Japan as America's Loyal Retainer

October 12, 2010 at 8:04 pm | Posted in Political Economy | Leave a comment
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In a recent article in The Asia-Pacific Journal: Japan Focus, R Taggart Murphy argues that it was “Japan’s deviations from orthodox capitalist methods…that help explain the continuation of an American-centered world capitalist system long after one might have expected its contradictions to bring it down.”

Murphy argues that unlike the pound sterling which maintained its purchasing power throughout the 19th century by capital exports from the United Kingdom, the dollar has remained the ‘dominant currency’ even though its value has deteriorated through US current account deficits since the 1960s. This phenomenon, he argues, was only possible because Japan accumulated a large hoard of dollars that it did not exchange for other currencies or for imports. The only way that the Japanese political and business elites could resolve the contradiction between its large accumulation of dollars which was not reflected in domestic purchasing power was to create a series of asset bubbles–not only the massive property bubble when in early 1990, land in Tokyo and its surrounding areas was estimated to be more valuable than all the land in the United States and when the value of stocks in the Tokyo Stock Exchange was worth 50 percent of the value of all the stocks in the world–to the export of asset bubbles to Southeast and East Asia that caused the Asian Economic Crisis of 1997-98

The continued Japanese purchase of US dollar-denominated securities enabled Ronald Reagan to cut taxes while simultaneously increasing defense expenditures–which eventually drove the Soviet Union to the ground. Continued inflow of Japanese capital to the United States also financed a massive restructuring of unionized sectors of US manufacturing and the construction of a new high-tech industrial structure centered in defense, aerospace, and information technologies as Japanese enterprises captured market share in automobiles, machine tools, earth-moving equipment, and consumer electronics.

In many ways, the purchase of dollar-denominated securities by the Chinese resembles the actions of the Japanese but the Chinese are not under the same constraints. After the Second World War, Japan was essentially an US protectorate and even after sovereignty was restored to Tokyo, it functioned under US military protection and depended on access to US markets for its export-led growth, Despite China’s dependence on exports, it is not an an American retainer. More recently, China has been trying to make the renminbi an internationally-tradeable currency and its large current account surpluses with the United States and the European Union is being directed in substantial measure to infrastructural development and to technological upgrading.

In this astute analysis Murphy, however, characterizes the actions of Japanese government and business elites as a paradox’ “Japan’s very resistance to the full transforming power of capitalist relations forms a crucial explanation for both Japan’s willingness and its ability to support the global capitalist order.” Here, he equates capitalism with market relations–but as Fernand Braudel noted, capitalism is anti-market.

It was not in the world of “‘transparent’ visible realities’ he had argued that large profits were to be made, but in the ‘zones of turbulence’ where monopolies operated and reaped huge rewards. Japanese company executives may have even considered excessive profits as ‘shameful’ as Murphy contends, but they were single-minded in increasing their market share and building monopolies

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