Irreconcilable Differences

The end of the Cold War has been greeted by most people as not merely the endof an era, but of an entire wy of life Business, we are solemnly assured, not war, will determine the future. No one wants war, and therefore there will be no war, say the sages. Nations have become too interdependent, business too global, everything too interconnected to permit the outbreak of war. And so corporations will become more important than nations, businessmen more heroic than soldiers.

What is extraordinary about this internationalist vision is that it is intoned not by wild-eyed radicals, not by gentle pacifists, but by the hard-eyed, tough-minded businessmen and politicians in the world's leading powers. We are in the giddy springtime of the bourgeoisie.

The basic assumption is that the interests of all the great powers—stability and prosperity—now coincide. Although undoubtedly true, this claim is irrelevant. Everyone agrees what the ends are, but the issue is how compatible are the means toward those ends? The problem is not that nations choose war, but that they are incapable of getting out of each other's way. We are now ready to see the next act in history's tragicomedy unfold.

It is of course difficult for us to imagine a genuine clash between the United States and Japan. For the last 45 years, the two have been the closest of allies. But just as it would have been difficult for a GI on Okinawa to imagine that friendship with Japan could arise out of the current hatred (certainly not as quickly as it did), then certainly the opposite is equally implausible--and equally possible. It all depends on the circumstances, and even now the degeneration of relations between these two great world powers is under way.

The question we have to address is how we have gone, in just a few years, from a pretty stable, rather provincial relationship to the rapidly and noisily deteriorating mess we are seeing today. It is an extraordinary evolution to take place in such a short period of time.

The Japanese constantly refer to their relationship with the United States as a marria'ge. As in all marriages, there are ups and downs, stresses and strains; but however much the lovers quarrel, the Japanese assure us that they do not divorce. Apart from displaying a basic lack of understanding of American marriage customs (and divorce rates), there is something gruesome in this analogy. If this were a marriage, it was one whose bridal shower was held at Hiroshima—the place where the old U.S.—Japanese relationship died and the new one was born.

The Japanese probably don't think of the origin of the marriage when they invoke the image. All they want to do is placate their own public—as well as those who think that the squabbles might get out of hand--with a homey analogy implying that everything is right with the world. But the Japanese think more about Hiroshima than we do, and it is difficult to imagine that there isn't more than a bit of irony to the comparison.

Few relationships have had as many extremes as the one between the United States and Japan. The shift from the unbridled loathing of Americans and Japanese for each other during World War II to the genuine affections that began to emerge in the 1950s is extraordinary. The Russians learned to live with the Germans, as did the French; the Chinese dealt with the Japanese, as did the Koreans. However, none of these nations were constrained to pretend there was affection between them, and none of them show much affection for each other. They needed to get along, but other than that, it was always strictly business.

After the war, the Japanese had good reason to be affectionate about the Americans. The United States was in a position to impose an annihilating peace on Japan (indeed, this was the initial intention—to reduce Japan to an unarmed, agricultural nation). The American hand was stayed, in part by national interest—the rising Communist threat and the fall of China made Japan an essential part of U.S. global strategy—but also by a real generosity, if not the American spirit, of the young GIs on occupation duty, whose youthful friendliness calmed the terrible fears of the Japanese. They lacked the sustainable rage that the combat vets (first to be rotated home) would have brought.

It was this strange encounter—when each discovered the other was not nearly as savage as they had expected—that led to both affection and a glamorization of each other. The Japanese, defeated for the first time in their history, had been invaded and occupied. The Americans were clearly more powerful, and therefore possessed a wisdom and power worth learning from. That the Americans were generous in revealing their secrets merely elevated them in their eyes; but at root, as one Japanese recalled about the occupation: "We would have starved. The Americans made certain that we did not. We will always be grateful."

But it was more than that. In being able to humble the Japanese, American power gained a legitimacy in Japan--a phenomenon not materially different than that experienced in any proud but defeated country. It had this exception. As with the way in which the Japanese absorbed the experience of Buddhism, the defeated Japanese set about with grim determination to accommodate the Americans and assimilate their hidden teachings.

Americans had a somewhat stranger and, shallower romance with Japan. For them, the encounter was as military men with their families, who flooded into Japan during the early 1950s to support operations in Korea and later in Vietnam. Air Force families had fond memories of a charming country peopled by strange yet amiable folk, affording an opulent lifestyle replete with luxurious homes, servants, and nannies, well within the reach of enlisted men and junior officers. These fond memories have mingled together to conjure an image of a charming, quaint, and utterly harmless and accommodating country.

