Japan: Back To Yen Pity

Written by Subhash Agrawal | Updated: Jan 16 2003, 05:30am hrs
Years ago when I was studying in the United States, Japan was a constant sub-theme in academia. Every year, thousands of sundry academics headed off to the Mecca of manufacturing to study its economic miracle. Japan was brimming with confidence and money. Many of its keiretsus sponsored trips for foreign students. I was one such recipient of their munificence and after my residency I came back with a single overriding observation, of how Japanese society was completely opposite to our own. While Indians, at least the elite, were obsessed with understanding and engaging the world, the Japanese were largely self-focussed. There was little knowledge about the world outside. Resident gaijin and assorted Japanophiles were viewed with bemused politeness, with the underlying belief that no foreigner could really understand Japanese society. The Yanks, Brits and Germans did try for almost two decades and then gave up, distracted by China and exhausted of their yen for the yen.

In the last two decades, Japan has gone from spiralling profits and minor budgetary deficits to large-scale bankruptcies and a crushing public debt which is the biggest in the developed world. The revenue deficit is now above 50 per cent, in comparison to say the US and Britain where it is 10 per cent. Its deflationary economy does not allow for any major spending cut or tax increase, and conversely, the deficit precludes a major tax cut or increase in public investment. There are no worthwhile borrowers of money even at near zero per cent and unemployment is no longer headline news. The Nikkei Stock Average is at its lowest in almost 25 years. Many western companies and banks have withdrawn.

As bad as this is, there may be a silver lining. Or two. First, every feature of Japanese economic life is now so threatened that the Japanese are being forced to create new definitions of careers, corporate governance and balance between politicians and bureaucrats. This is likely to have a huge impact on transforming loyalty, teamwork, mobility, family and politics. It may not be apparent to outsiders but Japan is at the beginning of a huge social transformation. Japan is not America, and change there happens more slowly, subtly and hesitantly. But the process has started.

Second, since few people study Japan seriously anymore, it is forcing that country to step out and participate. The irony was that while its companies conquered global markets, its culture, personalities, icons and civic society remained invisible. They still largely are. There are few Japanese in international jobs and even fewer Japanese non-governmental organisations and journals which are globally known. Not because of poor quality but because they never acquired an international dressage or worked across borders. Japanese yen capital abroad may be towering but its social capital across the world is minuscule. Even in India, there is nary a Japanese presence outside of the car and electronic markets. How does a country nurture social and political goodwill if it can only be found in Lajpat Nagar and Lamington Road

Japan usually waits for signals from Washington on foreign policy, or at least thats the perception. The few original positions adopted by Japan have been marked with ineptitude or inflexibility. During the Kargil episode Japan called for a cease-fire, not a withdrawal of Pakistani forces. To make matters worse, it offered to host a Kashmir conference, an idea predictably embraced by Pakistan and shunned by India. These misgivings have been largely forgotten and India and Japan have reconciled in the last year, but Japans obsession with the nuclear Non-Proliferation Treaty and Comprehensive Test Ban Treaty is still a mystery, especially since the Pakistan-North Korea axis ought to put both countries on the same side vis-a-vis nuclear blackmail.

Japan is now attempting to play peacemaker in Sri Lanka. On the one hand, it has little experience or capability and the Sri Lankan problem is rather intractable. The LTTE is quite untrustworthy as our security forces know only so well, and decommissioning of arms is already a contentious issue. But succeed or not, Japans very act of engagement in Asia is a positive sign of maturity. As long as it desists from emulating Australia by acting as Asias deputy sheriff.

The author is an analyst of Indian political and business trends and the editor of India Focus, a political risk report for international investors