Decisions Ahead for... Japan Japan is determined to be "ichiban" Number One-by the turn of the century. Her economic progress since World War II has been phenomenal. But already economic and strategic problems are becoming evident. What must Japan do to continue her economic growth?
FOR TWENTY-SIX YEARS Japan has driven herself to become one of the world's industrial giants. From defeat in war to victory in business, Japan's economic impact is felt around the world. Despite a paucity of raw materials, Japan has become rich. Only the United States and the U.S.S.R. lead her in Gross National Product! But tensions are building up. Future economic, political and military problems loom on the horizon. Japan must, in her national interest, face them and find solutions soon.
Import or Perish
Ever since the United States, through Commodore Perry, opened the ports of Japan to international trade, Japanese entrepreneurs have worked feverishly to adopt Western methods of manufacture and production. It wasn't until after World War I, however, that Japan was able to make her influence really felt to any great extent in Western markets. And since World War II, her trade expansion has been simply astounding. With extremely limited raw materials, Japan has had to import to survive. Geopolitically, Japan's wars in the 1930's and 40's were fought primarily to gain or protect sources of raw materials rather than to acquire living space for her growing population. (Japan has today a population of close to 105 million compared to only 70 million in 1936 — and she is still able to absorb them all.) However, with only limited land area, she must import food to feed her hungry millions. Even with spectacular increases in rice production in the past twenty years she still falls short of her needs. Japan has reasonable amounts of coal, but must still import about 40% of her total requirements and 58% of the critical coking coal. Crude petroleum is a crucial power source — Japan must import over 99% of her needs, most of it coming from the Persian Gulf area. Tankers shipping petroleum from the Middle East to Japanese ports represent a veritable ocean pipeline. Japan is critically short of other raw materials vital to modern industry. She must import 98% of her iron ore needs and 86% of her copper. She is totally dependent on other nations for all of her bauxite (aluminum ore) and crude rubber as well as cotton and wool for her huge textile industry! Whereas other industrial powers have had tremendous sources of raw materials within easy access, Japan has had to range far and wide to supply the ever-growing demands of her industry. But she is willing to do so. Her aggressive businessmen travel throughout the world to find new sources of raw materials. They sign long-term, exclusive contracts for exploitation of those reserves. Then engineers and technicians move in to start things moving. Japanese ships of gargantuan size haul ores, oil, other products to her ports and other ships transport finished products to nearly every nation on earth. Because of her efficient shipping, manufacturing and financing, as well as low-cost labor, Japan is able to meet competition in almost every field she has entered. She can even undersell American steel producers right in the U.S. While American labor is pricing American products out of world markets, Japanese workers and employers cooperate to build up their foreign trade. As a result, Japan is stepping in and taking over many foreign markets once traditionally held by the U. S. But there are other reasons for Japan's remarkable growth.
From Defeat to Power
Just after World War II, the victorious Allies stripped Japan of much of her industrial capacity and shipped whole manufacturing plants to southeast Asian nations. Japan was left with only a fraction of her war-time industrial capacity. Miraculously this turned to her advantage. When Japan began to rebuild her industry, it was with new equipment and techniques — processes and machines ten to twenty years ahead of many Western competitors. Another boon to Japan's industry was the Korean War. The U. S. purchased between two and three billion dollars' worth of war-related material from Japan. Much of this was new, highly refined electronics gear. After the Korean conflict cooled off, Japan easily shifted to the mass production of consumer goods using the technology learned in war production. She quickly became expert in transistorized circuits. Added to the war revenue, Japan received about $4 billion in foreign aid from the United States. And, shielded by Washington's "nuclear umbrella," Japanese governments have spent only a fraction of each annual budget on national defense. Instead, government revenues have been funneled into economic development. These tremendous advantages have given Japan the boost she needed to step into the choice club of industrial nations. Two other boons to Japan's rapid industrialization were the efficient system of mass technical education, and the liberal government encouragement of industries. Near-monopoly trusts were not restricted, but foreign investments were restricted. Today Japan is actually number one in many fields: shipbuilding, pianos, cameras, transistorized television sets. She is the world's second largest manufacturer of trucks and automobiles, third largest producer of steel and machine tools. The list is lengthy. Some economists predict that Japan will enjoy the world's highest Gross National Product by the turn of the century — just 29 years hence! And yet Japan faces several major problems that threaten to disrupt her economy unless the proper solutions can be found.