Neither image is really correct—this was no marriage. It was, rather, two nations that had, until August 1945, loathed each other with a passion as difficult to recall as it was brutally real, coming to terms with the unpleasant fact that they had to live with each other and making the best of a bad deal. But it was no reconciliation. Quite the contrary, this was an accommodation between two countries that had never really understood each other, never really liked each other, but had, ever since their emergence as great Pacific powers, found it impossible to avoid each other.

Missing the underlying tension is what contemporary observers of U.S.—Japanese relations do best. When they call for greater understanding, they forget how far apart these two countries' interests are, and how different history and nature have made them from each other. For all the history, it is not clear that either has the slightest idea of the difference between what the other says he wants and what he really wants. More important, they do not understand what the other needs and must have. These are two countries with fundamentally different psyches, different understandings of how the world works and what their relationship to that world is.

We find the essential differences in their geographies, differences that shape their very soul. Indeed, to begin to understand the difference, we must begin with something even more basic than geography: geology. Japan is a geological freak. It lacks almost all of the raw materials necessary for an industrial economy—they have to be brought in from overseas. For every pound of Toyota or Sony that Japan ships out, it must import eight pounds of raw materials. The greater its industrial production and the more successful Japan becomes, the more dependent it is on foreign natural resources. If anything interferes with the flow of these materials, Japan ceases to be an industrial power. They are extremely aware of the fact that they have no safety net, nothing to fall back on.

It is hard to think of the Japanese as being wild gamblers, yet their entire history has been a wild and improbable gamble. They gambled their heritage that they could industrialize and keep their traditional values. They gambled that they could forge an alliance with Great Britain during the 19th century and live to tell the tale; they gambled that they could subdue China in the 1930s; they gambled that they could strike at Pearl Harbor and get away with it. Finally, they gambled that they could become a protectorate of the United States and prosper. Japan's geography made them gamblers--calculating and rational, meticulous and painstaking, but gamblers, plungers nonetheless.

Of course, there is a staid and sober side to the Japanese. After all, the key to their economic gambling is their savings rate. Japan began to industrialize well after the other great powers did, and they had to industrialize in a very different way. Britain began by satisfying a domestic demand for new products; the United States by selling its agricultural products overseas and using the proceeds to build its industry. Japan, on the other hand, had to play catch up, but lacked any commodity the world wanted. So it sold its labor in the form of industrial exports—made cheap by low wages and financed by its extremely high rates of savings, which survive until this day.

Japanese savings rates are legendary and envied throughout the world. They save about 15 percent of their income, and the common assumption is that there is some strange internal discipline that makes the Japanese virtuous. But it has little to do with Confucianism, or work ethics either. It has to do with the fact that Japan has the worst retirement system in the industrialized world. (A worker earning $50,000 a year is forced to retire at age 60 at about 20 percent of pre-retirement pay, if he is lucky. You can get anyone to save on those terms.)

The neat part of this is how savings are invested. Small depositers use the post offce banking system run by the govemment; it pays about 3 percent a year interest. The Bank of Japan then lends this huge, continual cash flow to the large "city" banks at a tiny premium. The banks turn around and lend it to their keiretsu linked corporations at 7 or 8 percent. So, while General Motors was modernizing at rates as high as l 5 percent in the 1970s and '80s, the Japanese—living in a rigidly controlled, non-market financial system--were retooling at 7 or 8 percent. Is it any wonder that Toyota has a more modern industrial plant than GM's?

What this means is that, for nearly a century, Japan's industrial success has been fueled by an exploitation of the Japanese public unheard of in the industrialized world.

There is an obvious mystery here: Why do the Japanese endure what may be the lowest standard of living of any industrialized nation, and certainly a royal screwing on retirement and savings benefits? It is difficult to imagine the American or any European society enduring what the Japanese take with equanimity. In this respect, there is something radically different in the Japanese psychology, something that makes their behavior both different and incomprehensible to their Western counterparts.

