Japan's powerholders, however, have viewed markets as tools, useful in some contexts but to be avoided in others. Markets were handy in purging less efficient companies from given industries, but they were rarely used to allocate scarce credit among industrial sectors, and they were certainly not allowed to determine which products Japanese companies would supply to Japanese consumers and which products these consumers would import. American commentators ignorant of history and geography--and thus unaware that societies in which markets form the overarching principles of social organization are limited to a small handful of modern countries--are now well into their fourth decade of waiting for supposedly "pent-up" consumer demand in Japan to burst the fetters of Tokyo's restrictive trade practices.

 Beyond the nature of markets lay the whole purpose of economic life. Questioning this seemed like questioning the purpose of lungs. For Americans, economic activity self-evidently existed to provide a better material life for people. But for Japan, economic activity is an instrument--the instrument in the postwar period--of national power. Improving livelihoods is incidental. As Johnson wrote, "Observers coming from market-rational systems (i.e., those like the American) often misunderstand the plan-rational system (i.e., the Japanese) because they fail to appreciate that it has a political and not an economic basis."³

Finally, Johnson contrasted the stance of governments such as the United States, on the one hand, and those such as Japan, on the other toward economic outcomes. The former, "capitalist regulatory states" in Johnson's terminology, sought to set the rules of economic activity and might intervene to ameliorate its results, but they did not fundamentally attempt to determine those results. The latter governments, "capitalist developmental states", directed economic activities in order to achieve pre-determined outcomes. (Leninist states formed a third category--planned economies that for purely ideological reasons eschewed market mechanisms).

To Americans, this all sounded at the same time reprehensible and vaguely familiar: reprehensible because so undemocratic--the concentration of bureaucratic power necessary to achieve predetermined outcomes could not easily be squared with democracy--and thus theoretically not possible in a country that had been supposedly re-made by a benevolent occupation into a kind of junior United States; vaguely familiar because it resembled the way Marxists talked. Americans knew that Soviet leaders used economic activity as an instrument of national power instead of a means of improving livelihoods. But to be told that America's foremost Asian ally engaged in state-directed economic planning, with bureaucrats steering credit toward heavy industry, was most disconcerting. In fact, as Johnson demonstrated, Japan's economic bureaucrats were intellectual cousins of the Marxists, drawing on the same Hegelian heritage that gave rise to the Gosplan. American social scientists have forgotten, if they ever knew, that the premises underlying democratic capitalism and liberal democracy are neither inevitable nor universal but reflect the conclusions of one Anglo-French philosophical tradition. This is a powerful tradition, but there are others. In one of the most celebrated passages in his book, Johnson wrote: "Japan's political economy can be located precisely in the line of descent from the German Historical School--sometimes labeled ‘economic nationalism', Handelspolitik, or neomercantilism."⁴

Despite its formidable scholarship, Johnson's book rested uneasily inside the universities. The carving-up of the academic landscape into mutually wary and heavily demarcated territories has been particularly destructive of area studies--including, conspicuously, Japan studies. One of modernization theory's most pernicious legacies is the notion that all places and all peoples are essentially alike--a notion that is fundamental to rational choice theory and neo-classical economics.⁵ Thus it was hardly surprising that American academics reacted to Johnson's book largely in terms of an opportunity to build reputations and careers by attacking it.⁶

Most of these attacks, however, suffered from the fact that they appeared in books written to secure tenure for their authors. This meant that they were written in dense, jargon-laden, footnote-studded prose that virtually guaranteed they would go unread in Washington. Instead, policymakers in need of help read that group of writers who used rather than attacked Johnson's analysis and came to be known as revisionists. Those writers, identified in these pages by Ivan Hall, include "journalists Karel van Wolferen and James Fallows, [Johnson], former trade negotiator Clyde Prestowitz, publicist Pat Choate, and others"--and the "others" would certainly include Hall himself.⁷ The revisionists had their differences--we will come back to them--but agreed on three fundamental points: First, an extrapolation of late-1980s trends would make Japan the world's pre-eminent economic power around the turn of the century; second, 1945 did not represent a clean slate, and the links between the 1950s and the 1930s were strongest precisely in those institutions that produced the "Japanese Economic Miracle"; and third, formal trappings to the contrary, Japan was not a liberal, capitalist democracy in which crucial decisions were made by politicians accountable to an electorate, while the market determined economic outcomes. Rather, power rested in an official bureaucracy not subject to political control and in an unofficial bureaucracy of linked banks, large industrial corporations, and trading companies free of the normal disciplines of a market economy: the fear of bankruptcy, suppliers' freedom to negotiate fair prices, and the pressure to compete for scarce financing through demonstrating an ability to turn a profit.