Japan Versus the U. S.?
Japanese products flooding American markets have resulted in some tension between these two nations. Japanese automobiles, television, stereos, and especially textiles have hit American manufacturers very hard. American textile manufacturers claim that if imports of certain synthetic materials made in Japan are not curtailed, many thousands of American textile workers will lose their jobs. As of July 1, Japan voluntarily restricted textile exports to the U. S. However, the textile problem is far from resolved. The solution to this seeming economic impasse is not an easy one to find. These facets of the problem must be considered. The United States is Japan's best single customer. One third of all Japanese exports (over $5 billion annually) go to the U. S. On the other hand, Japan purchases vast quantities of raw materials from the U. S. American coal supplies half of Japan's requirements. Alaska has become a virtual Japanese economic tributary. Japanese industry is deeply involved in Alaskan lumber, pulp mills, fertilizer manufacturing and oil development. A remarkable 65% of all Alaskan exports go to Japan! Still, Japan sells about one billion dollars MORE in goods to the U. S. than she buys. She would prefer to keep the American market strong as well as be able to purchase American raw materials and fuels. Should a trade war break out, Japan would also come out a loser.
The Need to Diversify
To offset the possibility of curtailed trade with the U. S., Japan must diversify her markets. Trade with the nations once included in the concept of the Greater East Asia Co-Prosperity Sphere of pre-World War II days represents a great market potential — IF it can be developed. Total exports to all Oriental nations are almost as great as those to the U. S. But Mainland China, with her 750 million people, is still a largely untapped market for Japanese industry. Like China, the smaller nations of Asia are poor. To improve the Asian market will require extensive investments in the area. But even with her immense wealth, Japan is limited as to how much she can invest in foreign enterprises of doubtful value. Many of the "have-not" nations have not because they are filled with corrupt politicians and businessmen, are short on educated and skilled technicians and lack national unity and cohesiveness. Right now many free Asian nations are a good market for Japanese goods because of foreign aid, war reparations from Japan and a certain amount of prosperity brought on by the Indo-China war. They have raw materials and fuels but most of these have been developed by foreigners. Further development of these reserves awaits more foreign investment. When — or if — the Indo-China war ends, any income from that conflict will disappear. The ability of people in these nations to buy Japanese products will therefore diminish. Realistic observers of Southeast Asia can see a time when the Malayan crescent — Indo-China, Indonesia, the Philippines — will have little to offer in the way of exports other than limited foodstuffs and minerals. When that time comes, these countries will not be able to purchase Japanese products in return.
What About Europe?
If she were to lose the U. S. as a prime customer and the small Asian nations failed to grow, could Japan expect Europe to absorb her immense and growing output? Today Europe purchases about 15% of Japan's total exports — less than half of that of the U.S. Europe is an important buyer of Japanese goods, but there is no substantial indication that she will ever fill the roll of the U. S. as Japan's major market. In fact, there are certain indications that Europe will import an even lower percentage of Japan's output in the future. The Common Market countries and Japan both have formidable barriers and restrictions against each other's exports. Presently Africa and South America have little to offer in the way of an export market. They have raw materials which Japan badly needs — but are too poor to purchase enough finished products in return. Both Canada and Australia sell much more to Japan than they purchase from her. It will be some time before either of these nations will become more than just a good supplier of raw materials.