It must be understood that Japan is the only industrialized country in the world that had never experienced a mass uprising. France, England, the United States had all undergone revolutions or upheavals that shattered the old aristocracy. Japan, on the other hand, experienced its industrial revolution as a conscious decision of its own aristocracy; indeed, industrialism arrived in Japan via the aristocracy. This meant that Japan is the only industrial society in which the psychology of feudalism remains in place. The idea of the importance of the group, of subordinating ego to the group, of accepting one's fate as part of the group, survived in Japan.

The willingness of Japanese workers to accept long hours, miserable retirement, and low interest rates without protest is thus no more surprising than the serf's willingness to endure his misery. He expected, in return, a stable existence, a community in which to live, and recognition of one's achievements with that community. So does the Japanese worker and salaryman.

Japan is a country trapped in a paradox. One of the most insular and even parochial countries in the world, the entire structure of its economy, both its imports and exports, makes it dependent on other countries. Japan's insularity rests on geography: Only China and Korea are near enough to influence events in Japan, but the waters separating them are so treacherous that Japan has never been successfully invaded. Hence the Japanese remain one of the most homogeneous people in the world; a single ethnic stock that has bred true for centuries—a fact the Japanese people note with pride.

Being so isolated, Japan turned inward and became one of the most insular people in the world, both culturally and genetically. On the whole, the Japanese preferred this; yet from the moment they industrialized, they ceased being insular. The very process made them dependent on other countries for markets and resources, and this dependency made them insecure. Having little experience with other nations and little time to learn, the Japanese adjusted with a clumsiness that caused much pain and gave little solace. A charming country when defeated, Japan has difficulty in knowing how to be gracious in victory, and knows even less how to live with equals.

The United States is the absolute opposite of Japan in this regard. Where Japan is homogenous, the United States is heterogenous. We are, by design, a nation of immigrants, who are expected and encouraged to retain their own unique identity even as they become Americans. America's very existence is cosmopolitan, and its practice of foreign policy is uniquely universal. Our relations with any nation in the world are conditioned by the fact that some ethnic group originated, or had an affinity, there. The paradox, of course, is that the United States--although far more self-sufficient than Japan--is to its very soul a nation comprised of other nations, incapable of avoiding psychological involvement in the world.

It is Japan's deepest wish to be able to return to the splendor of pre-modern isolation--to be left alone and free from pollution. Japan, being in many ways an impoverished nation (such as its lack of natural resources), is forced into profoundly uncomfortable international activities. It must sell to nations it does not genuinely understand and does not particularly admire, and must buy from other nations the resources it needs to produce goods. In 1941 this forced Japan into a war it did not want, and resulted in the deepest of humiliations. It imported Chinese Buddhism and European industrialism; it adopted American democracy—all under the pressure of reality. And none of this changed Japan's inclination to insularity.

So we can see the differences in the very international outlook of these two countries, neither seeing nor experiencing the world as others do. For an American, filled with the wealth of an entire continent, life is full of possibilities, and failure merely an invitation to try again, to motivate, to learn. The American saying "If at first you don't succeed, try, try again" could not be expressed in almost any other culture; but in Japan, it is inconceivable. The tightrope Japan walks on does not allow for failure. The United States lost the war in Vietnam, was forced our of Iran, but none of it mattered. We could always try again until we succeeded.

Japan's one error at Pearl Harbor—that it did not destroy the shore facilities--led to national catastrophe. The wide-open possibilities of America leads to sloppiness, which the Japanese incorrectly interpret as decadence. They are merely margins for error. The narrow poverty of Japan leads to obsessive care in order to avoid a single error, and Americans interpret this as neurotic compulsion.

Whenever Americans and Japanese negotiate together, it inevitably leads to massive misunderstanding. The constant Japanese fear of error, the constant sense that disaster is but one step away, the painful difficulty of speaking to an outlander—all of this leads to meticulous, painstaking negotiations, very often interrupted in the middle or reversed at the end. Americans interpret this fear as duplicity, as bad faith. On the other hand, the American tendency to casualness and quick decisions frightens the Japanese: the ease with which we reach decisions indicates that Americans are not serious, not sincere. We could not have reached such an important decision so quickly, and alone. The Japanese committee protects against failure, or at least impetuosity; the American individualist is perfect for a country unafraid of the consequences of failure. For this reason, negotiations between the two tend to be unspeakably painful for both sides.

