Trading Places, Part 2

Za Gaishi (Foreign Capital)
By Ryo Takasugi 74 pages, Tokyo: Kobunsha, 2002 (in Japanese)

"Kozo Kaikaku" toiu Genso (An Illusion Called "Structural Reform")
By Yukio Yanbe 220 pages, Tokyo: Iwanami Shoten, 2001 (in Japanese)

In 1988 — when Japan’s per capita gross national product surpassed the United States’, its foreign currency reserves were double those in the coffers of the Federal Reserve, its cars and electronics dominated export markets, and its investors bought big American properties like Rockefeller Center — U.S. publishers capitalized on the paranoia over Japan’s ascendance. Some of the titles: Selling Out: How We Are Letting Japan Buy Our Land, Our Industries, Our Financial Institutions, and Our Future; Trading Places: How We Allowed Japan to Take the Lead; and even The Coming War With Japan.

Fourteen years later, Japan no longer inspires such angst. Its national debt, at 130 percent of its gross domestic product and rising fast, is higher than that of any nation in living memory. Its banks are desperate to write off bad debt and slow to make new loans. Banks are pushing borrowers into bankruptcy and driving unemployment to record levels. Foreign interests have taken over some of the country’s largest banks and insurers, and U.S. and European rivals control three of Japan’s five largest automakers. The country’s largest supermarket chain, Daiei, struggles to survive under government-orchestrated restructuring, while stores like Costco, Carrefour, Toys "R" Us, and L.L. Bean sprout up.

The Japanese are experiencing an uneasiness Americans ought to recognize — and the response of Japanese booksellers is also familiar. One bestselling novel by financial fiction author Ryo Takasugi details how "powerful American investment banks are trampling all over the Japanese economy," according to its promo. Za Gaishi (Foreign Capital) is emotionally shallow and often implausible. What is noteworthy is that while America-bashing has thus far been the province of nonfiction commentaries, it is now attracting the attention of novelists. And just as Michael Crichton and Tom Clancy novels once stirred U.S. paranoia about Japan, Takasugi’s work helps stoke Japanese hostility to foreign (mainly American) investors. 

Its main character, Kenyu Nishida, is on a lifetime career track at one of Japan’s long-term credit banks when a midcareer crisis prompts him to jump ship for a U.S. investment bank. For a while, he savors the cutthroat competition of Wall Street. But when his boss tries to steal a big merger deal from him, Nishida leaves the firm in a fury. A rich New York investor whom he bumps into while jogging in Central Park picks him up as a partner in a Tokyo brokerage. But this gaijin, too, turns out to be a crook.

Takasugi’s epic parallels the real-life saga of Japan’s troubled financial industry since the 1999 takeover of the failed Long-Term Credit Bank of Japan, which was nationalized and sold to a New York investors group. Organized by Ripplewood Holdings, the group includes such powerhouses as Citicorp, GE Capital, Mellon Bank, and ABN Amro.

In a recent article in the top-selling monthly Bungei Shunju, Takasugi decried a government sellout to foreign "vultures," who turned a thriving public-service institution into "a device to suck up Japanese taxpayer money." Takasugi then denounced Financial Services Minister Hakuo Yanagisawa, seen as a no-nonsense reformer by Wall Street, for hiring investment banking powerhouse Goldman Sachs to advise him and then agreeing to terms that for Ripplewood were almost too good to be true. The government not only took over 4.25 trillion yen ($33 billion) in bad loans but agreed to let the newly renamed Shinsei Bank sell back any other loans that lose 20 percent or more of their value within three years.

One month later, Japanese officials were stunned when Shinsei refused to join other banks in writing off 630 billion yen (then worth $6.1 billion) in debt to support a restructuring plan for Osaka-based Sogo Department Stores. Sogo and its 72 other lenders wanted Shinsei to forgive 97 billion (then $920 million) of the 200 billion yen in loans made by its predecessor, the Long-Term Credit Bank of Japan. But to do that, Shinsei would have had to relinquish its claim to the entire 200 billion, which would have been tough to justify to its foreign shareholders. Shinsei’s refusal caused the other lenders to back off, and Sogo collapsed, sending a shudder through corporate Japan. The event brought angry denunciations from Japanese politicians and business people, who charged that cold-blooded gaijin bankers had disrupted the traditional wa (harmony) of Japanese business practices.