Japan and the Communist World
The last frontier for Japanese businessmen to invade is the Communist nations. Presently they account for less than 4% of Japan's sales abroad. However, mainland China was historically one of Japan's best customers. Only since the Communist takeover has there been depressed trade between the two. It would seem only natural for these two powerful countries to patch up their quarrels and take up where they left off before the war. Trade between the two increased rather remarkably last year, and Japan is now supplying China with more products than any other nation. It was estimated that trade between the two could total $825 million in 1970 — and this trade may well increase in the near future. Within a few years, the China market could conceivably be worth $7,000,000,000 or more annually. With a possible thaw in relations since the "ping pong diplomacy," Japan may become much freer politically to trade with Communist China. This is especially true in light of President Nixon's plan to undertake a momentous trip to mainland China. Hopefully, it will ease the open hostility between the two powers and pave the way for substantial trade between them. Japan may profit trade-wise from this political thaw. However, President Nixon has made it clear that the United States will stand by its security treaty with Taiwan and oppose expulsion of Nationalist China. Therefore, Japan must still walk the tightrope in her dealings with Peking and the Nationalist regime of Chiang Kai-Shek. Also, it will still be some time before Red China could become a really important customer for products made in Japan. Red China is still too economically depressed to come anywhere near being the large-volume customer the U. S. is right now. Certainly Japan's officials must use utmost diplomacy and wisdom in dealing with the two feuding Chinese governments.
Siberian Wealth to Japan?
Japan's trade with the Russian Communist bloc of nations has increased in the past decade. Still, the total volume of trade is slight. Japanese imports from the Soviet Union far exceed exports, and as a result, Tokyo's balance of payments with the U.S.S.R. shows a billion- dollar deficit over the past decade. But Russia has something Japan needs — raw materials. Huge reservoirs of natural gas, coking coal, nickel and lumber are locked in the vast Siberian wilderness and permafrost. Negotiations are in progress now to allow Japan to develop this mineral wealth. The resources are actually closer to Tokyo than they are to Moscow, and Japan is anxious to tap this important supply. Whether greater trade with the Communist bloc will eventually expand cannot yet be determined. It would seem, however, that Japan must begin to make greater efforts to develop friendship and trade with the Communists — European, Soviet and Chinese.
Another major consideration faced by Japanese planners is the future military security of the nation. The United States has informed Japanese leaders that they must take up a greater share of the defense burden of Asia when American forces pull out of Southeast Asia. Japan's air, naval and land "Self-Defense Forces" are somewhat limited but do have tremendous firepower compared to World War II armed units. Japan's post-war constitution forbids wars of aggression, but the components of the Self-Defense Force can be expanded as large as necessary for the nation's security. The Air Self-Defense Force already possesses some of the most powerful military aircraft known. Mainstay of the ASDF, and sporting the Rising Sun emblem, is the American Lockheed F-I04J fighter built under license in Japan by her own resurging aircraft industry. And coming soon will be the ultra-sophisticated F-4 Phantom jets — also built in Japan. Japan's military machine right now is the sixth largest in the world and growing heftier all the time. She now produces her own medium tanks, is enlarging her navy, and plans to spend $15 billion in the next five years on her military machine. Japan has already developed rocket potential and rumors persist that defensive and strategic nuclear weapons could be developed very quickly should the need arise. Nuclear reactors for peacetime use in power generation have been around for some time in Japan. Some Japanese leaders claim the nation needs greater power to protect her worldwide interests, similar to Britain in her days of empire building. Certainly Japan has as much right to protect her interests in these far-flung economic battle lines as does the West. On the other hand, memories of Japan's part in World War II and a realization that "it could happen again" give many Asian leaders uneasy and mixed emotions concerning their wealthy big brother. The fact that she is wealthy presents other problems to the leaders of Japan.