With the exceptions of Johnson and Hall, none of the revisionist writers had the credentials that, in the eyes of America's academic Japanology establishment, authorized them to take part in policy discussions.⁸ Nonetheless, revisionist notions on the structural origins of Japan's trade surpluses and the powerlessness of its elected officials quickly became the starting point for a new debate on Japan, most visibly in the 1992 presidential campaign and in the early attempts of the Clinton administration to overhaul Japan policy.

Nor was revisionist influence confined to the United States; a slew of similarly-minded Japanese writings soon followed. Among the most important of these are: Noguchi Yukio's best selling 1940 Taisei, in which the Hitotsubashi University professor and former MOF official demonstrates in relentless detail the origins of Japan's supposedly "unique" economic institutions in measures taken in 1940 to put the economy on a war footing; Ozawa Ichiro's 1993 manifesto, translated into English as Blueprint for a New Japan, in which he follows van Wolferen in making the case that establishing political oversight over the bureaucracy is Japan's central challenge; and the writings of economist Nakatani Iwao--particularly his recent "Japan Puroburem" no Genten--and Mikuni Akio, the head of Japan's only independent credit ratings agency and a well known establishment gadfly.⁹ These men are perfectly capable of working up their ideas on their own and no doubt did so; nonetheless, one would have to be deaf, dumb, and blind in the Japan of today not to be aware of Johnson and van Wolferen, and not simply because the Japanese mass media has succeeded in turning the word ribijinisuto (revisionist) into an all-purpose label for any critical foreign analysis of Japan. Van Wolferen's latest Japanese language book on the possibilities for achieving democracy there has sold some 250,000 copies to date, an extraordinary achievement for a serious non-fiction book.

Interpreting the Recession

But as the decade wears on, a long, debilitating, and seemingly intractable recession has cast doubt on at least one revisionist notion: Japan as the unstoppable economic juggernaut. What initially seemed a deliberate and well-managed exercise on the part of Japan's financial mandarins to take steam out of overheated asset markets now shows every sign of having become the first full-fledged deflation within the living memory of anyone under the age of sixty.

This has not gone unnoticed or uncelebrated; to the contrary, scarcely a week has passed during the past four years in which one or another prominent British or American publication has not proclaimed with barely disguised glee the coming collapse of the Japanese economic model. (Journalists associated with The Economist have been particularly resourceful in mining this seam; three of them have managed since 1988 to write no fewer than four Japan-will-collapse books).¹⁰ Of course, it is news when a stock market that had accounted for over 40 percent of total global equity capitalization loses more than half its value, when a banking system that boasts nine of the world's ten largest banks finds itself burdened with uncollectable loans amounting to half a trillion dollars, and when repeated attempts to restart the world's number two economy seem to go nowhere.

But the man-bites-dog story in the litany of Japan's economic woes--one resolutely ignored in the English-language media--is just how successful Japan's economic mandarins have been to date in containing a series of crises that would long ago have sunk any Western government. Try to imagine what the American political landscape would look like in 1998 if by then the Dow were at 1800, half of America's banks were technically insolvent, American real estate prices had fallen by an average of 40 percent from today's levels, the unemployment rate exceeded that of the 1975 recession, and there had been no GNP growth for three years.

Some revisionists are unwilling, however, to rest their case by pointing to Japan's crisis-management skills; instead they deny the existence of a crisis. Johnson writes in the introduction to his 1995 collection of essays, Japan, Who Governs? (W.W. Norton, 1995) that Japan's persistent recession is "primarily caused by public policies undertaken to discipline speculators and free riders, and also by the beginnings of a planned transition from a producer-oriented, high-growth economy to a consumer-oriented, headquarters economy for all of East Asia." The most articulate recent exponent of this view--that what looks from the outside like a crisis is in fact a well-thought out plan to establish Japanese hegemony over the global economy--is Eamonn Fingleton, whose book Blindside played a major role in shaping Washington's perceptions of Japan on the eve of the Spring 1995 auto talks.