Valley (IA) Friends Meeting.
  • Faith Williams, Bethesda (MD) Friends Meeting.

Members of the Editorial Board receive Letters several days in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

This newsletter was formerly known as The Classic Liberal Quaker.

Copyright © 2001 by Jack Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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