Blinded by the Light

By Richard Hornik

When James Fallows began sending his dispatches from Tokyo to the Atlantic Monthly in 1986, his articles revealed a country far different from that portrayed in most other American coverage. He had the ability to take perfect slices of Japanese life -- how the Japanese handle household garbage, for example -- and offer the reader something far more authentic than cliches about geishas and salarymen. Since leaving Asia in 1989, Fallows has often returned to survey the world's most dynamic economic region, and in his new book, Looking at the Sun (Pantheon Books; 517 pages; $25), he demonstrates that his reportorial skills are as sharp as ever.

Unfortunately, in his analysis Fallows seems frozen in that remarkable period of the late 1980s when, as he writes, "you could almost feel minute by minute that the world's balance of power was shifting." Fallows argues that Japan's success, and that of its East Asian neighbors (Taiwan, South Korea, Hong Kong and Singapore), is based not on American-style laissez-faire economics but on interventionist policies designed to benefit producers and the state rather than consumers. Further, Fallows argues, those internal economic policies are dangerous to other nations because Japan has rewritten the Clausewitz maxim that war is the continuation of politics by other means. Now it is commerce by which a country's political objectives will be attained, and Japan's aim is economic domination.

Fallows dismisses Tokyo's current economic downturn as nothing more than a temporary setback, similar to those that followed the huge boost in oil prices in 1972 and the rapid appreciation of the yen in 1985. Both times the Japanese economy came back leaner and, Fallows believes, meaner than ever. Now, he says, Japan and East Asia will present an overwhelming challenge to the U.S. Although the U.S. remains the world's largest (and still most productive) national economy, Fallows predicts that unless it adopts a more interventionist national economic policy and consumes less while saving more, it will go the way of the Ottoman Empire.

But the political and economic situation in Japan and its neighbors changes far faster than the time it takes to write and publish a book. Electoral developments in Japan, Taiwan and South Korea over the past 18 months reveal an increasingly multifaceted and demanding body politic that will force a change in economic priorities from production to consumption. Moreover, Fallows may give too much weight to the dreams of an elderly elite. Perhaps Japan's "corporatists" do want to dominate the world's high-tech industries, but that doesn't mean their success is guaranteed, any more than the success of Japan's militarists in the 1930s was a certainty.

Fallows mars an otherwise impressive array of facts and anecdotes by omitting materials that could dilute his arguments. The book includes a fascinating chapter on Japan's domination of the computer-chip industry in the 1980s, but it skips over new statistics showing that a South Korean firm is now the leading producer of low-end dram chips, while U.S. firms continue to control the more profitable high-end part of the business. Meanwhile, Japan's computer-hardware industry is in the doldrums and its software firms have yet to make their mark.

Even Japan's vaunted consumer-electronics cabal can fail. Fallows notes in passing that a 30-year, multibillion-dollar effort to develop high-definition television resulted in an outdated system that will never be commercially viable. Bureaucrats made a decision to end the program, but that was recently reversed. Rather than efficiency, the cozy business-government relationship can lead to this type of boondoggle.

In other words, Japan Inc. is not invincible. To meet the challenges of the 1990s, it will have to do more than simply punish the domestic consumer -- the solution it has used so effectively against external shocks like the higher oil prices of the 1970s. The danger now comes from within, from the very elements of business-government collusion that, Fallows argues, have made Japan such a formidable international competitor. Immune to public pressure, the country's bureaucracy continues to insist on business as usual: obsessive fiscal conservatism; trade barriers that end up penalizing consumers; allocation of capital to the bureaucrats' pet industries.

Those measures work well when a country is developing -- as Fallows notes, even the U.S. used some of them in its early years -- but not indefinitely. As an economy matures, flexibility and responsiveness to consumers become crucial. The U.S. economy certainly can stand some fixing, but the decibel level of the alarm Fallows sounds is too high for an "enemy" that may have already passed its peak.