Bulletin N° 218

Subject : ON THE "FREE MARKET" ECONOMY, THE WINNERS AND THE LOOSERS AND WHY WE SHOULD CARE : From the Center for the Advanced Study of American Institutions and Social Movements, Grenoble, France.

 If you would like to be removed from this mailing list, please indicate so by return mail.

Pour se désinscrire de cette liste, renvoyez svp ce mèle avec votre demande.


15 December 2005
Grenoble, France

Dear Colleagues and Friends of CEIMSA,

The political economy of "globalization" has been the subject of analyses for some time now. One perspective of this phenomenon that is gaining prestige in intellectual circles today is the view that economic warfare is the essence of this strategy of expanding the "free market system" to every corner of the earth. Surplus value can be made, so the argument goes, either by creating new consumer markets (often secured by the establishment of nearby military bases) or by sabotaging the nascent consumer markets of competing corporations (see Professor Noam Chomsky's analysis of The Marshall Plan in Western Europe, and Professor John Gerassi's essay on Latin American, "The US Empire and the Death of Democracy").

According to the logic of these historical analyses, recent neo-liberal OVER-EXPANSION in Asia was not a "mistake", but rather can be recognized as a necessary investment for purposes other than immediate profits:, i.e. to destabilize the economies in regions which were being developed by corporate competitors, thus rendering it unprofitable for further investments. The economic chaos caused by the "pull-out" of massive U.S. investments in Thailand, Indonesia, etc. in the late 1990s could be deemed a "success", and not a failure, of the US-dominated IMF if the objective was not at all to develop a capitalist infrastructure in this region, but, on the contrary, to prevent further Japanese-Chinese corporate penetration into these potential consumer markets.

An examination of this hypothesis would bring forth several new questions . . . .

Item A. is an essay by Professor Bertell Ollman ( New York University) on Market Socialism. Is it an oxymoron (a generous serving of "fried ice")? Is the private profit motive in a free market economy compatible with socialist principles, such as full employment, social equality, and more; or is a planned economy the only way to achieve this human liberation from scarcity and destructive competition?

Item B., sent to us by Grenoble Graduate student in political science, Benoît Monange, is an early article by Professor Gabriel Kolko on the rise of the Asian capitalist bloc.

Item C. is a series of articles by economist Chalmers Johnson, author of The Sorrows of Empire : Militarism, Secrecy, and the End of the Republic, [The American Empire Project], on "How Western Financiers Caused the Asia Crisis".

As usual, we invite CEIMSA readers to comment on the ideas presented in these discussions of the "Free Market Economy" and "Market Socialism" in our era of “globalization".

Francis McCollum Feeley
Professor of American Studies/
Director of Research
Université Stendhal-Grenoble III
Grenoble, France

from Bertell Ollman
Dialectical Marxism

Market Economy: Advantages and Disadvantages
(A Reply to Prof. Kang Ouyang's Article on Marxist Philosophy in China )
by Bertell Ollman

(Talk at Nanjing Normal University, Nanjing, ChinaOct., l999)

We must all be thankful to Prof. Kang Ouyang for his clear and concise summary of the main tendencies in Marxist philosophy in China , a country whose development is becoming ever more important to the fate of the entire world. It is an impressive list. I was especially pleased to learn of the growing interest in Marx's theory of alienation and his theory of truth, and of the widespread opposition to all kinds of dogmatism. The question now arises of how to interpret and judge Kang's remarks in these and related areas. For this I can come up with no better criterion than the test of practice advanced by Kang himself (and also by Deng Xiaoping whose writings are so influential in China today). On the basis of this criterion, what is decisive is not what someone says or how well they say it, but what they do, what it gets them to do, and how "successful" that is. So what can we learn about contemporary Chinese Marxist philosophy from Kang's practice in presenting it and from the real social practices that it has in large part inspired?

Considerations of space as well as my own limited familiarity with China makes a full evaluation of Kang's wide ranging article impossible, so I will focus on only one area, market socialism or what is often referred to as "socialism with Chinese characteristics", which is also the area that I know best. My choice can also be justified on the grounds that this is the subject on which the new generation of Chinese scholars have made their most distinctive contribution and for which they are best known outside China . And hereit must be saidit is not a good sign that Kang's account of China 's market economy offers us only one side of the picture, presenting only arguments that support the market and presenting only the positive results of China 's experience with the market. "Practice" cannot serve as a criterion for determining truth, progress, justice, alienation or, indeed, anything else unless everything that counts as practice is included in our treatment of the subject. Let me suggest what the main arguments both for and against the market (socialist as well as capitalist market) look like, and sketch how using the market has effected China , both for good and for bad. Through such rhetorical practice, my aim is to provide a helpful basis for evaluating both China 's experience with market socialism and Kang's philosophical defense of it.

A market economy has seven main characteristics: l) people buy what they want, but only if they can pay for it; 2) thus, money becomes necessary for life; 3) people are forced to do anything and to sell anything in order to get money; 4) maximizing profit rather than satisfying social needs is the aim of all production and investment; 5) discipline over those who produce the wealth of society is no longer exercised by other people (as in slavery and feudalism) but by money and the conditions of work that one must accept in order to earn money; 6) rationing of scarce goods takes place through money (based on who has more than others) rather than through coupons (based on who has worked harder or longer or has a greater need for the good); and 7) since no one is kept from trying to get rich and everyone is paid for what they do, people acquire a sense that each person gets (and has gotten) what he deserves economically, in short, that both the rich and the poor are responsible for their fates.

Whether the society is developed or underdeveloped, a market economy has several important advantages and several major disadvantages: Among the advantages, we find the following:

These are the main advantages of the market economy, and in his article Professor Kang gives a good account of them. But, as I said, there are also major disadvantages, and these Kang neglects. Among the disadvantages, we find the following:

  1. Distorted investment priorities, as wealth gets directed into what will earn the largest profit and not into what most people really need (so public health, public education, and even dikes for periodically swollen rivers receive little attention);
  2. Worsening exploitation of workers, since the harder, faster, and longer people workjust as the less they get paidthe more profit is earned by their employer (with this incentive and driven by the competition, employers are forever finding new ways to intensify exploitation);
  3. Overproduction of goods, since workers as a class are never paid enough to buy back, in their role as consumers, the ever growing amount of goods that they produce (in the era of automation, computerization and robotization, the gap between what workers produceand can produceand what their low wage allows them to consume has increased enormously);
  4. Unused industrial capacity (the mountain of unsold goods has resulted in a large percentage of machinery of all kinds lying idle, while many pressing needsbut needs that the people who have them can't pay forgo unmet);
  5. Growing unemployment (machines and raw materials are available, but using them to satisfy the needs of the people who don't have the money to pay for what could be made would not make profits for those who own the machines and raw materialsand in a market economy profits are what matters);
  6. Growing social and economic inequality (the rich get richer and everyone else gets poorer, many absolutely and the rest in relation to the rapidly growing wealth of the rich);
  7. With such a gap between the rich and the poor, egalitarian social relations become impossible (people with a lot of money begin to think of themselves as a better kind of human being and to view the poor with contempt, while the poor feel a mixture of hatred, envy and queasy respect for the rich);
  8. Those with the most money also begin to exercise a disproportional political influence, which they use to help themselves make still more money;
  9. Increase in corruption in all sectors of society, which further increases the power of those with a lot of money and puts those without the money to bribe officials at a severe disadvantage;
  10. Increase in all kinds of economic crimes, with people trying to acquire money illegally when legal means are not available (and sometimes even when they are);
  11. Reduced social benefits and welfare (since such benefits are financed at least in part by taxes, extended benefits generally means reduced profits for the rich; furthermore, any social safety net makes workers less fearful of losing their jobs and consequently less willing to do anything to keep them);
  12. Worsening ecological degradation (since any effort to improve the quality of the air and of the water costs the owners of industry money and reduces profits, our natural home becomes increasingly unlivable);
  13. With all this, people of all classes begin to misunderstand the new social relations and powers that arise through the operations of a market economy as natural phenomena with a life and will of their own (money, for example, gets taken as an almost supernatural power that stands above people and orders their lives, rather than a material vehicle into which people through their alienated relations with their productive activity and its products have poured their own power and potential; and the market itself, which is just one possible way in which social wealth can be distributed, is taken as the way nature itself intended human beings to relate to each other, as more in keeping with basic human nature than any other possibility. As part of this, people no longer believe in a future that could be qualitatively different or in their ability, either individually or collectively, to help bring it about. In short, what Marx called "ideological thinking" becomes general);
  14. The same market experiences develop a set of anti-social attitudes and emotions (people become egotistical, concerned only with themselves. "Me first", "anything for money", "winning in competition no matter what the human costs" become what drives them in all areas of life. They also become very anxious and economically insecure, afraid of losing their job, their home, their sale, etc.; and they worry about money all the time. In this situation, feelings as well as ideas of cooperation and mutual concern are seriously weakened, where they don't disappear altogether, for in a market economy it is against one's personal interest to cooperate with others);
  15. With people's thoughts and emotions effected in these ways by their life in a market economy, it becomes very difficult for the government, any government, to give them a true picture of the country's problems (it is more conducive to stability to feed people illusions of unending economic growth and fairy tales of how they too can get rich. Exaggerating the positive achievements of society and seldom if ever mentioning its negative features is also the best means of attracting foreign investment. With so much of the economy depending on "favorable market psychology", the government simply cannot afford to be completely honest either with its own people or the rest of the world on what is really happening in the country);
  16. Finally, the market economy leads to periodic economic crises, where all these disadvantages develop to a point that most of the advantages I mentioned earlier simply dry up the economy stops growing, fewer things are made, development of the forces of production slows down, investment drops off, etc. (a close look at the trends apparent in the disadvantages of the market should make clear why such crises are inevitable in a market economy). Until an economic crisis occurs, it is possible to take the position that the advantages of a market economy outweigh its disadvantages, or the opposite position, and to develop a political strategy that accords with one's view, whatever it is. But if a crisis does away with most of the important advantages associated with the market, this is no longer possible. It simply makes no sense to continue arguing that we must give priority to the advantages of the market when they are in the process of disappearing.

Once we have recognized all the main advantages and disadvantages of the market economy, and once we have had a chance to examine and compare them, there are three major questions that remain to be answered. First, is it possible to have the advantages of the market economy without the disadvantages? Both theory and empirical evidence argue strongly that the answer is "no". Even a quick perusal of Marx's analysis of how the market economy works reveals it as an organic whole in which each part serves as an internal aspect in the functioning of the others. Similarly, their effects, both good and bad (what I've called "advantages" and "disadvantages"), entail one another; they are extended parts and/or necessary preconditions or effects of each other. For example, market experiences produce, of necessity, market personalities in people, and market personalities become a necessary precondition for people of all classes to engage in market relations effectively, and hence for the market to work as well as it does. You can't, in other words, place people in market relations and expect them to retain very much of the socialist ideas, values and emotions that may once have had. And the same glue holds together all the economic, social and psychological aspects of a market economy.

For empirical evidence, just look at how quickly and how thoroughly China fell victim to all the disadvantages of the market once it set out to avail itself of the market's advantages. The Chinese government would have liked nothing better than to avoid these crippling disadvantages. It simply was not possible.

A second key question isis the equilibrium between the advantages and disadvantages of the market economy stable or changing? The answer is that they are constantly changing, and if changes sometimes favor the advantages (not by making the disadvantages disappear, which is impossible, but by making them appear smaller), the movement toward economic crisis that is taking place in all market economies today makes it clear that it is the disadvantages associated with the market that are becoming its most prominent features.