So neither understands the other and, often, neither cares very much for the other. It is this sensibility that frames our foreign policies and has already led to one war. Since World War II, Japan has depended on the United States to secure resources and provide markets. Should it stop doing either, Japan will have to go it alone. It is critical to understand the precariousness of Japan's financial structure and its industrial plant. Very small fluctuations can be severely dangerous. Thus Japan, taken out from under American protection, becomes both volatile and unpredictable.

The question is, first, just how far will this go; and second, what actually is driving it? Our argument is that the deterioration will go as far as it can between the two nations—to armed conflict. And the forces that are driving it are not ill-will or misunderstanding, but the profoundly impersonal economic and geopolitical.

We think of Japan as a fantastically successful machine. It sees itself as a fragile, vulnerable system even as it celebrates its successes. Indeed, Japan is extremely vulnerable. Debt is piled upon debt, all leveraged against a ridiculously inflated Tokyo land market and an overheated stock market. If either fell precipitously, the net worth of Japanese corporations would plunge and the entire financial structure of Japan would crack, since their balance sheets have no room to manoeuver. Banks would accelerate the process as they called in loans and cut lines of credit; a massive cash crunch would create a wave of bankruptcies.

The Japanese corporations must make their debt payments. They are so obsessed with this that they really don't care about profits, and are generally only one-half to one-third as profitable as American corporations. Japan's proud indifference to profits has more to do with the banker at the door than with any vaunted strategic vision. What their corporations need is cash flow to make these payments. Like a used-car dealer with a loan note due and too much iron on the lot, the Japanese need to move the product and hang profits. So, what Americans see as dumping, the Japanese see as desperation.

Now, under these circumstances, the entire Japanese economy depends on exports. They cannot sell domestically because they can't afford to cut the savings rate that runs the system—they need the cash flow. Japan Inc. is in a perpetual fire sale. So when we ask the Japanese to please balance trade, not matter how much they would love to oblige, Japan cannot do this. Americans do not seem able to grasp the fact that the Japanese financial system is as precarious and archaic as their industrial system is robust and creative.

If the truth be known, Japan would love to give the United States what it is asking for. Japan wants desperately to maintain the post-World War 1I relationship. But Japan simply cannot give the Americans what they so reasonably demand: balanced trade. We are accusing the Japanese of unfair trading practices without examining the causes. It is not merely a matter of opening the markets and allowing trade to be balanced. The Japanese economy is heavily dependent on that imbalance to support what is an extremely weak financial infrastructure. Given Japanese successes, it is shocking to think of Japan as suffering from any weakness. But in fact, beneath its sterling industrial performance, Japan is struggling with an overloaded, antiquated, jerry-built financial system that threatens the entire economic miracle.

Thus, any talk of protectionism is anathema to the Japanese. On the other hand, losing nearly $40 to $60 billion--nearly I percent of its GNP each year in the trade deficit is anathema to the United States. This is the crisis faced by Japan: what will happen if America goes protectionist? It is not a moral dilemma, and it is not a theoretical dilemma. It is, rather, a matter of life and death.

Japanese desperation and American obtuseness were an explosive mixture in 1941. Our gentle prods were seen as mortal threats by Japan, and they responded by exploding. Now most people see this scenario as far-fetched. Preposterous is a better term. After all, no one wants war. But no one wants recessions, either, and we get them all the time. The United States has never gone more than 33 years without a major war, and no one really wanted them either. Wars don't occur because you want them, but because you're more frightened by peace.

The United States appears to be asking very little of the Japanese; all we want is balanced trade. The Japanese appear to be asking very little of the Americans—merely the continuation of the good relations that went on for the past 45 years. With their vision of Japanese perfection and duplicity, the Americans are asking that Japan cut its own financial throat. The Japanese, with their vision of endless American wealth, are asking for the right to pillage the American economy. Each is speaking to the other with a sensibility born of reality. The Americans cannot understand Japanese insecurity. The Japanese cannot understand American anger. The psyche of each has been created by the geography of their national existence. Therefore, in addition to the impersonal forces dividing the two countries, a vast psychological gulf yawns.

PHOTOS (COLOR): Above When in doubt, punt. Right President Bush's recent CEO-laden trip to Japan was marred by accusations of photo-opting. the specter of his companions outrageous salary packages, and a particularly nasty breach of dinner-table etiquette. What began as a political mission ended up as yet another in a long series of misfires.

ILLUSTRATION

BY GEORGE FRIEDMAN AND MEREDITH LEBARD