The episode did make some Japanese realize what global financial standards mean — that banks will lend money to viable businesses to make profits, not to fulfill sentimental obligations or to prop up weak companies because they are run by members of the old-boy network. Since then, several large corporations and countless smaller businesses have likewise had the financial plug pulled, helping drive the jobless rate to a record average of 5 percent in 2001 and leaving many Japanese fuming about a sellout of the country’s birthright. "Our financial industry has been taken over by tricky Anglo-Saxon hyenas," Takasugi charged in his article.

In the novel, his fictitious hero, Nishida, encounters a succession of those hyenas, in addition to Japanese mercenaries who pave the way for foreign thugs. Slashing his way through this cast of lower-order beings like a samurai, Nishida achieves a certain personal happiness in the end. Not so in Japan, whose citizens perceive a transformation from a world in which people watch out for each other to something far less congenial.

In "Kozo Kaikaku" toiu Genso (An Illusion Called "Structural Reform"), Kobe University economist Yukio Yanbe offers a more theoretical underpinning for Japanese fears, and he points a finger to where much of the blame really lies — at home. Yanbe denigrates the policies that Prime Minister Junichiro Koizumi has prescribed to return Japan to economic health. Koizumi took office in April 2001 with a mandate to clean up the banks and boost the economy. Girded with approval ratings above 80 percent, he warned that reform would be painful.

Yanbe argues that Koizumi’s premise — that the current stagnation derives from Japan’s structural problems — is dead wrong. Forcing banks to write off all their bad loans will simply accelerate bankruptcies and unemployment. Promoting unrestrained competition and letting the market pick winners and losers will widen the gap between rich and poor. "It will be a tough, unstable society," Yanbe says. "That’s right, just like America."

Yanbe’s solution is nothing original. He would postpone bad-loan write-offs and return to the fiscal policies Japan pursued in the 1990s to no visible effect. Never mind that such policies would push the national debt to new heights. They also would "create jobs… bring happiness to people by improving education, welfare and medical services… and eliminate public worries, leading to an expansion of consumer spending." Though Yanbe’s book is not the popular hit Takasugi’s is, Yanbe’s arguments resonate with those who disagree with Koizumi’s "no pain, no gain" reform program.

Yanbe and Takasugi both use the term "casino economy" to describe the kind of society they say awaits Japan after Koizumi’s reforms. Both blame Japan’s woes on American-style capitalism and the U.S. push for global standards, and both describe the United States as a hell no decent individual would want to inhabit. The authors thus provide a rationale for Koizumi’s foes in the ruling coalition, who want to block his agenda.

That agenda is two-pronged: forcing banks to write off debt of weak borrowers so they will collapse and free up assets for more productive uses and dismantling the apparatus of government corporations and services, whose purpose has been to funnel public money into pork-barrel projects. The postal service is a key part of this apparatus. Its two enormous financial institutions, Postal Savings and Postal Life Insurance, compete directly with the private financial industry, and Koizumi hopes to privatize them. But the postmasters have long been a key to Liberal Democratic Party (LDP) organization in the countryside. Koizumi, who has pledged to limit new deficit spending to 30 trillion yen ($239 billion) a year, is also angering LDP anti-reformers by refusing their calls for a return to the big stimulus packages of years past.

But Koizumi failed to take on Japan’s vested interests quickly enough when his popularity was high. Now he is working against the antireformers but without the enthusiastic support of those who backed him a year ago, many of whom are now disillusioned. And few Japanese voters believe any longer that Koizumi can change anything — which leaves some people to reckon that perhaps the only force capable of changing the way Japan does business, whether the Japanese themselves like it or not, is foreign capital.