The third, and final, major question iscan people change their mind about the market? And the answer isof course. They do so all the time, moving from "against" to "in favor" or from "in favor" to "against". Just because a society opted for one approach to the market, let's say 25 years ago, when one set of problems were dominant, is not in itself a good reason to retain this approach when another set of problems become far more pressing.

If the answers I have given to these three questions are correct, then the central problem facing China today might be posed as follows: Should China stick with the market economy in order to continue to benefit from what's left of its advantages (and simply accept all the negatives that come with it), orbecause the disadvantages have gotten so badshould China now do whatever is necessary to deal with them (and treat whatever benefits it once got from the market as secondary)? It is, of course, not for me but for the Chinese people to say what should be done. I have only tried to clarify what is involved in making such a momentous decision, and, alsoand now we return to Kang's articleto suggest that it is only by fully laying out the main advantages and disadvantages of market socialism that any effective solution to China 's problems can be found. Anything less, any recourse to one-sidedness in confronting this situation, is bad economics and bad philosophy, Marxist or otherwise.

According to Kang, the core of Deng Xiaoping's teachings is directed to "emancipating the mind" and "seeking truth from facts". I can't think of anything that is more important for us, for all of us, to do. The fate of China today hangs on how well the Chinese peopleleaders, philosophers and ordinary people alikecan apply this advice to Deng's own words and the social and economic reforms that have followed from them.
Copyright Bertell Ollman 2004-2005.
All rights reserved.

from Benoît Monange :
14 December 2005
Journal of Contemporary Asia
Copyright 2001

China and Vietnam on the road to the market
by Gabriel Kolko

Communism -- its political systems, ideologies, and economic institutions -- has disappeared in Europe and it is inexorably disintegrating in Asia. Why and how was the single most important movement of the twentieth century's inglorious demise in cynicism, disillusion, and corruption possible? The answers to these questions touch upon the nature of the modern historical experience, but any explanation must also take into account why Communist movements succeeded to coming to power in the first place.

It would be an error to dismiss the role of ideas in Communism's transformation and ultimate disappearance, but neither can one minimize the way Mikhail Gorbachev and Deng Xiaoping pragmatically tailored their economic programs to win political support from powerful constituencies. In Gorbachev's case, the support of the Soviet industrial managers (the "Red barons"), who were later to emerge among the principal beneficiaries of the abolition of public ownership, was essential to his economic reforms after 1986. For Deng, his objective of consolidating control over the Party throughout the 1980s caused him to articulate inconsistent economic policies that won him the support of crucial regional and local Party leaders, who increased their economic power at the expense of the central government. (1)

This process of political coalition-building needed an ideology to rationalize its practical economic consequences, and market socialism provided it. But an ideological transformation was long overdue in both China and Vietnam , and virtually inevitable because the legacy of Leninist ideas was from its inception desperately deficient; there was no intellectual reservoir to sustain Communist parties anywhere. They came to power both in Europe and Asia because of morally and economically bankrupt regimes, which bequeathed them with both immense opportunities and vast problems. Many Chinese supported the Party because of patriotism, and socialism for them represented essentially the creation of a powerful nation via the growth of productive forces by whatever means proved essential -- the amorphous later Maoist equalitarian emphasis on the importance of relations of production appealed to few of them. (2) Market socialism supplied them a rationale also.

Senior cadres in the USSR , China , and Vietnam studied dialectics and other arcane Marxist legacies, but there was nothing they could do with them. In China and Vietnam some party veterans unquestionably favor the attainment of what many of them still define generally as socialist goals, but few question the Party's right to hegemonic rule. Party membership is mandatory for a successful career, but as in the USSR in its final phase, most younger members are essentially opportunistic technocrats.

Capitalist ideology now dominates both Chinese and Vietnamese thought on economics and society, and both rely upon a determinist Marxist interpretation of surrendering to ostensibly "objective laws" to justify employing capitalist organizational methods. In both nations many key leaders insist that economic growth attained by any means, including the application of purely capitalist organizations and managerial methods, remains the guarantor that socialism eventually will prevail. (3) Deng promulgated such notions after 1978, and China 's economic development was well advanced when the Vietnamese -- who watched the Russians embark on a similar course -- in 1986 also propounded the inevitability of "objective laws." "The fundamental task of socialism is to develop the productive forces," as China 's Party general secretary Jiang Zemin, put it in September 1997, and the Party was still in the "primary stage of socialism," a process that would last "at least a century." "[E]ven if the state-owned sector accounts for a smaller proportion of the economy, this will not affect the socialist nature of our country.... The non-public sector is an important component part of China 's socialist market economy." (4)

Vietnam 's leaders have studied China closely and the premises and goals they share in common are far greater than their differences, although nationalist sensibilities cause them to understate this consensus. Sorting out the extent to which both the Chinese and Vietnamese Communists -- like the Russians before them -- are merely giving the International Monetary Fund's and World Bank's " Washington consensus" a pseudo-Marxist interpretation, or the economic clout these institutions have, is important. But both parties were unprepared doctrinally to cope with complex economic realities and their monopoly of political power leaves them free to abandon socialism's equalitarian premises.

Whatever the differences in practice and timing, the Vietnamese have increasingly relied on the Chinese for guidance on economic and doctrinal questions. Both share the firm conviction that antipathy toward the rich must be eliminated, and indeed the acquisition of wealth should be encouraged because it will inevitably redound to the welfare of society. (5) The IMF and World Bank in both cases have goaded them and offered blueprints as well as substantial funding for abandoning socialist institutions, but both these institutions' impact is more as reflection rather than the cause of Asian Communism's terminal crisis.

The legacies of the 1979 Chinese invasion and its opposition to Vietnam's Cambodia war still exist, but the Vietnamese army and security apparatus favor closer relations with China, and in July 1997, Do Muoi, former head of the Party, prime minister Phan Van Khai, and foreign minister Nguyen Manh Cam went to China to meet Jiang Zemin and -- in the words of the Vietnamese Army daily -- to "study practical experiences regarding socioeconomic development and building of socialism with Chinese characteristics." They also discussed disputed borders, leading to agreements in 1999 on 1,200 kilometers of land boundaries and at the end of 2000 on the demarcation of the Tonkin Gulf. China described the talks as "rich in content" and having "profound significance," and while the Vietnamese were more reticent and the full text of the agreement has never been released, China 's interpretation was soon justified.

Based on "the consensus reached earlier by senior leaders," China quickly pledged Vietnam $205 million in soft loans plus additional large export credits. Phan Van Khai at the end of October 1997 issued a statement on the future of the state sector which closely resembled the Chinese model, and senior Politburo member Nguyen Duc Binh in November spoke effusively of "strengthen[ing] mutual contacts and exchanges and draw[ing] on each other's experiences." (6)

In February 1998, China and Vietnam issued identical statements on the transition from "a centralized economy to a market economy along the line of socialism under the leadership of the Communist Party." Creation of a stock market was a step in this direction, and here, to quote Phan Van Khai, " China 's experience is the most applicable." Innumerable joint Chinese and Vietnamese meetings since then have only further reaffirmed their common approach to attaining economic growth in any way required. (7) The Vietnamese Party's April 2001 congress further consolidated this commitment to "reform," which is tantamount to a significant reduction of the state sector's role in the economy and reliance on the alleged virtues and benefits of the market.

The Ascendant Managers

China and Vietnam share a consensus on goals, and both are counting on the impersonal "objective laws" to save socialism from the negative consequences of the market and their own socio-economic policies during the transition. There are many ways of measuring these commitments but they have led to very similar outcomes in both nations.

Corruption pervades the state-owned enterprises (SOEs) of both China and Vietnam , and Deng tolerated greater turpitude among those whose support he needed most, leading also to rampant corruption and nepotism among many senior Party officials. "Spontaneous" privatization occurred in the USSR at about the same time, and Vietnam 's SOEs subsequently experienced similar managerial exploitation. Indeed, managers often oppose legal privatization in both China and Vietnam precisely because they utilize the SOEs for their own gain, including spinning off private shareholding firms in which they are also owners. Many enjoy the benefits of both capitalism and socialism.

But the SOEs do allow the state to obtain taxes and revenues, and in Vietnam the SOEs during the 1990s accounted for one-third to one-half of government revenues. In China , tax avoidance by private enterprises and individuals, and tax-sharing with provincial authorities, had by 1995 produced a fiscal crisis. Total direct taxes on SOEs as a percentage of the GNP fell from 11.5% in 1983 to 3.6% in 1993. In both China and especially Vietnam , SOE tax payments far exceed state subsidies to them. (8) China introduced a "contract responsibility system" in 1987 which, for practical purposes, rented state firms to their managers for three to five years, with the government receiving a fixed sum while additional profits remained with the enterprise -- at managerial discretion. Subsequent modifications allowed joint ventures with domestic and foreign partners (by 1995, about 10,000 existed), and SOEs can now form limited-liability and joint-stock companies.

The net effect of these so-called reforms was to strip assets from the state sector and transfer its resources to private investors. "Some [Chinese] economists," a World Bank expert concluded, "believed that a thorough contract responsibility system is a de facto privatization, and ... a substitute for privatization." (9) But these changes in the SOEs increased markedly after the ninth Five Year Plan of January 1996, when some thousands of large- and medium-sized state enterprise were scheduled to become joint-stock firms -- called "corporatization." Nearly 100,000 small SOEs by then had been sold (usually to their managers), merged, or bankrupted. About half the largest SOEs by 1999 were partially privatized and about 950 were listed on stock exchanges -- the so-called "A" market, open to China 's over 50 million stockholders.

Corruption and manipulation have plagued China 's stock market since its inception. Central stock market regulators assigned the provincial governments quotas for selecting companies to be listed nationally, which led to bribery by firms eager to gain access to it. As a part of an ambitious financial reform plan aimed at conforming to World Trade Organization guidelines, at the beginning of this year Peking changed the rules by allowing state-owned firms to pick the stocks, and 114 "B" shares previously available only to foreigners with U.S. or Hong Kong dollars were opened to Chinese at the end of February. Within three months' it nearly tripled in value, threatening to become a bubble that must eventually burst. In theory, the stock market was to provide capital for normal business activities. The result was pandemonium, and a great number of small traders lost money while institutional investors dumped stock on the temporarily inflated market. "Worse than casinos" is the way one well-known Chinese economist attacked the stock markets, and in mid-March three economists in official think-tanks publicly attacked the markets as an opportunity for the "financial oligarchy," many of whom had political linkages, to enrich itself at the expense of gullible small traders. (10) Corruption and favoritism are inherent in China 's transition to a market economy.

As a result of all these trends, ignoring entirely that many SOEs are really quasi-private entities, SOEs produced about 78% of China 's industrial output in 1978 and 26% in 1997. They accounted for 82% of the fixed assets in 1980 but 55% in 1998 -- and only 44% of the urban employment. (11)

Vietnam has moved about as quickly to reform its SOEs as China did during its first decade of reform. The Party central committee declared in December 1997 that its policy was to build a "multi-sectoral economy operating in a market managed by the state in the direction of socialism," and this necessitated encouraging "The private capitalist economy and the state capitalist economy...." (12) In the IMF's opinion, Vietnam is still a considerable way behind China , but this is strictly a matter of timing and residues of opposition within the Party. The SOE share of industrial production was 62% in 1990 but had fallen to only 42% by 2000. But SOEs have increasingly lagged behind the growth of foreign and private investment, and their share of employment has fallen as private enterprises geared to the export market have especially prospered.

