The Island Nation

Japan will rebuild, but not how you think. And 20 years of misread history holds the clues.


"When my mother was 10, she was evacuated to Sendai and saw the whole town get bombed flat. My father experienced the big air-raids on Yokohama. Their generation started out when there was nothing left of Japan but smoking ruins. Don’t worry about us — we’ll definitely recover this time too."

So read an email I received a few days ago from a family friend, a professor of literature at a prestigious Japanese university. It served as further confirmation that the earthquake that hit Japan on March 11 may have shifted the land mass of the main island by six feet, but the country’s extraordinary social cohesion and stoicism haven’t budged an inch.

In a sense, Japan has been waiting for a crisis just such as this to show its inherent strengths. The foreign media have been hyperventilating over the question of whether Japan can rebuild (and improve upon) its economy. This misconceived idea stems from the frenzy of the 1980s, when foreign writers and academics lauded and feared Japanese industrial might. But when the Japanese economy stagnated, the praise and warnings turned to lectures and self-congratulation, as the West patted itself on the back for having bested the Japanese threat. But this analysis of the rise and fall of Japan’s economy misses the point. In my three decades of residence here, Japan’s underlying reality has changed a lot less than volatile foreign perceptions.

The Japanese economic miracle had nothing to do with competitiveness or the supposed omniscience of Tokyo’s elite bureaucrats; it had everything to do with the resilience of ordinary Japanese people and the country’s deep reservoir of social capital. And when Japan’s economy faltered during the "lost decades," this likewise had nothing to do with a stodgy growth model or Tokyo’s elite bureaucrats having dug their heads into the sand. Japan was urged to make radical economic reforms by many foreign observers, who were then disappointed by Tokyo’s glacial progress in making them. But economic efficiency was never the end goal, whether Japan’s economy was rising or falling. It was social stability. And this foundation has survived two tough decades and is now a national insurance policy being paid out in the aftermath of the recent disaster.

Japan will rebuild its economy, probably with impressive speed. But don’t expect to see a plethora of Japanese billionaires emerging, along the U.S. or Chinese model, or the adoption of hostile takeovers, Reagan-Thatcher-style supply-side reforms, and the rest of the neoliberal agenda. Instead Japan will dig deep into its own values to forge a 21st-century version of the "rise from the smoking ruins."

If modern Japan has a common ethic, it’s based on mutual respect, not victory in competition. The most potent symbols of this Japanese sense of social cohesion are the dowdy blue overalls worn by Prime Minister Naoto Kan and his ministers at news conferences and other public appearances since the earthquake. The idea is to express solidarity with the workers at the front line and reduce the sense of separation between rulers and ruled. This was a strategy also employed by the legendary business leaders of Japan’s 1960s golden era. Soichiro Honda, for example, attended meetings with bankers in his overalls.

Indeed, the Japanese public looks back on the 1960s not primarily as a time of rapid growth, but as one of shared purpose and real equality. The 1980s, on the other hand, when Japan became a huge player on the world stage, is viewed with ambivalence. Justifiably so, as it led to the inflation of the "bubble economy," a period of manic speculation that makes America’s subprime housing disaster look tame by comparison. Japan does gaman (endurance) superbly. It copes with the challenges of success less well.

This point was deeply misunderstood in the 1980s, when Japan inspired a mixture of respect and dread on the global stage, particularly in the United States. A group of academics and writers, most prominently the late Chalmers Johnson of the University of California, came up with the idea that the Japanese industrial challenge was so formidable that it required "containment," just as Soviet communism had.

Almost everything these experts said turned out to be spectacularly wrong. They had misread the causes of Japan’s postwar success. The supposedly farsighted technocrats praised by Johnson in his 1982 book, MITI and the Japanese Miracle, were the same people who tried to stop Honda from getting into the auto market, poured public money into sunset industries, and built nuclear power plants on a tsunami-prone coast at sea level.

The biggest mistake was to overlook the Japanese social consensus that interpreted international economic competitiveness not as an end in itself, but as an indication of national self-respect.

The generation of Japanese brought up amid the postwar devastation was driven by a hunger to reconstruct everything — their lives, their society, their country’s standing in the world. Once Japan was strong enough to be left alone, the target had been achieved.

After the collapse of the bubble economy in 1990, Japan did indeed descend into stagnation and banking crisis. At the time it seemed as if Japan’s policymakers and bankers were uniquely incompetent in their fumbling attempts to tackle the problems. With the hindsight offered by the global financial crisis, it is clear that there are no easy fixes to the damage caused by the implosion of a large-scale bubble. And the United States is not one to judge: Washington has refused to make Wall Street take the harsh medicine it urged on Japan a decade earlier.

By the early years of this century, however, Japan had largely worked through its post-bubble malaise, and its economic performance started to improve. The Japanese corporate sector returned to record margins. The percentage of Japanese exports going to the emerging world soared to much higher levels than those from the United States and Europe. And corporate Japan’s spending on research and development was 50 percent higher (as a percentage of sales) than U.S. and European competitors.

There are two reasons that this went largely unremarked. First, economists usually discuss GDP without reference to currency markets, but this can obscure what’s really going on. Japan’s tight monetary policy has caused the yen to strengthen significantly against the dollar and dollar-linked currencies — which raises the global purchasing power of Japanese households and corporations. In comparison, U.S. growth looks impressive when denominated in dollars, but not so much when taking into account the weak dollar policy followed by Messrs. Greenspan and Bernanke. If denominated in Japanese yen, U.S. GDP has been stagnant for the past 10 years.

Second, Japanese economic output per worker actually ran ahead of U.S. levels in the 2003-2008 period. Sure, U.S. GDP growth has been boosted — but largely by the rising total number of workers, itself a result of population increase, mainly caused by immigration. This obscures what’s really happening to living standards. If the well-being of the mass of citizens is the goal of policy, Japan’s performance this century does not justify the "lost decade" sound bite.

Foreign observers often see mass immigration as a cure-all for Japan’s demographic problem. It hasn’t happened and it isn’t likely to: In the Japanese hierarchy of needs, social cohesion ranks higher than top-line growth. Japanese opinion tends to focus on the potential downsides of large-scale immigration: Inequality would probably rise; the wages of low-earning native workers would likely be deflated by the new competition, while the upper-middle class would benefit from the services of inexpensive cleaners, handymen, and baby sitters. The Japanese also fear a dilution of shimaguni konjo, the "island nation spirit" that has helped them cope with a series of disasters of apocalyptic proportions.

The quiet strength of today’s Japan is that the janitor in your apartment building is not a representative of "the other." He is you. In fact, there are thousands of janitors in apartment buildings across Japan who cut the same rumpled figure as Kan in his blue overalls. It is this Japanese narrative of a shared suffering and renewal against all odds that will drive Japan’s post-quake development. We may wish the Japanese to become more like us, but that isn’t going to happen. As they set about the task of recovery, they will become more like themselves.

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