Fingleton makes an important contribution in linking the Japanese approach to manufacturing costs with overall industrial policy and its essentially political goal of achieving for the country what the late Prime Minister Ohira once defined as "comprehensive economic security." Fingleton starts with the common observation that profit-killing price wars are a feature of high-fixed cost industries. The classic example is the semiconductor industry; the variable cost component of a semiconductor chip amounts to little more than what one would pay to haul in some sand from a beach. Thus manufacturers who have spent billions building factories will sell their chips, if they must, for prices far below those that reflect costs, in order to recover at least something of their investment.

Fingleton shows how Japanese companies have targeted just such industries for dominance; they have also gone after businesses (e.g., automobiles, consumer electronics) in which Japanese companies can create these conditions for themselves. Industries not easily turned into high fixed-cost businesses (e.g., writing software) are largely left to Japan's trading partners; service industries that cannot translate into global monopolies are, as a matter of policy, starved of capital. Fingleton notes that Japan's famous lifetime employment system effectively forces Japanese executives to treat labor as a fixed cost. Thus, General Motors deals with a downturn by laying off thousands of people, Toyota by squeezing cost reductions out of its plants and suppliers. The same could be said of the implicit requirement that large Japanese manufacturers underwrite the liabilities of their keiretsu-linked suppliers. A General Electric can simply stop placing orders; a Toshiba must find ways to keep its suppliers afloat. Competition between a company that makes pricing decisions as if it were in a high fixed-cost business--pricing below costs when needed--and one that prices as if it were in a low fixed-cost business--selling only when profitable--will see the latter, unable to turn a profit, cede market share. Of course, for its strategy to work, the high fixed-cost company must have financial backing prepared to endure long periods without profits; Fingleton joins all his fellow revisionists in highlighting the MOF's central role in guaranteeing the availability of such financing.

Japanese companies have, as a result of all of this, achieved such dominance in so many industrial sectors that, as Fingleton put it, "no advanced Western country can now raise barriers against Japanese goods without causing industrial dislocation in their domestic economies." It is no longer possible to make a complex machine--a Ford Taurus, a Macintosh computer, a Boeing 767--without Japanese components. Japan's savings pool accounts for over half the industrialized world's available capital, giving the country extraordinary leverage, not simply over global finance, but over anything that can be bought, from the services of Washington's best-connected lobbyists to a favorable image among Third World elites.

But having made an unassailable case that Japan has accumulated enormous economic power, Fingleton then implies that the country faces no serious economic challenge. He dismisses the woes of Japan's stock market as deliberately "engineered. . . to effect the transfer of wealth from rich private citizens to corporate Japan." He terms the banking crisis "rumors" useful in creating a public relations facade behind which banks can "conduct a ruthless purge of small-time real estate speculators who could not pay their interest bills." The strain on "lifetime" employment he labels a "red herring"; while the recession itself he calls a "pause" that was "overdue." Indeed, he concludes that by 1994 "Japan was girding itself for a new leap forward."

Fingleton is a well-respected financial journalist and, coming on top of a process that had seen the image of revisionism in Washington move from the kooky to the conventional, Fingleton's conclusions seemed plausible to many. But they jostled for the attention of policymakers with the unending stream of books and articles describing a Japan on the edge of deflationary collapse. Not since the early 1980s, when the Reagan administration portrayed the Soviet Union as simultaneously a menace demanding a huge defense build-up and a society bound for the ash-heap of history, had so many seemingly contradictory observations about an important foreign country been bandied about. These contradictions were reflected in policy. The same Clinton administration that launched trade initiatives specifically aimed at compensating for the apparently unbeatable competitive edge of Japanese industries found itself in August 1995 joining Japanese bureaucrats in helping avert what it had been scared into believing was an imminent meltdown of the Japanese banking system.

This policy schizophrenia may reflect simple incompetence. This is, after all, an administration that allowed six months to pass before filling a single important second-tier policy position involving Japan. It appears to rely for its analysis of financial developments in Tokyo on alarmist editorials in The Economist and Far Eastern Economic Review rather than the views of its own overworked but knowledgeable Tokyo embassy officials. But to the extent White House officials are genuinely puzzled rather than simply overwhelmed, they could benefit from taking another look at the original revisionist writings, in particular at Karel van Wolferen's The Enigma of Japanese Power (Knopf, 1989).

Strong State or Stateless Nation?

The uproar surrounding the initial appearance back in 1988-9 of revisionism drowned out a profound difference of opinion within the revisionist camp over the structure of the Japanese political order. Implicit in the work of Johnson, Fingleton, Hall, and Leon Hollerman is the idea that the Japanese political economy is directed and planned from a central core; a core that manages and wages what Hall called "a deliberate, humorless, and relentless economic war" against the United States; a core motivated over the course of centuries, claims Fingleton, by a ruthless "will to win" that single-mindedly judges every conceivable policy agenda with the criterion of "a burning desire to be number one." Johnson, simply and elegantly, calls this core "the strong state." "Lying behind industrial policy is the strong Japanese state itself", he writes. "It is the sine qua non of Japan's economic achievements."

But van Wolferen subtitled his book Enigma, "People and Politics in a Stateless Nation" (emphasis added). He argued that Japan's modern history had left its governing system with a flaw: the lack of a center of political accountability. The notion of a "truncated pyramid"--that no institutional arrangements exist for formal decision-making binding on all elements of the Japanese power structure--is not new. Indeed, it is a commonplace observation in discussions of the origins of the Second World War in Asia; the lack of such arrangements permitted officers in the Imperial Army, formally answerable to the emperor but in fact answerable to no one, to invade China on their own initiative. Nor has this notion ever disappeared from serious Japanese political discourse; it was stressed by Maruyama Masao, Japan's most important political thinker, and is implied in Ozawa Ichiro's call for Japan to become a "normal country."

It had, however, been largely forgotten in the United States until van Wolferen (who, significantly perhaps, is not American) drew attention to it. Part of this historical amnesia undoubtedly reflected the baleful influence of modernization theory; wishful thinking probably contributed more--after all, what administration would want to believe that it had spent energy and political capital dealing with officials who lacked the power to make and deliver on commitments? But the critical factor in masking from the American policy elite the flaw that van Wolferen analyzed was surely that, for fifty years, Washington has been carrying out for Japan functions that practically define the state: providing for the nation's security and managing its foreign relations.

When he drew attention to it, however, he introduced a subtle and important revision. While Maruyama had noted the absence of a center of political responsibility in discussing the policies of prewar and wartime Japan, van Wolferen believed it more accurate in the postwar period to speak of the lack of a center of political accountability. Accountability happens when people or institutions are forced to explain what they are doing. The demand for an explanation can originate with an electorate, a board of directors, a ratings agency, a fully independent press, a congressional committee, a parliamentary opposition, a disinterested accounting profession, a judicial review. It can even--as with an entrepreneur or dictator--be internally generated. But the demand for accountability disappears in a political system where power is fractured among groups of semi-autonomous official and unofficial bureaucracies who pretend that they do not have power, where bureaucrats write both questions for legislators to ask and answers for ministers to give, where companies and ministries choose their own senior officials without external oversight, where companies own each other, where the gates to the legal and accounting professions are kept deliberately at needle-eye size, and where serious newspapers are muzzled by a news-gathering monopoly of accredited reporters' "clubs" that produce widespread self-censorship. The result, argues van Wolferen, is a system that in its essence is a faction-ridden bureaucracy run amok: deeply conservative, jealous of its prerogatives, unable to admit the possibility of institutional error, lacking the ability to articulate to itself or others what it is doing or why it is doing it.