The largest Vietnamese SOEs are overwhelmingly profitable and crucial to the state's fiscal base, but the fact remains that many are corruptly exploited by their managers and, to varying degrees, Vietnam is following the Soviet and Chinese examples. The Party committed itself to "equitization" in 1992 but internal differences were rife and by the end of 1997 Vietnam had privatized only 17 companies; but it earmarked 1000 companies for privatization -- and more if smaller enterprises are included. In May 2000, opposition was no longer a factor and the Party issued a new SOE reform plan; by August, Vietnam had privatized 451 firms, finally created a stock exchange, and streamlined its procedures for getting rid of SOEs. (13)

The Quality of Life

There is no simple statistical measure of these fundamental qualitative changes in China and Vietnam , but it is reflected in the distribution of income, corruption, and the emergence of a class structure based on nepotism and Party membership. Whatever the differences, China and Vietnam have both abandoned their original socialist and egalitarian objectives.

Income distribution data confirm that economic development has occurred at the cost of social equity. In both Vietnam , where the richest fifth got 44.0% of the income in 1993, and in China , where it received 47.5% in 1995, income is already significantly more unequal than in Western capitalist nations. Even in the United States the comparable figure is 41.9%. (14) But China 's leaders -- like the Vietnamese -- have favored urban areas and income inequality reflects the urban-rural divide.

In both China and Vietnam the abolition of communal agriculture and creation of individual households as the basis of the land system initially caused rural productivity and earnings to increase rapidly, in China 's case reducing the urban-rural income disparity during the 1980s. But since then real agricultural income for most Chinese peasants has fallen and many have sought work in local industries or in cities. Within many villages there has emerged a new rural bourgeoisie that has prospered using hired labor and a de facto free market in land has been created. (15) Communist leaders in both nations, despite modifications of land laws that legalize such realities, initially had no intention of restoring conditions comparable to those before their revolutions. But China 's rural economy is now almost entirely privately owned -- its remaining small subsidies to mainly grain farmers are less than those in the U.S. It decided to accept important parts of the WTO's far-reaching economic conditions, and in August 1998 it modified its land laws fundamentally to create 30-year land use contracts designed to promote high value labor-intensive crops for export. These require substantial infrastructure investments but China 's agribusiness will compete on the world market.

After 1985 China allocated 52% to 62% of its budget to cities, while the proportion of state investments in the rural economy was under 10% -- even though World Bank experts predict there will be no further large increases in rural productivity without major funding. Agriculture's share of employment was about half of China's working population in 1999, but over 70% of the population still lived in rural areas. (16)

Vietnam has followed a very similar pattern since 1986. But its policy of neglect of the rural sector is even more disastrous because it is much poorer -- per capita income was $240 in 1995 but China 's was almost three times higher. So-called reforms have traumatized the Vietnamese countryside. Laws were altered in ways that poor peasants lost their land; many were compelled to sell their crops before or at the beginning of harvests, when they were most vulnerable to being cheated. The Party now favors "the process of reasonable accumulation of land" -- concentration -- to accelerate both industrialization and export agriculture. (17) The encouragement of those with "the capability to organize circulation channels" has marginalized many smaller peasants. (18) Private traders, principally, but also state officials, have been the greatest gainers from such changes. By October 2000 the exploitation of hired agricultural labor, comprising mainly landless peasants, had reached such an extent that farm owners are now required to pay a minimum wage of $13 a month at the official exchange rate -- about 43 cents a day and far below the poverty standard. (19)

In the latter half of 1997 the rural situation in Vietnam reached a crisis point with sustained mass protests by peasants in Thai Binh province, which was well-publicized, but in other provinces also. Discontent is still rife in Thai Binh and elsewhere, and at the beginning of this year several thousand members of ethnic minorities, having lost land, demonstrated in the coffee growing provinces Central Highlands against lowlands Vietnamese who have come to grow a leading export crop. While corruption among Party officials is the single most important source of peasant complaints everywhere, there are many other grievances. China has experienced comparable peasant upheavals, which rarely is reported, and in April 2001 over 600 police raided a village in Jiangxi province where peasants had protested high taxes and fees, killing two and wounding at least 18. (20) The transition from collectivized agriculture in both China and Vietnam has followed similar patterns and been beset by the emergence of a rural class structure, exploitation, and corruption.

Pervasive corruption, touching all aspects of the people's daily life, is the one malaise that has characterized the final stages of all of the Communist regimes, leading to the dissolution of the essential myth of socialism as a superior social ethic and basis of society. That the parties' ranks have been increasingly filled by opportunists and careerists has made cynicism and corruption inevitable. The Asian Development Bank estimated in early 2001 that about 30% of Vietnam 's public expenditures vanished via fraud and corruption. (21) The leaders of both the Chinese and Vietnamese parties constantly deplore corruption, but save for well-publicized and ceremonial purges, they are politically obligated also to tolerate it. Their nominal power is dependent on the often decisive freedom that local and regional party organizations have to control their own economic and political agendas.

There is no way to redeem these parties and preserve their hegemony at the same time. The Achilles heel of all Communist parties has been their claim to absolute authority and their inability to prevent its abuse, a process that has made their disintegration virtually inevitable. It has also led to successor regimes in which many former senior Communists continue as the corrupt masters of society. In the last analysis, Communist parties have been overthrown principally by ambitious persons within their own ranks. The widespread corruption that exists throughout China and Vietnam is but a phase that all Communist parties have experienced during their terminal crises.

The common outcome of reforms in China and Vietnam, both as a result of their definition of objectives and the venal manner in which they have been implemented, has been troubled class societies based on growing inequalities.

Breaking the Social Fabric

The condition of labor and urban populations in China is especially crucial, and the growing influence of spiritual movements such as Falun Gong, strikes, and mass discontent pose serious dangers to the Party. China's leaders, who in 1999 amended their constitution to approve the institution of private ownership, have for years been stalked by the fear of mass unemployment should they implement those purely impersonal business decisions that now appeal to them -- and which the IMF and World Bank have urged. The World Bank estimates that about a third of the 140 million employees in the SOEs and collective sectors are surplus. Some have already been fired -- one estimate is 14 million over the past two years and another five million will be sacked this year. Official data on labor disputes in 1994 -- mainly due to labor shedding--showed a 66% increase over 1993. Roughly 100 million persons in rural areas were unemployed in 1999 and 16 to 18 million in cities were out-of-work. Street protests are no longer uncommon. China, notwithstanding its substantial social security budget, does not have adequate resources for rationalizing its economy without risking social peace, which in turn has dire implications for a sick banking system that has loaned unprofitable state firms very large sums. (22) This fact has kept it from implementing the WTO's full demands, which would require it to open the gates to cheaper foreign imports that would ruin a significant section of its industry, both public and private.

Like other nations, China will implement those aspects of the WTO's free trade doctrine which suit its own needs and domestic political reality, including a declining but lingering socialist tradition. This tradition is especially alive when -- as was the case when the National People's Congress met in March 2001 -- rival candidates for leadership try to garner support. The subsequent crisis over the American spy plane only temporarily strengthened the position of those opposed to the race to create a market economy whatever its social costs. But the main reason China's leaders permitted the crisis with the U. S. to reach the acerbic point it did was that a very genuine nationalist backlash among many millions of ordinary Chinese gave a much-needed boost to the Party's hegemonic leadership pretensions. The chances of China reversing its economic course are very small; at the most, only its timing is at stake.

Vietnam 's urban situation closely parallels China 's. The World Bank claims that about 30% of those employed in the SOEs are excess labor, and the urban unemployment rate in mid-1998 was already 12.3%. The scant safety net to cushion redundant workers has slowed the pace of privatization. At the end of 2000 the leading international banks estimated that 60% of the entire labor force is unemployed or underemployed. (23)

Both nations share the same dilemmas regarding the urban working class: the state firms that lose money are under pressure from the IMF, World Bank, and domestic "reformers" to dismiss labor as a precondition of privatization, and there is very little institutional protection for the great numbers of superfluous workers in each nation. Worse yet, standards are even more deplorable in the locally-owned private enterprises: wages are low, hours long, and safety and working conditions extremely primitive. Their workers are mainly peasants from rural areas and redundant labor from the state sector, and especially docile. Whatever government regulations exist are scarcely enforced. (24) While Vietnam is still nearly a decade behind China in establishing private capitalism, both are producing a marginalized urban working class.

There are many ways of measuring the human and institutional consequences of the Communist parties' common strategy, but both are creating increasingly inegalitarian, class societies. The Vietnamese have lowered their taxes on corporate income and international trade, and interest, rent, and dividends are excluded from personal taxation. The government has cut back on both health and education expenditures, even though the wealthiest fifth receives 45% of the public subsidies for both these fields. Education in Vietnam , to quote a recent World Bank study, is "much more available to higher-income households," and access to it is not progressive. (25) In January 1999, following the advice of the IMF and World Bank, Vietnam introduced a value added tax which its own economists have described as regressive: "... lower income households suffer and rich households gain." (26) Poverty has declined in both China and Vietnam, in the latter case from 58% of the population in 1992-93 to 37% in 1997-98, but many Vietnamese once categorized as poor "are now clustered just above" the poverty line, according to the Asian Development Bank, and these gains "remain quite fragile." But had income inequality not increased since 1992, the IMF notes, " Vietnam would have been able to reduce poverty by an additional 8 percentage points." (27)

China and Vietnam both totally revamped their equalitarian health service systems, making access to adequate care a function of income rather than need. Above all, they terminated village cooperative medical schemes. The World Health Organization in June 2000 ranked the health systems of 193 countries in 1997 by overall health system performance, with one as highest. Bangladesh ranked 88, and India 112. Even Yemen was 120. China was ranked 144 and Vietnam 160. (28)

Notwithstanding differences reflecting historical factors or in timing, China and Vietnam 's Communist leaders are abolishing socialism's traditional equalitarian premises and goals. They have committed themselves to the creation of private property to an extent compatible only with functionally capitalist economies, but they still argue that economic growth will lead inevitably to the creation of what they increasingly vaguely define as socialism. They also share a consensus on the hegemonic right of the Communist parties ultimately to rule. In part for their own reasons but also because of the serious deficiencies of the first decades of both their own and Soviet economic planning, China and Vietnam have accepted and increasingly implemented the IMF's and World Bank's general vision of ideal economies.

With it, the last important Communist experiments in the world are ending.

* Professor Emeritus of History, York University, Toronto


Susan L. Sherk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993); Anders Aslund, How Russia Became a Market Economy (Washington, D.C.: Brookings Institution, 1995)

Yan Sun, The Chinese Reassessment of Socialism. 1976-1992 (Princeton: Princeton University Press, 1995), expounds this thesis convincingly.

(3.) Maurice Meisner, The Deng Xiaoping Era: An Inquiry Into the Fate of Chinese Socialism. 1978-1997 (New York: Hill and Wang, 1996), pp. 209-19; Gabriel Kolko, Vietnam : Anatomy of a Peace (London: Routledge, 1997), pp. 28-30, 35-37.

(4.) U.S. Foreign Broadcast Information Service, Daily Report (hereafter "FBIS"), CHI-97-254, 11 Sept. 1997. See also ibid., CHI-97-255, 12 Sept. 1997; CHI-97-256, 13 Sept. 1997.

