Irwin Stezler’s short-term memory

When Americans get skittish about China’s growing economic power, free market advocates — myself included — tend to remind everyone about the excessive skittishness Americans had about Japan in the late eighties. In the Weekly Standard, Irwin Stezler offers some reasons for why China now is different from Japan back then:

Once again, politicians and policy wonks are up in arms about a foreign takeover of an American company, in this case the attempted acquisition of Unocal by China’s National Offshore Oil Corporation (CNOOC). To those who remember the hysteria that greeted Japan’s purchase of Rockefeller Center, the jewel in the crown of New York real estate, in the late 1980s, “It’s d?ja vu all over again,” to borrow from the Yankee sage, Yogi Berra. That might just be dangerously wrong. The current Chinese takeover movement is different from the earlier buying spree by Japanese companies. Japan was not a rival for influence in Asia, or in the world; China is. Japan was not a major competitor for scarce resources such as oil; China is. Japanese companies were privately owned; China’s acquirers are state-run entities. Japan is a democratic country, and by and large an American ally; China most definitely is not. Japan did not engage in the wholesale theft of intellectual property, China does. Japan did not buy strategic assets: ownership of New York real estate has no implication for national security; ownership of oil resources does.

Now, I’m not necessarily disagreeing with Stezler’s big point about the differences between China now and Japan then, but I remember enough of the late eighties hysteria to point out the various ways in which Japanophobes would have rebutted Stezler’s alleged differences between Japan and China:

1) Japan was not a rival for influence in Asia. Japan’s FDI flows to the rest of East Asia in the late eighties were pretty massive. Their official development assistance was also generous but tied to purchases of Japanese products. American’s feared their growing political influence then; 2) Japanese companies were privately owned. Who exactly were the owners? The keiretsu system of interlocking cross-corporate ownership made it next to impossible to identify the real owners of Japanese capital. This was one reason why the Japan Inc. metaphor was used so widely fifteen years ago. Another reason was the belief that Japan’s Ministry of International Trade and Industry (MITI) was engaging in extaordinary forms of industrial policy administratively guiding Japanese firms towards the government’s desired ends. 3) Japan is a democratic country, and by and large an American ally. In 1990, Japan had been ruled by the Liberal Democratic Party for all but one year of the post-war era. As for being an American ally, in The Japan That Can Say No: Why Japan Will Be First Among Equals, Shintaro Ishihara had great fun toying with the idea of Japan selling its semiconductors to the Soviet Union rather than the United States; 4) Japan did not buy strategic assets. Two words — Fairchild Semiconductors. Fujitsu placed a bid on the semiconductor firm in late 1986; if memory serves, the Department of Defense investigated the security implications of that bid, to the point where Fujitsu backed off. Fairchild was later purchased by a French firm.

One final tidbit — in 1990, Robert Reich conducted a poll of both elites and ordinary citizens and asked them to choose between a world where the U.S. economy grew by 25% and Japan grew by 75% over the next decade, or one where the U.S. grew by 10% and Japan by 10.3%. With the exception of economists, majorities in both groups preferred the second choice to the first one. My point in this little exercise is not to exonerate China’s less desirable qualities — it’s to point out that when another country is perceived as an economic threat to American hegemony, it is easy to find ways of painting that country in a sinister light. UPDATE: The Economist has two articles worth reading on China’s new interest in foreign direct investment. Neither the article about CNOOC in particular or the article about Chinese outward FDI is terribly sanguine about what’s going on. ANOTHER UPDATE: The similaities/differences between Japan and China were also the topic of Paul Krugman’s column today. Krugman also touches on a theme mentioned by the other articles linked here:

The Japanese, back in the day, tended to go for prestige investments – Rockefeller Center, movie studios – that transferred lots of money to the American sellers, but never generated much return for the buyers. The result was, in effect, a subsidy to the United States. The Chinese seem shrewder than that. Although Maytag is a piece of American business history, it isn’t a prestige buy for Haier, the Chinese appliance manufacturer. Instead, it’s a reasonable way to acquire a brand name and a distribution network to serve Haier’s growing manufacturing capability.

Maybe my memory is off, but the Japanese also set up a fair amount of greenfield FDI in the auto sector as well. Also, what difference wlould it make how the Chinese use their investments? None, unless you care about relative gains a fair amount — which is what Krugman seems to be doing, according to both Tyler Cowen and Don Boudreaux. Both also link to Sebastian Mallaby’s sensible observation in the Washington Post:

[T]he protectionists say that if the Unocal bid is allowed to go forward, the Chinese will use the power of corporate ownership to manipulate oil prices; worse, China could even blackmail America by withholding energy supply. This echoes old fears of Japanese semiconductor makers, which were said to be plotting sinister dominance of the memory-chip business in the 1980s. As the protectionists explained it, the Japanese plan was to destroy U.S. rivals by undercutting their prices, then later to ramp up their own prices and hold U.S. industry (including the defense industry) for ransom. But the protectionist fears are based on a misunderstanding of markets, which are harder to corner or manipulate than people seem to understand. Japan’s assault on the memory-chip market never did produce the feared lock on this product. Instead, U.S. chipmakers prospered by moving upscale from plain memory chips to fancy microprocessors, and the supposedly oligopolistic Japanese memory-chip firms were soon challenged by South Korean rivals…. [I]t’s hard to paint a plausible scenario in which Chinese control of Unocal would hurt us — despite loud exclamations to the contrary from Congress. For one thing, Unocal’s oil output accounts for a tiny fraction of U.S. consumption. The firm’s chief asset is undeveloped natural gas in Indonesia that’s going to take at least five years to develop — by which time the current tightness in the energy market will probably have dissipated because of the development of new oil fields. But there’s a more fundamental objection to the protectionist anxiety. The protectionists worry that China will ship all of Unocal’s output home to its own industries, thus hogging scarce oil supplies and taking them “offline.” Even if this were possible, it wouldn’t matter: Unocal’s oil and gas would be meeting Chinese demand that would otherwise have to be met by Chinese purchases on world markets. In other words, China would be reducing both the supply and the demand for energy in the open market. Prices paid by American consumers wouldn’t budge.

LAST UPDATE: Alex Tabarrok goes completely medieval on Krugman.