Japanese Foreign Aid
The "have-not" nations of Asia ask and sometimes demand financial assistance. Japan is now distributing about one percent of her Gross National Product in foreign aid payments — mostly to Asian countries. Such aid is sometimes gobbled up by corrupt politicians and businessmen in receiving nations. American aid since the war has done little more than turn these nations against her. Every nation the U. S. has helped eventually utters cries of ''Yankee Go Home" — sometimes without a word of thanks. Japan is beginning to receive the same treatment in some areas. She is beginning to question the advisability of helping countries that don't know how to use such help. While foreign governments are crying out to Japan for money and aid, Japan's own citizens are demanding more in the way of housing, roads, transportation and social improvements. There has been much publicity given to pollution of Japan's environment. Burgeoning industry demands more labor — and the labor supply is running low. The elderly, once not considered for employment, are now being hired in increasing numbers. But there will come a time, if present trends continue, when Japan will have to import employees from other countries to fill her needs. This she has always hesitated to do. It is either import labor or build her plants in foreign countries. Achieving the right balance between foreign investment and domestic production is a difficult job — but it must be faced.
Will Domestic Tranquility Continue?
There has traditionally been harmonious cooperation between business, labor and government in Japan. There are some doubts, however, about how long this cooperation will continue if the labor force becomes too thin. Will labor demand higher wages, shorter working hours, fringe benefits — and upset the fine competitive edge of low cost goods that Japan now enjoys? It has happened in all industrialized nations. Will it happen in Japan? This is a very real problem Japanese planners are facing. In other words, Japan is facing the same serious economic problems that all successful nations ultimately experience. Just what can and must Japan do to protect her future economic interests? Relations with the United States could continue to deteriorate. Japan's natural market is Asia, and she is supplanting the U. S. as the area's leading trading partner. If the U. S. continues to lose ground in that area and attempts to restrict domestic imports from Japan, both nations could face strained relations analogous to those faced in the late 1930's which led up to and ended in the terror of W odd War II. Japan has enjoyed almost continuous prosperity for 25 years. Her people with their recent prosperity have been buying much of Japan's output. But now there is coming a period of slowdown as the domestic market becomes saturated. Her real state of economic growth, though still awesome percentage-wise, has been gradually declining since 1968 and her industries are beginning to feel the pinch. Some companies have had to cut back on production this year because of the decrease in domestic sales and sales resistance in the U. S. Certainly Japan will not meekly continue to cut back her production. Japan is a surging force and will aggressively continue to expand as much as she possibly can.
Accord With Soviets Critical
Japan must consider the real presence of the Soviet Union. This factor becomes increasingly critical as U. S. and British power in Asia diminishes. To defend her interests abroad, Japan will have to establish some relationships with Russia — the power which has gained naval preeminence in the Indian Ocean. Complete freedom for Japan's huge tanker fleet sailing the Indian Ocean, transporting Middle Eastern oil, is an absolute must for Japanese industry. If Russia wanted, she could someday cut off this vitally critical fuel life-line at certain "choke points" such as the Strait of Orning between the Persian Gulf and the Arabian Sea. Japan would then have to rapidly expand her naval Self-Defense Force to meet the challenge, or forge some agreement with Moscow. Considering such factors, don't rule out possible future economic ties between Russia and Japan and even China. In any case, some Japanese officials are already spelling out the politics of a new type of Co-prosperity Sphere. Recently, Japan's Vice-Minister for Foreign Affairs, Haruki Mori, made clear that Japan is at a turning point in her foreign policy. Said one correspondent: "A recent interview with... Mr. Haruki Mori has attracted some interest here as having for the first time spelled out the concept of Japan as the focal power within an emerging Pacific bloc of Nations." Japan envisions a Pacific Common Market — a sort of United States of the Pacific with obvious overtones of Asia for the Asians. But even without the Soviet Union or China, an Asian Co-prosperity Sphere — perhaps including India and Indonesia — would have tremendous economic and military power.
What Does the Future Hold?
With the complex interrelated factors which determine political alignment continually altering, it is difficult to know what specific events may occur. But in general we can know that Japan will play a leading role in the future of Asia. Much depends on the United States. If America can put her economic and moral house in order she can continue to be a major stabilizing force in Asia. But if relations continue to deteriorate between Japan and the U. S. — and if the U. S. disappears from the political and military scene of Asia — a precarious vacuum will occur in the Pacific. Japan, as Asia's leading economic power — and possibly military as well — will be forced to take action. This action by necessity will focus on keeping the Pacific area stable economically and politically.