(5.) Kolko, Anatomy, pp. 38, 58, 70. Forbes estimates China 's richest man in 2000 to be worth $1.9 billion. Financial Times, 10 Nov. 2000.

(6.) FBIS-EAS-97-103; EAS-97-200; FBIS-CHI-97-296; CHI-97-314; CHI-97-342.

(7.) Vietnam News Agency, 23 Feb. 1998, 19 Oct. 2000; Xinhua, 24 Feb. 1998, in FBIS-CHI-98-055.

(8.) Financial Times, 16 June, 29 Oct. 1995; IMF, Economic Reform in China [Occasional Paper 114] (Washington, D.C., 1994), p. 27; Kolko, Anatomy, p. 55.

(9.) Yingyi Qian, "Reforming Corporate Governance in China," in Corporate Governance in Transitional Economies: Insider Controls and the Role of Banks, eds. Masahiko Aoki and Hyung-Ki Kim (Washington, D.C; World Bank Economic Development Institute, 1995), p. 219.

(10.) Financial Times, 9 March 2001. See also ibid., 21, 22 Feb., 1 March 2001; International Herald Tribune, 29 Dec. 2000, 27, 28 Feb., 1, 8 March 2001, 29 May 2001; Tiffany Wu, Reuters, 27 Feb. 2001.

(11.) Zhiqiang Liu, "The Nature of China 's Economic Growth in the Past Two Decades," Post-Communist Economies, vol. 12, no. 2, 2000, p. 206.

(12.) FBIS-EAS-98-020.

(13.) IMF, [Vietnam] Staff Country Report No. 99/55, July 1999, pp. 42-58; IMF Public Information Notice no. 00/55, 4 Aug. 2000, World Bank, Vietnam Country Report, 18 Sept. 2000, pp. 8 ff.

(14.) World Bank, World Development Report 1997 (Washington, D.C., 1997), pp. 222-23.

(15.) Meisner, Deng Xiaoping Era, pp. 231, 250-51; Anita Chan et al, Transforming Asian Socialism: China and Vietnam Compared (Lanham, Md.: Bowman & Littlefield, 2000), p. 127; Douglas Wu, "China's Quiet Property Rights Revolution," CATO [Institute] Policy Report, Nov.-Dec. 2000, pp 12-13.

(16.) Dennis Tao Yang, "Urban-Biased Policies and Rising Income Inequality in China ," American Economic Review, v. 89 (May 1999), pp. 308-09; Financial Times, 28 Feb. 2001.

(17.) FBIS-EAS-98-020. See also Kolko, Anatomy, chap. 4.

(18.) Trade Minister Truong Dinh Tuyen in FBIS-EAS-98-082. See also World Bank, Asian Development Bank, and UNDP, Vietnam 2010: Entering the 21st Century, 29 Nov. 2000, chap. 3, p. 12.

(19.) Peter Mares, "Down in the Delta: Rice and Taxes in Vietnam ," The Asia-Pacific Magazine, no. 8, 1997. pp. 17-21; Vietnam News Agency, 19 Oct. 2000.

(20.) International Herald Tribune, April 21, 2001.

(21.) Financial Times, 12 Feb. 2001.

(22.) [World Bank] Transition, Nov.-Dec. 1995, p. 19; Financial Times, 1 Oct., 29 Dec. 1999; International Herald Tribune, 29 Oct. 1999; 7 March 2001.

(23.) Transition, June 1998, p. 16; World Bank, Vietnam Country Report, 18 Sept. 2000, pp 8-9; World Bank et al, Vietnam 2010: Entering the 21st Century, 29 Nov. 2000, chap. 1, p. 2.

(24.) Ying Zhu and Stephanie Fahey, "The Impact of Economic Reform on Industrial Labour Relations in China and Vietnam ," Post-Communist Economies, vol. 11, no. 2, 1999, p 190.

(25.) Jere R. Behrman and James C. Knowles, "Household Income and Child Schooling in Vietnam ," World Bank Economic Review, vol. 13, no. 2, 1999, p. 238.

(26.) Nguyen Chan et al., in Vietnam 's Socio-Economic Development [ Hanoi], Winter 1999, p. 15.

(27.) ADB, Asian Development Outlook 2000, p. 121. See also IMF, Staff Report No. 00/116, Aug. 2000, pp. 46n-47.

(28). WHO, The World Health Report 2000, 21 June 2000, annex table 1.

Source Citation: Kolko, Gabriel. " China and Vietnam on the road to the market." Journal of Contemporary Asia 31.4 (Oct 2001): 431(10)

from Chalmers Johnson :
10 December 2005

How Western Financiers Caused the Asia Crisis
by Chalmers Johnson

[This collection of essays by Chalmers Johnson has been organized into two groups: the earlier writings, dealing with Japan 's economic juggernaut; and the later writings, dealing with America as the new Roman Empire.]

Index :
(1) Globalisation: creed of greed - November 18, 1998 (2) Let's Revisit Asia's 'Crony Capitalism' Economy: America's free-trade proselytizing is the true root of what is now a global crisis - June 25, 1999 (3) The Scourge of Militarism: Rome and America (4) America's Empire of Bases - January 17, 2004 (5) ON THE JAPANESE THREAT: An Interview with Chalmers Johnson - November 1989 (6) Radio interview: Chalmers Johnson; Sydney, December 30, 1991 (7) MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, by Chalmers Johnson (8) Chalmers Johnson on the Flying Geese model (9) Fickle, Bitter, and Dangerous - An interview with Chalmers Johnson by David Ross

(1) Globalisation: creed of greed.

If the APEC leaders fail to deal with the real cause of the Asian financial crlsis - the preservation of American global hegemony - then this week's summit will fail to accomplish anything substantial, argues Chalmers Johnson.

Australian Financial Review, November 18, 1998

After all the endless mouthing off in the pages of The Wall Street Journal, The Economist of London and The Australian Financial Review about East Asia's "crony capitalism", the lack of "transparency" in Asian stock exchanges, the "no pain, no gain" logic of the International Monetary Fund, and how the Asian economic challenge to Anglo-American capitalism had fizzled, we now know that none of these things had anything at all to do with the Asian - now global - economic crisis.

Addressing what did cause the crisis is the main business of this week's APEC meeting in Kuala Lumpur. If it ignores this question and pretends that the road is still open to "globalisation" in the Pacific, it will be dead on arrival.

Here's the new explanation as it is developing in seminar rooms from Seoul to Kuala Lumpur: with the end of the Cold War, the United States decided it had to launch a rollback operation in East Asia if it were to maintain its global hegemony.

The high-growth economies of East Asia had become the main challengers to American power in the region, and it was time they be brought to heel. The campaign worked in two phases.

First, a major ideological barrage from the Jagdish Bhagwatis and Ross Garnauts of this world was launched to soften up the Asians. These famous tenured professors of economics, who never once faced a "market force" in their own lives, were hired to preach the beauties of "globalisation', in this case meaning American economic institutions.

[Ross Garnaut is a Professor of Economics in the Research Schools of the Australian National University, Canberra, and a member of the Trilateral Commission: http://www.ontopofacloud.com/TrilateralRoster.htm]

Concretely, these include total laissez-faire, destruction of unions and social safety nets, staffing of regulatory agencies with retired financiers, indifference to pay differentials between CEOs and the ordiniary labor force, moving manufacturing to low-wage areas regardless of the social costs, and totally unregulated flows of capital in and out of any and all economies.

Then came phase two. Once the Asian economies had begun to open themselves up and were standing in the world marketplace more or less naked, the "hedge funds" were let loose on them. These funds are actually huge concentrations of capital owned by very wealthy Western white men, who manipulate bewilderingly complex financial instruments called "derivatives". They usually locate their offices in offshore tax havens like the Cayman Islands and do everything in their power to avoid regulators or tax collectors in the so-called "free market democracies".

The funds easily raped Thailand, Indonesia and South Korea and then turned the shivering survivors over to the IMF, not to help the victims but in order to ensure that any Western bank was not stuck with "non-performing" loans in the devastated countries.

The Americans suspected that all this might cause some trouble. On March 4, 1998, Admiral Joseph Prueher, commander-in-chief of American military forces located in East Asia testified before Congress that the US military was on alert for "early signs of instability" in East Asia, including "labor disputes". The Indonesian armed forces, whom Admiral Prueher's Special Forces had been training for years, got rid of Soeharto when it seemed necessary, even though they killed about 1,200 shopkeepers and raped at least 165 Chinese women doing so.

But then it all got a bit out of hand. One of the biggest hedge funds proved to be so greedy that the US Government had to organise a bailout for it, which brought the scheme out into the open.

The weakened economies of East Asia could not continue to buy the weapons the Pentagon wanted to sell them and some began to have second thoughts about paying to keep US Marines (aka the Hedge Fund Protective Corps) in their countries.

"Globalisation" was discredited as a crooked financier's scam and even the Nobel Prize committee in Stockholm decided that it had better begin to take some notice of economists who study people instead of formulas. The Chinese never looked so clever as they did in keeing out of the WTO.

In her visits throughout East Asia this week, US Secretary of State Madeleine Albright has and will continue to give speeches calling for "free trade, market economics, democratisation and respect for human rights." She will be lucky if her audiences do not stone her.

(2) Let's Revisit Asia's 'Crony Capitalism' Economy: America 's free-trade proselytizing is the true root of what is now a global crisis.

Los Angeles Times, June 25, 1999.

After all the endless mouthing off in the pages of the English-language business press about East Asia's "crony capitalism," the lack of "transparency" in Asian stock exchanges, the "no pain, no gain" logic of the International Monetary Fund and how the Asian economic challenge to Anglo American capitalism had fizzled, we now know that none of these things had anything to do with the Asian--now global--economic crisis. Addressing what did cause the crisis is the main business of the leaders of the countries of East Asia as they reflect on what has happened to them over the past two years. If they ignore this question and pretend that the road is still open to "globalization" in the Pacific, they risk being repudiated by their own people.

Here's the new explanation as it is developing in seminar rooms from Seoul to Kuala Lumpur to Beijing.

With the end of the Cold War, the United States decided it had to launch a rollback operation in East Asia if it was to maintain its global hegemony. The high-growth economies of East Asia had become the main challengers to American power in the region, and it was time they were brought to heel. The campaign worked in two phases. First, a major ideological barrage was launched to soften up the Asians. The Americans mobilized famous professors of economics from their universities, who never once faced a "market force" in their own lives, to preach the beauties of globalization; in this case meaning American economic institutions. These include total laissez faire, destruction of unions and social safety nets, staffing of regulatory agencies with retired financiers, indifference to the pay differentials between CEOs and the ordinary labor force, moving manufacturing to low-wage areas regardless of the social costs and totally unregulated flows of capital in and out of any and all economies. Ever since the Asia Pacific Economic Cooperation summit in 1993, the Americans hammered home to the Asians that they needed to "open up" their economies in these ways.

Then came phase two. Once the Asian economies had begun to "deregulate" and were standing in the world marketplace more or less naked, the "hedge funds" were let loose on them. These funds are actually huge concentrations of capital owned by very wealthy Western white men, who manipulate bewilderingly complex financial instruments called "derivatives." They usually locate their offices in offshore tax havens like the Cayman Islands and do everything in their power to avoid regulators or tax collectors in the so-called free market democracies. The funds easily raped Thailand , Indonesia and South Korea and then turned the shivering survivors over to the IMF, not to help the victims but to ensure that no Western bank was stuck with "nonperforming" loans in the devastated countries. The IMF is also the U.S. government's chosen instrument for "reforming" these countries to make them look more like New York.

The Americans suspected that all this might cause some trouble. On March 4, 1998, Adm. Joseph Prueher, then commander in chief of American military forces located in East Asia and today the U.S. ambassador-designate to China, testified before Congress that the U.S. military was on alert for "early signs of instability" in East Asia, including "labor disputes." The Indonesian armed forces, whom Prueher's special forces had been training for years, got rid of Suharto when it seemed necessary. The Indonesian troops killed about 1,200 shopkeepers and raped more than 150 Chinese women doing so.

But then it all got a bit out of hand. One of the biggest hedge funds proved to be so greedy that the U.S. government had to organize a bailout for it, which brought the scheme out into the open. David Mullins, a former deputy to Federal Reserve Chairman Alan Greenspan, had gone straight to work for the Long-Term Capital Management fund after he left the Fed in 1994. Had this not been the case, it's unlikely that the Federal Reserve Bank of New York would have arranged a $3.5-billion rescue package for the hedge fund. The incestuous relationship between Washington and Wall Street--what Columbia University economist Jagdish Bhagwati calls the Wall Street-Treasury complex--made East Asia's crony capitalism look tame.

The weakened economies of East Asia also could not continue to buy the weapons the Pentagon wanted to sell them, and some began to have second thoughts about paying to keep U.S. Marines (a.k.a. the Hedge Fund Protective Corps) in their countries. Globalization was discredited as a crooked financier's scam. The Chinese never looked so clever as they did in keeping out of the World Trade Organization as did the Japanese when they more or less ignored the pleas for "reform" from Washington.

These issues came to a head in Kuala Lumpur in November 1998. The U.S. trade representative, Charlene Barshefsky, accused the Japanese of offering $30 billion in aid to the stricken countries of East Asia as a way of buying their votes against further market-opening measures. The Japanese foreign ministry responded that the U.S. government was possessed by "an evil spirit," a phrase painfully close to the evil empire epithet that former President Reagan used against the Soviet Union. Vice President Al Gore then gave a speech in the Malaysian capital, denouncing its head of state for trying to protect his country from international speculators and calling on the people of Malaysia to overthrow him. After that, APEC no longer had a future worth speaking of.

The Americans do not seem to understand that their message of free trade and market economics is in serious disrepute. Wall Street itself now looks like the ancestral home of crony capitalism.

Chalmers Johnson Is President of the Japan Policy Research Institute in San Diego. His Forthcoming Book Is "Blowback: the Costs of the American Empire" (Henry Holt).

(3) The Scourge of Militarism: Rome and America .

The collapse of the Roman republic in 27 BC has significance today for the United States , which took many of its key political principles from its ancient predecessor. Separation of powers, checks and balances, government in accordance with constitutional law, a toleration of slavery, fixed terms in office, all these ideas were influenced by Roman precedents. John Adams and his son John Quincy Adams often read the great Roman political philosopher Cicero and spoke of him as an inspiration to them. Alexander Hamilton, James Madison, and John Jay, authors of the Federalist Papers, writing in favor of ratification of the Constitution signed their articles with the name Publius Valerius Publicola, the first consul of the Roman republic.

The Roman republic, however, failed to adjust to the unintended consequences of its imperialism, leading to a drastic alteration in its form of government. The militarism that inescapably accompanied Rome's imperial projects slowly undermined its constitution as well as the very considerable political and human rights its citizens enjoyed. The American republic, of course, has not yet collapsed; it is just under considerable strain as the imperial presidency -- and its supporting military legions -- undermine Congress and the courts. However, the Roman outcome -- turning over power to an autocracy backed by military force and welcomed by ordinary citizens because it seemed to bring stability -- suggests what might happen in the years after Bush and his neoconservatives are thrown out of office.

Obviously, there is nothing deterministic about this progression, and many prominent Romans, notably Brutus and Cicero, paid with their lives trying to head it off. But there is something utterly logical about it. Republican checks and balances are simply incompatible with the maintenance of a large empire and a huge standing army. Democratic nations sometimes acquire empires, which they are reluctant to give up because they are a source of wealth and national pride, but as a result their domestic liberties are thereby put at risk.

These not-particularly-original comparisons are inspired by the current situation of the United States, with its empire of well over 725 military bases located in other people's countries; its huge and expensive military establishment demanding ever more pay and ever larger appropriations from a supine and manipulated legislature; unsolved anthrax attacks on senators and newsmen (much like Rome's perennial assassinations); Congress's gutting of the Bill of Rights through the panicky passage of the Patriot Act -- by votes of 76- 1 in the Senate and 337 to 79 in the House; and numerous signs that the public is indifferent to what it is about to lose. Many current aspects of our American government suggest a Roman-like fatigue with republican proprieties. After Congress voted in October 2002 to give the president unrestricted power to use any means, including military force and nuclear weapons, in a preventive strike against Iraq whenever he -- and he alone -- deemed it "appropriate," it would be hard to argue that the constitution of 1787 was still the supreme law of the land.

Checks and Balances

My thinking about the last days of republics was partly stimulated this past summer by a new book and an old play. The book is Anthony Everitt's magnificent account of the man who had his head and both hands chopped off for opposing military dictatorship -- Cicero: The Life and Times of Rome's Greatest Politician (Random House, 2001). The play was a modern-dress production of Shakespeare's Julius Caesar, seen at San Diego's Old Globe theater. The curtain opened on a huge backdrop of Julius Caesar looking remarkably like any seedy politician with the word "tyrant" scrawled graffiti-style beneath his face in red paint. At play's end, after Octavian's hypocritical comments on the death of Brutus, who was one of the republic's most stalwart supporters ("According to his virtue let us use him. . . ."), the picture of Caesar dropped away, replaced by one of Octavian -- soon to become the self-proclaimed god Augustus Caesar -- in full military uniform and bearing a marked resemblance to Arnold Schwarzenegger. In fact, Octavian's military rule did not actually follow at once after the suicides of Brutus and Cassius at Philippi in 42 BC and Shakespeare does not say it did. But that is what the play -- and the history -- are all about: killing Julius Caesar on the Ides of March, 44 BC only prepared the ground for a more ruthless and determined successor.

The Roman republic is conventionally dated from 509 to 27 BC even though Romulus's founding of the city is traditionally said to have occurred in 753 BC. All we know about its dim past, including the first two centuries of the republic, comes from the histories written by Livy and others and from the findings of modern archaeology. For the century preceding the republic, Rome had been ruled by Etruscan kings from their nearby state of Etruria (modern Tuscany), until in 510, according to legend, Sextus, the son of king Tarquinius Superbus ("King Tarquin"), raped Lucretia, the daughter of a leading Roman family. A group of aristocrats backed by the Roman citizenry revolted against this outrage and expelled the Etruscans from Rome. The rebels were determined that never again would any single man be allowed to obtain supreme power in Rome, and for four centuries the system they established more or less succeeded in preventing that from happening. "This was the main principle," writes Everitt, "that underpinned constitutional arrangements which, by Cicero's time [106 to 43 BC], were of a baffling complexity."

At the heart of the unwritten Roman constitution was the Senate, by the early years of the first century BC composed of about 300 members from whose ranks two chief executives, called consuls, were elected. The consuls took turns being in charge for a month each, and neither could hold office for more than a year. Over time an amazing set of "checks and balances" evolved to ensure that the consuls and other executives whose offices conferred on them imperium -- the right to command an army, to interpret and carry out the law, and to pass sentences of death -- did not entertain visions of grandeur and overstay their time. At the heart of these restraints were the principles of collegiality and term limits. The first meant that for every office there were at least two incumbents, neither of whom had seniority or superiority over the other. Office holders were normally limited to one-year terms and could be reelected to the same office only after waiting ten years. Senators had to serve two to three years in lower offices -- as quaestors, tribunes, aediles, or praetors -- before they were eligible for election to a higher office, including the consulship. All office holders could veto the acts of their equals, and higher officials could veto decisions of lower ones. The chief exception to these rules was the office of "dictator," appointed by the consuls in times of military emergency. There was always only one dictator and his decisions were immune to veto; according to the constitution, he could hold office only for six months or the duration of a crisis.

Once an official had ended his term as consul or praetor, the next post below consul, he was posted in Italy or abroad as governor of a province or colony and given the title of proconsul. It is absurd for journalistic admirers of the U.S. military today to pretend that its regional commanders-in-chief for the Middle East (Centcom), Europe (Eucom), the Pacific (Pacom), Latin America (Southcom), and the United States itself (Northcom) are the equivalents of Roman proconsuls.1 The Roman officials were seasoned members of the Senate who had held the highest executive post in the country, whereas American regional commanders are generals or admirals who have served their entire careers away from civilian concerns and risen to this post by managing to avoid making egregious mistakes.

After serving as consul in 63 BC (the year of Octavian's birth), for example, Cicero was sent to govern the colony of Cilicia in present-day southern Turkey , where his duties were both civilian and military. Over time this complex system was made even more complex by the class struggle embedded in Roman society. During the first two centuries of the republic, what appeared to be a participatory democracy was in fact an oligarchy of aristocratic families that dominated the Senate. Not everyone was happy with this. After 287 BC, when the constitution was more or less formalized, a new institution came into being to defend the rights of the plebs or populares, that is, the ordinary, non-aristocratic citizens of Rome. These were the tribunes of the people, charged with protection of the lives and property of plebeians. Tribunes could veto any election, law, or decree of the Senate, of which they were ex officio members, as well as the acts of all other officials (except a dictator). They could also veto each others' vetoes. "No doubt because their purpose in life was to annoy people," Everitt notes, "their persons were sacrosanct." Controlling appointments to the office of tribune later became very important to generals like Julius Caesar, who based their power on their armies plus the support of the populares against the aristocrats.

The system worked well enough and afforded extraordinary freedoms to the citizens of Rome so long as all members of the Senate recognized that compromise and consensus were the only ways to get anything done. Everitt poses the issue in terms of the different perspectives of Caesar and Cicero; Caesar was Rome's, and perhaps history's greatest general; whereas Cicero was the most intellectual defender of the Roman constitution. Both were former consuls: "Julius Caesar, with the pitiless insight of genius, understood that the constitution with its endless checks and balances prevented effective government, but like so many of his contemporaries Cicero regarded politics in personal rather than structural terms. For Caesar the solution lay in a completely new system of government; for Cicero it lay in finding better men to run the government -- and better laws to keep them in order."

"Remember that you are human"

Imperialism provoked the crisis that destroyed the Roman republic. After slowly consolidating its power over all of Italy and conquering the Greek colonies on the island of Sicily, the republic extended its conquests to Greece itself, to Carthage in North Africa, and to what is today southern France , Spain , and Asia Minor. By the first century BC, Rome dominated all of Gaul, most of Iberia , the coast of North Africa, Macedonia (including Greece ), the Balkans, and large parts of modern Turkey , Syria , and Lebanon . "The republic became enormously rich on the spoils of empire," Everitt writes, "so much so that from 167 BC Roman citizens in Italy no longer paid any personal taxes." The republic also became increasingly self-important and arrogant, believing that its task was to bring civilization to lesser peoples and naming the Mediterranean Mare Nostrum (our sea), somewhat the way some Americans came in the twentieth century to refer to the Pacific Ocean as an "American lake."

The problem was that the Roman constitution made administration of so large and diverse an area increasingly difficult and subtly altered the norms and interests that underlay the need for compromise and consensus. There were several aspects to this crisis, but the most important was the transformation of the Roman army into a professional military force and the growth of militarism. During the early and middle years of the republic, the Roman legions were a true citizen army composed of small, conscripted landowners. Differing from the American republic, all citizens between the age of 17 and 46 were liable to be called for military service. One of the more admirable aspects of the Roman system was that only those citizens who possessed a specified amount of property (namely, a horse and some land) could serve, thereby making those who had profited most from the state also responsible for its defense. (By contrast, of the 535 members of Congress, only seven have children in the U.S. 's all-volunteer armed forces.) The Roman plebs did their service as skirmishers with the army or in the navy, which had far less honor attached to it. At the beginning of each term, the consuls appointed tribunes to raise two legions from the census role of all eligible citizens.

When a campaign was over, the troops were promptly sent back to their farms, sometimes richer and flushed with military glory. Occasionally, the returning farmers got to march behind their general in a "triumph," the most splendid ceremony in the Roman calendar, a victory procession allowed only to the greatest of conquerors. The general himself, who paid for this parade, rode in a chariot with his face covered in red lead to represent Jupiter, king of the gods. A boy slave stood behind him holding a laurel wreath above his head while whispering in his ear "Remember that you are human." In Pompey's great triumph of 61 BC, he actually wore a cloak that had belonged to Alexander the Great. After the general came his prisoners in chains and finally the legionnaires, who by ancient tradition sang obscene songs satirizing their general.

By the end of the second century BC, in Everitt's words, "The responsibilities of empire meant that soldiers could no longer be demobilized at the end of each fighting season. Standing forces were required, with soldiers on long-term contracts." The great general Caius Marius undertook to reform the armed forces, replacing the old conscript armies with a professional body of long-service volunteers. When their contracts expired, they expected their commanders, to whom they were personally loyal, to grant them farms. Unfortunately, land in Italy was by then in short supply, much of it tied up in huge sheep and cattle ranches owned by rich, often aristocratic, families and run by slave labor. The landowners were the dominant conservative influence in the Senate, and they resisted all efforts at land reform. Members of the upper classes became wealthy as a result of Rome's wars of conquest and bought more land as the only safe investment, driving small holders off their property. In 133 BC, the gentry arranged for the killing of the tribune Tiberius Gracchus (of plebian origin) for advocating a new land-use law. Rome's population continued to swell with landless veterans. "Where would the land be found," asks Everitt, "for the superannuated soldiers of Rome's next war?"

During the last century before its fall, the republic was assailed by many revolts of generals and their troops, leading to gross violations of the constitution and on several occasions to civil wars. These included the uprisings of Marius and Sulla and of the failed revolutionary Catilina. There was also the Spartacus slave rebellion of 73 BC, put down by the immensely wealthy Marcus Licinius Crassus, who in the process crucified some 6,000 survivors. Crassus was a member of the First Triumvirate, along with Pompey and Caesar, which attempted to bring the situation under control by direct cooperation among the generals. Everitt writes, "During his childhood and youth Cicero had watched with horror as Rome set about dismantling itself. If he had a mission as an adult, it was to recall the republic to order. . . . [He] noticed that the uninhibited freedom of speech which marked political life in the republic was giving way to caution at social gatherings and across dinner tables. . . . The Senate had no answer to Rome's problems and indeed sought none. Its aim was simply to maintain the constitution and resist the continual attacks on its authority. . . . The populares had lost decisively with the defeat of Catilina, but the snake was only stunned. Caesar, who had been plotting against Senatorial interests behind the scenes, was rising up the political ladder and, barring accidents, would be consul in a few years' time."

Caesar became consul for the first time in 59 BC enjoying great popularity with the ordinary people. After his year in office, he was rewarded by being named governor of Gaul, a post he held between 58 and 49 during which he earned great military glory and became immensely wealthy. In 49 he famously allowed his armies to cross the Rubicon, a small river in northern Italy that served as a boundary against armies approaching the capital, and plunged the country into civil war, taking on his former ally and now rival, Pompey. He won, after which, as Everitt observes, "No one was left in the field for Caesar to fight. . . . His leading opponents were dead. The republic was dead too: he had become the state." Julius Caesar exercised dictatorship from 48 to 44 and a month before the Ides of March had arranged to have himself named "dictator for life." Instead, he was stabbed to death in the Senate by a conspiracy of eight members, led by Brutus and Cassius, both praetors, known to history as "principled tyrannicides."

Shakespeare's recreation of the scenes that followed, based upon Sir Thomas North's translation of Plutarch, has become as immortal as the deed itself. In a speech to the plebeians in the Forum, Brutus defended his actions. "If there be any in this assembly, any dear friend of Caesar's, to him I say that Brutus' love to Caesar was no less than his. If then that friend demand why Brutus rose against Caesar, this is my answer: Not that I lov'd Caesar less, but that I loved Rome more. Had you rather Caesar were living, and all die slaves, than that Caesar were dead, to live all freemen?" However, Mark Antony, Caesar's chief lieutenant, speaking to the same audience, had the last word. He turned the populace against Brutus and Cassius, and as they raced forth to avenge Caesar's murder, said cynically, "Cry 'Havoc!' and let slip the dogs of war."

Who will watch the watchers?

The Second Triumvirate, formed to avenge Caesar, ended like the first, with only one man standing, but that man, Caius Octavianus (Octavian), Caesar's eighteen-year-old grand nephew, would decisively change Roman government by replacing the republic with an imperial dictatorship. Everitt characterizes Octavian as "a freebooting young privateer," who on August 19, 43 BC, became the youngest consul in Rome's history and set out, in violation of the constitution, to raise his own private army. "The boy would be a focus for the simmering resentments among the Roman masses, the disbanded veterans, and the standing legions." Cicero, who had devoted his life to trying to curb the kind of power represented by Octavian, now gave up on the rule of law in favor of realpolitik. He recognized that "for all his struggles the constitution was dead and power lay in the hands of soldiers and their leaders." In Cicero's analysis, the only hope was to try to co-opt Octavian, leading him toward a more constitutional position, while doing everything not to "irritate rank-and-file opinion, which was fundamentally Caesarian." Cicero would pay with his life for this last, desperate gamble. Octavian, allied with Mark Antony, ordered at least 130 senators (perhaps as many as 300) executed and their property confiscated after charging them with supporting the conspiracy against Caesar. Mark Antony personally added Cicero's name to the list. When he met his death, the great scholar and orator had with him a copy of Euripides' Medea, which he had been reading. His head and both hands were displayed in the Forum.

A year after Cicero's death, following the battle of Philippi where Brutus and Cassius ended their lives, Octavian and Antony divided the known world between them. Octavian took the West and remained in Rome; Antony accepted the East and allied himself with Cleopatra, the queen of Egypt and Julius Caesar's former mistress. In 31 BC, Octavian set out to end this unstable arrangement, and at the sea battle of Actium in the Gulf of Ambracia on the western coast of Greece , he defeated Antony's and Cleopatra's fleet. The following year in Alexandria Mark Antony fell on his sword and Cleopatra took an asp to her breast. By then, both had been thoroughly discredited for claiming that Antony was a descendant of Caesar's and for seeking Roman citizenship rights for Cleopatra's children by Caesar. Octavian would rule the Roman world for the next 45 years, until his death in 14 AD.

On January 13, 27 BC, Octavian appeared in the Senate, which had legitimized its own demise by ceding most of its powers to him and which now bestowed on him the new title of Augustus, first Roman emperor. The majority of the Senators were his solid supporters, having been handpicked by him. In 23 BC, Augustus was granted further authority by being designated a tribune for life, which gave him ultimate veto power over anything the Senate might do. His power rested ultimately on his total control of the armed forces.

Although his rise to power was always tainted by constitutional illegitimacy -- not unlike that of our own Boy Emperor from Crawford, Texas -- Augustus proceeded to emasculate the Roman system and its representative institutions. He never abolished the old republican offices but merely united them under one person -- himself. Imperial appointment became a badge of prestige and social standing rather than of authority. The Senate was turned into a club of old aristocratic families, and its approval of the acts of the emperor was purely ceremonial. The Roman legions continued to march under the banner SPQR -- senatus populus que Romanus, "the Senate and the Roman People" -- but the authority of Augustus was absolute.

The most serious problem was that the army had grown too large and was close to unmanageable. It constituted a state within a state, not unlike the Pentagon in the United States today. Augustus reduced the army's size and provided generous cash payments to those soldiers who had served more than twelve years, making clear that this bounty came from him, not their military commanders. He also transferred all legions away from Rome to the remote provinces and borders of the Empire, to ensure their leaders were not tempted to meddle in political affairs. Equally astutely, he created the Praetorian Guard, an elite force of 9,000 men with the task of defending him personally, and stationed them in Rome. They were drawn only from Italy , not from distant provinces, and were paid more than soldiers in the regular legions. They began as Augustus's personal bodyguards, but in the decades after his death they became decisive players in the selection of new emperors. It was one of the first illustrations of an old problem of authoritarian politics: create one bureaucracy, the Praetorian Guard, to control another bureaucracy, the regular army, but before long the question will arise: Quis custodiet ipsos custodes? (Who will watch the watchers?)

Augustus is credited with forging the Roman Peace (Pax Romana), which historians like to say lasted more than 200 years. It was, however, a military dictatorship and depended entirely on the incumbent emperor. And therein lay the problem. Tiberius, who reigned from 14-37 AD, retired to Capri with a covey of young boys who catered to his sexual tastes. His successor, Caligula, who held office from 37-41, was the darling of the army, but on January 24, 41 AD, the Praetorian Guard assassinated him and proceeded to loot the imperial palace. Modern archaeological evidence strongly suggests that Caligula was an eccentric maniac, just as history has always portrayed him.2

The fourth Roman emperor, Claudius, who reigned from 41 to 54, was selected and put into power by the Praetorian Guard in a de facto military coup. Despite the basically favorable portrayal of him by Robert Graves (I, Claudius, 1934) and years later on TV by Derek Jacobi, Claudius, who was Caligula's uncle, was addicted to gladiatorial games and fond of watching his defeated opponents being put to death. As a child, Claudius limped, drooled, stuttered, and was constantly ill. He had his first wife killed and married Agrippina, daughter of the sister of Caligula, after having the law changed to allow uncles to marry their nieces. On October 13, 54 AD, Claudius was killed with a poisoned mushroom, probably fed to him by his wife, and at noon that same day, the sixteen-year-old Nero, Agrippina's son by a former husband, was acclaimed emperor in a carefully orchestrated piece of political theater. Nero, who reigned from 54 to 68, was a probably insane tyrant who has been credited with setting fire to Rome in 64 and persecuting some famous early Christians (Paul and Peter), although his reputation has been somewhat rehabilitated in recent years as a patron of the arts.

The short, happy life of the American republic

After Augustus, not much recommends the Roman Empire as an example of enlightened government despite the enthusiasm for it of such neoconservative promoters of the George W. Bush administration as the Washington Post's Charles Krauthammer, the Wall Street Journal's Max Boot, and the Weekly Standard's William Kristol. My reasons for going over this ancient history are not to suggest that our own Boy Emperor is a second Octavian but rather what might happen after he is gone. The history of the Roman republic from the time of Julius Caesar on suggests that it was imperialism and militarism -- poorly understood by all conservative political leaders at the time -- that brought it down. Militarism and the professionalization of a large standing army create invincible new sources of power within a polity. The government must mobilize the masses in order to exploit them as cannon fodder and this leads to the rise of populist generals who understand the grievances of their troops and veterans.

Service in the armed forces of the United States has not been a universal male obligation of citizenship since 1973. Our military today is a professional corps of men and women who join up for their own reasons, commonly to advance themselves in the face of one or another cul de sac of American society. They normally do not expect to be shot at, but they do expect all the benefits of state employment -- steady pay, good housing, free medical benefits, relief from racial discrimination, world travel, and gratitude from the rest of society for their military "service." They are well aware that the alternatives civilian life in America offers today include difficult job searches, no job security, regular pilfering of retirement funds by company executives and their accountants, "privatized" medical care, bad public elementary education systems, and insanely expensive higher education. They are ripe, it seems to me, not for the political rhetoric of patrician politicians who have followed the Andover, Yale, Harvard Business School route to riches and power but for a Julius Caesar, Napoleon Bonaparte, or Juan Per -- a revolutionary, military populist with no interest in republican niceties so long as he is made emperor.

Given the course of the postwar situations in Afghanistan and Iraq , it may not be too hard to defeat George Bush in the election of 2004. But whoever replaces him will have to deal with the Pentagon, the military-industrial complex, our empire of bases, and a fifty-year-old tradition of not telling the public what our military establishment costs and the devastation it can inflict. History teaches us that the capacity for things to get worse is limitless. Roman history suggests that the short, happy life of the American republic is in serious trouble -- and that conversion to a military empire is, to say the least, not the best answer.

Chalmers Johnson's new book, forthcoming at the end of 2003 from Metropolitan Books, is The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic.


See, for example, Dana Priest, The Mission: Waging War and Keeping Peace with America 's Military ( New York: Norton, 2003).

2. Shasta Darlington, "New Dig Says Caligula Was Indeed a Maniac," Reuters, August 16, 2003.

Copyright C2003 Chalmers Johnson E-mail to a FriendSubject: Wells and NWO Date: Thu, 11 Sep 2003 22:12:01 +0500 From: Simon Jones <sj958@yahoo.com>

re GlobalCirclenet quote

""The men of the New [World Order] Republic will not be squeamish either in facing or inflicting death. They will have ideals that will make killing worthwhile. They will hold that a certain portion of the population exists only on sufferance out of pity and patience, and on the understanding that they do not propagate; and I do not forsee any reason to suppose that they will hesitate to kill when that sufferance is abused." -- H. G. Wells, 1924, 'The Works of H. G. Wells', London: T. F. Union and Co., vol. 4, pp. 258-259

(4) America 's Empire of Bases.


01/15/04: (tomdispatch.com) As distinct from other peoples, most Americans do not recognize -- or do not want to recognize -- that the United States dominates the world through its military power. Due to government secrecy, our citizens are often ignorant of the fact that our garrisons encircle the planet. This vast network of American bases on every continent except Antarctica actually constitutes a new form of empire -- an empire of bases with its own geography not likely to be taught in any high school geography class. Without grasping the dimensions of this globe-girdling Baseworld, one can't begin to understand the size and nature of our imperial aspirations or the degree to which a new kind of militarism is undermining our constitutional order.

Our military deploys well over half a million soldiers, spies, technicians, teachers, dependents, and civilian contractors in other nations. To dominate the oceans and seas of the world, we are creating some thirteen naval task forces built around aircraft carriers whose names sum up our martial heritage -- Kitty Hawk, Constellation, Enterprise, John F. Kennedy, Nimitz, Dwight D. Eisenhower, Carl Vinson, Theodore Roosevelt, Abraham Lincoln, George Washington, John C. Stennis, Harry S. Truman, and Ronald Reagan. We operate numerous secret bases outside our territory to monitor what the people of the world, including our own citizens, are saying, faxing, or e-mailing to one another.

Our installations abroad bring profits to civilian industries, which design and manufacture weapons for the armed forces or, like the now well-publicized Kellogg, Brown & Root company, a subsidiary of the Halliburton Corporation of Houston, undertake contract services to build and maintain our far-flung outposts. One task of such contractors is to keep uniformed members of the imperium housed in comfortable quarters, well fed, amused, and supplied with enjoyable, affordable vacation facilities. Whole sectors of the American economy have come to rely on the military for sales. On the eve of our second war on Iraq, for example, while the Defense Department was ordering up an extra ration of cruise missiles and depleted-uranium armor-piercing tank shells, it also acquired 273,000 bottles of Native Tan sunblock, almost triple its 1999 order and undoubtedly a boon to the supplier, Control Supply Company of Tulsa, Oklahoma, and its subcontractor, Sun Fun Products of Daytona Beach, Florida.

At Least Seven Hundred Foreign Bases

It's not easy to assess the size or exact value of our empire of bases. Official records on these subjects are misleading, although instructive. According to the Defense Department's annual "Base Structure Report" for fiscal year 2003, which itemizes foreign and domestic U.S. military real estate, the Pentagon currently owns or rents 702 overseas bases in about 130 countries and HAS another 6,000 bases in the United States and its territories. Pentagon bureaucrats calculate that it would require at least $113.2 billion to replace just the foreign bases -- surely far too low a figure but still larger than the gross domestic product of most countries -- and an estimated $591,519.8 million to replace all of them. The military high command deploys to our overseas bases some 253,288 uniformed personnel, plus an equal number of dependents and Department of Defense civilian officials, and employs an additional 44,446 locally hired foreigners. The Pentagon claims that these bases contain 44,870 barracks, hangars, hospitals, and other buildings, which it owns, and that it leases 4,844 more.

These numbers, although staggeringly large, do not begin to cover all the actual bases we occupy globally. The 2003 Base Status Report fails to mention, for instance, any garrisons in Kosovo -- even though it is the site of the huge Camp Bondsteel, built in 1999 and maintained ever since by Kellogg, Brown & Root. The Report similarly omits bases in Afghanistan , Iraq , Israel , Kuwait , Kyrgyzstan , Qatar , and Uzbekistan , although the U.S. military has established colossal base structures throughout the so-called arc of instability in the two-and-a-half years since 9/11.

For Okinawa, the southernmost island of Japan, which has been an American military colony for the past 58 years, the report deceptively lists only one Marine base, Camp Butler, when in fact Okinawa "hosts" ten Marine Corps bases, including Marine Corps Air Station Futenma occupying 1,186 acres in the center of that modest-sized island's second largest city. ( Manhattan's Central Park, by contrast, is only 843 acres.) The Pentagon similarly fails to note all of the $5-billion-worth of military and espionage installations in Britain , which have long been conveniently disguised as Royal Air Force bases. If there were an honest count, the actual size of our military empire would probably top 1,000 different bases in other people's countries, but no one -- possibly not even the Pentagon -- knows the exact number for sure, although it has been distinctly on the rise in recent years.

For their occupants, these are not unpleasant places to live and work. Military service today, which is voluntary, bears almost no relation to the duties of a soldier during World War II or the Korean or Vietnamese wars. Most chores like laundry, KP ("kitchen police"), mail call, and cleaning latrines have been subcontracted to private military companies like Kellogg, Brown & Root, DynCorp, and the Vinnell Corporation. Fully one-third of the funds recently appropriated for the war in Iraq (about $30 billion), for instance, are going into private American hands for exactly such services. Where possible everything is done to make daily existence seem like a Hollywood version of life at home. According to the Washington Post, in Fallujah, just west of Baghdad, waiters in white shirts, black pants, and black bow ties serve dinner to the officers of the 82nd Airborne Division in their heavily guarded compound, and the first Burger King has already gone up inside the enormous military base we've established at Baghdad International Airport.

Some of these bases are so gigantic they require as many as nine internal bus routes for soldiers and civilian contractors to get around inside the earthen berms and concertina wire. That's the case at Camp Anaconda, headquarters of the 3rd Brigade, 4th Infantry Division, whose job is to police some 1,500 square miles of Iraq north of Baghdad, from Samarra to Taji. Anaconda occupies 25 square kilometers and will ultimately house as many as 20,000 troops. Despite extensive security precautions, the base has frequently come under mortar attack, notably on the Fourth of July, 2003, just as Arnold Schwarzenegger was chatting up our wounded at the local field hospital.

The military prefers bases that resemble small fundamentalist towns in the Bible Belt rather than the big population centers of the United States . For example, even though more than 100,000 women live on our overseas bases -- including women in the services, spouses, and relatives of military personnel -- obtaining an abortion at a local military hospital is prohibited. Since there are some 14,000 sexual assaults or attempted sexual assaults each year in the military, women who become pregnant overseas and want an abortion have no choice but to try the local economy, which cannot be either easy or pleasant in Baghdad or other parts of our empire these days.

Our armed missionaries live in a closed-off, self-contained world serviced by its own airline -- the Air Mobility Command, with its fleet of long-range C-17 Globemasters, C-5 Galaxies, C-141 Starlifters, KC-135 Stratotankers, KC-10 Extenders, and C-9 Nightingales that link our far-flung outposts from Greenland to Australia . For generals and admirals, the military provides seventy-one Learjets, thirteen Gulfstream IIIs, and seventeen Cessna Citation luxury jets to fly them to such spots as the armed forces' ski and vacation center at Garmisch in the Bavarian Alps or to any of the 234 military golf courses the Pentagon operates worldwide. Defense secretary Donald Rumsfeld flies around in his own personal Boeing 757, called a C-32A in the Air Force.

Our "Footprint" on the World

Of all the insensitive, if graphic, metaphors we've allowed into our vocabulary, none quite equals "footprint" to describe the military impact of our empire. Chairman of the Joint Chiefs of Staff Gen. Richard Myers and senior members of the Senate's Military Construction Subcommittee such as Dianne Feinstein (D-CA) are apparently incapable of completing a sentence without using it. Establishing a more impressive footprint has now become part of the new justification for a major enlargement of our empire -- and an announced repositioning of our bases and forces abroad -- in the wake of our conquest of Iraq . The man in charge of this project is Andy Hoehn, deputy assistant secretary of defense for strategy. He and his colleagues are supposed to draw up plans to implement President Bush's preventive war strategy against "rogue states," "bad guys," and "evil-doers." They have identified something they call the "arc of instability," which is said to run from the Andean region of South America (read: Colombia ) through North Africa and then sweeps across the Middle East to the Philippines and Indonesia . This is, of course, more or less identical with what used to be called the Third World -- and perhaps no less crucially it covers the world's key oil reserves. Hoehn contends, "When you overlay our footprint onto that, we don't look particularly well-positioned to deal with the problems we're now going to confront."

Once upon a time, you could trace the spread of imperialism by counting up colonies. America 's version of the colony is the military base. By following the changing politics of global basing, one can learn much about our ever larger imperial stance and the militarism that grows with it. Militarism and imperialism are Siamese twins joined at the hip. Each thrives off the other. Already highly advanced in our country, they are both on the verge of a quantum leap that will almost surely stretch our military beyond its capabilities, bringing about fiscal insolvency and very possibly doing mortal damage to our republican institutions. The only way this is discussed in our press is via reportage on highly arcane plans for changes in basing policy and the positioning of troops abroad -- and these plans, as reported in the media, cannot be taken at face value.

Marine Brig. Gen. Mastin Robeson, commanding our 1,800 troops occupying the old French Foreign Legion base at Camp Lemonier in Djibouti at the entrance to the Red Sea, claims that in order to put "preventive war" into action, we require a "global presence," by which he means gaining hegemony over any place that is not already under our thumb. According to the right-wing American Enterprise Institute, the idea is to create "a global cavalry" that can ride in from "frontier stockades" and shoot up the "bad guys" as soon as we get some intelligence on them.

"Lily Pads" in Australia, Romania, Mali, Algeria . . .

In order to put our forces close to every hot spot or danger area in this newly discovered arc of instability, the Pentagon has been proposing -- this is usually called "repositioning" -- many new bases, including at least four and perhaps as many as six permanent ones in Iraq. A number of these are already under construction -- at Baghdad International Airport, Tallil air base near Nasariyah, in the western desert near the Syrian border, and at Bashur air field in the Kurdish region of the north. (This does not count the previously mentioned Anaconda, which is currently being called an "operating base," though it may very well become permanent over time.) In addition, we plan to keep under our control the whole northern quarter of Kuwait -- 1,600 square miles out of Kuwait 's 6,900 square miles -- that we now use to resupply our Iraq legions and as a place for Green Zone bureaucrats to relax.

Other countries mentioned as sites for what Colin Powell calls our new "family of bases" include: In the impoverished areas of the "new" Europe -- Romania, Poland, and Bulgaria; in Asia -- Pakistan (where we already have four bases), India, Australia, Singapore, Malaysia, the Philippines, and even, unbelievably, Vietnam; in North Africa -- Morocco, Tunisia, and especially Algeria (scene of the slaughter of some 100,00 civilians since 1992, when, to quash an election, the military took over, backed by our country and France); and in West Africa -- Senegal, Ghana, Mali, and Sierra Leone (even though it has been torn by civil war since 1991). The models for all these new installations, according to Pentagon sources, are the string of bases we have built around the Persian Gulf in the last two decades in such anti-democratic autocracies as Bahrain , Kuwait , Qatar , Oman , and the United Arab Emirates .

Most of these new bases will be what the military, in a switch of metaphors, calls "lily pads" to which our troops could jump like so many well-armed frogs from the homeland, our remaining NATO bases, or bases in the docile satellites of Japan and Britain . To offset the expense involved in such expansion, the Pentagon leaks plans to close many of the huge Cold War military reservations in Germany, South Korea, and perhaps Okinawa as part of Secretary of Defense Rumsfeld's "rationalization" of our armed forces. In the wake of the Iraq victory, the U.S. has already withdrawn virtually all of its forces from Saudi Arabia and Turkey, partially as a way of punishing them for not supporting the war strongly enough. It wants to do the same thing to South Korea , perhaps the most anti-American democracy on Earth today, which would free up the 2nd Infantry Division on the demilitarized zone with North Korea for probable deployment to Iraq , where our forces are significantly overstretched.

In Europe, these plans include giving up several bases in Germany , also in part because of Chancellor Gerhard Schr��'s domestically popular defiance of Bush over Iraq . But the degree to which we are capable of doing so may prove limited indeed. At the simplest level, the Pentagon's planners do not really seem to grasp just how many buildings the 71,702 soldiers and airmen in Germany alone occupy and how expensive it would be to reposition most of them and build even slightly comparable bases, together with the necessary infrastructure, in former Communist countries like Romania, one of Europe's poorest countries. Lt. Col. Amy Ehmann in Hanau, Germany , has said to the press "There's no place to put these people" in Romania , Bulgaria , or Djibouti , and she predicts that 80% of them will in the end stay in Germany . It's also certain that generals of the high command have no intention of living in backwaters like Constanta, Romania, and will keep the U.S. military headquarters in Stuttgart while holding on to Ramstein Air Force Base, Spangdahlem Air Force Base, and the Grafenw��Training Area.

One reason why the Pentagon is considering moving out of rich democracies like Germany and South Korea and looks covetously at military dictatorships and poverty-stricken dependencies is to take advantage of what the Pentagon calls their "more permissive environmental regulations." The Pentagon always imposes on countries in which it deploys our forces so-called Status of Forces Agreements, which usually exempt the United States from cleaning up or paying for the environmental damage it causes. This is a standing grievance in Okinawa, where the American environmental record has been nothing short of abominable. Part of this attitude is simply the desire of the Pentagon to put itself beyond any of the restraints that govern civilian life, an attitude increasingly at play in the "homeland" as well. For example, the 2004 defense authorization bill of $401.3 billion that President Bush signed into law in November 2003 exempts the military from abiding by the Endangered Species Act and the Marine Mammal Protection Act.

While there is every reason to believe that the impulse to create ever more lily pads in the Third World remains unchecked, there are several reasons to doubt that some of the more grandiose plans, for either expansion or downsizing, will ever be put into effect or, if they are, that they will do anything other than make the problem of terrorism worse than it is. For one thing, Russia is opposed to the expansion of U.S. military power on its borders and is already moving to checkmate American basing sorties into places like Georgia , Kyrgyzstan , and Uzbekistan . The first post-Soviet-era Russian airbase in Kyrgyzstan has just been completed forty miles from the U.S. base at Bishkek, and in December 2003, the dictator of Uzbekistan, Islam Karimov, declared that he would not permit a permanent deployment of U.S. forces in his country even though we already have a base there.

When it comes to downsizing, on the other hand, domestic politics may come into play. By law the Pentagon's Base Realignment and Closing Commission must submit its fifth and final list of domestic bases to be shut down to the White House by September 8, 2005. As an efficiency measure, Secretary of Defense Rumsfeld has said he'd like to be rid of at least one-third of domestic Army bases and one-quarter of domestic Air Force bases, which is sure to produce a political firestorm on Capitol Hill. In order to protect their respective states' bases, the two mother hens of the Senate's Military Construction Appropriations Subcommittee, Kay Bailey Hutchison (R-TX) and Dianne Feinstein, are demanding that the Pentagon close overseas bases first and bring the troops now stationed there home to domestic bases, which could then remain open. Hutchison and Feinstein included in the Military Appropriations Act of 2004 money for an independent commission to investigate and report on overseas bases that are no longer needed. The Bush administration opposed this provision of the Act but it passed anyway and the president signed it into law on November 22, 2003. The Pentagon is probably adept enough to hamstring the commission, but a domestic base-closing furor clearly looms on the horizon.

By far the greatest defect in the "global cavalry" strategy, however, is that it accentuates Washington's impulse to apply irrelevant military remedies to terrorism. As the prominent British military historian, Correlli Barnett, has observed, the U.S. attacks on Afghanistan and Iraq only increased the threat of al-Qaeda. From 1993 through the 9/11 assaults of 2001, there were five major al-Qaeda attacks worldwide; in the two years since then there have been seventeen such bombings, including the Istanbul suicide assaults on the British consulate and an HSBC Bank. Military operations against terrorists are not the solution. As Barnett puts it, "Rather than kicking down front doors and barging into ancient and complex societies with simple nostrums of 'freedom and democracy,' we need tactics of cunning and subtlety, based on a profound understanding of the people and cultures we are dealing with -- an understanding up till now entirely lacking in the top-level policy-makers in Washington, especially in the Pentagon."

In his notorious "long, hard slog" memo on Iraq of October 16, 2003, Defense secretary Rumsfeld wrote, "Today, we lack metrics to know if we are winning or losing the global war on terror." Correlli-Barnett's "metrics" indicate otherwise. But the "war on terrorism" is at best only a small part of the reason for all our military strategizing. The real reason for constructing this new ring of American bases along the equator is to expand our empire and reinforce our military domination of the world.

Chalmers Johnson's latest book is The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic (Metropolitan). His previous book, Blowback: The Costs and Consequences of American Empire, has just been updated with a new introduction.

Copyright C2004 Chalmers Johnson


CHALMERS JOHNSON was born in 1931 in Phoenix and raised in Buckeye, Arizona. After World War II, in which his father served in the Navy in the Pacific, his family moved to Alameda, California, where he finished high school and earned a B.A. in economics at the University of California, Berkeley. He first saw Japan and Korea in 1953, when he served in the Navy during the Korean War.

Returning to Berkeley, he switched fields and earned both his M.A. and Ph.D. in political science. In 1962, he began teaching political science at Berkeley, and did so until 1988, when he moved to the San Diego campus of the University of California. He retired in 1992. At Berkeley he served as chairman of the Center for Chinese Studies from 1967 until 1972. He was elected a fellow of the American Academy of Arts and Sciences in 1976.

Johnson has written numerous articles and reviews and some twelve books on Asian subjects, including Peasant Nationalism and Communist Power on the Chinese revolution, An Instance of Treason on Japan's most famous spy, Revolutionary Change on the theory of violent protest movements, and MITI and the Japanese Miracle on Japanese economic development. This last-named book laid the foundation for the "revisionist" school of writers on Japan , and because of it the Japanese press dubbed him the "Godfather of revisionism."

He was chairman of the academic advisory committee for the PBS television series "The Pacific Century," and he played a prominent role in the PBS "Frontline" documentary "Losing the War with Japan ." Both won Emmy awards. His latest books are Blowback: The Costs and Consequences of American Empire ( New York: Holt Metropolitan Books, 2000) and, as editor and contributor, Okinawa: Cold War Island (Cardiff, Calif.: Japan Policy Research Institute, 1999) and "Dysfunctional Japan : At Home and In the World," special issue of ASIAN PERSPECTIVE, vol. 24, no. 4 (2000), 334 pp..

In 1994, together with Steven Clemons, Johnson founded the Japan Policy Research Institute to promote greater public awareness and understanding of Japan 's role in world affairs, and of Asian area studies.

Email: chaljohnson@jpri.org

(5) ON THE JAPANESE THREAT: An Interview with Chalmers Johnson (November 1989).


Chalmers Johnson is the Rohr Professor of Pacific International Relations within the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. He is the former chairman of the University of California, Berkeley's Center for Chinese Studies and its Department of Political Science. He holds A.B., M.A. and Ph.D. degrees in economics and political science from the University of California, Berkeley. He has written extensively on the subjects of East Asian political economy, revolution and social movements including such books as MITI and the Japanese Miracle, Japan 's Public Policy Companies and Autopsy on People's War.

MULTINATIONAL MONITOR: What does it mean to refer to Japan as a capitalist developmental state?

CHALMERS JOHNSON: The state provides opportunities for entrepreneurship and the state creates markets. In this sense, the state takes on developmental functions. Let me use two fundamental concepts--they're Marxist concepts, but they're also perfectly sound Adam Smith concepts--ownership and control. When ownership and control are both in the hands of the state, that is the command economy, classically, the U.S.S.R. A variation of this type of economy, one that is typical of reformist Leninist state, is to retain state ownership but recognizing the enormous inefficiencies in the command economy, and to devolve control to the level of the household enterprise. This produces the kind of pattern that one saw in China before June 4, 1989, or in Hungary before November 1989: so-called market socialism. It promotes efficiency, but it doesn't unleash entrepreneurship. The capitalist developmental state reverses these priorities. It provides genuine private ownership of capital and of property, and state control. This is important because here we see the Schumpeterian principle of entrepreneurship being released. The family is a perfectly logical focus of entrepreneurship, being the most intense form of social communication that we know, and the property has to be defensible in law and inheritable. The capitalist developmental state insures that the areas of entrepreneurship are those of state interest.

The fourth possibility is private ownership and private control, of which examples would be the United States and, to some extent, Hong Kong. In my view this is the only model to which neoclassical economics applies.

MM: And the capitalist developmental state is established in Japan through the Ministry of International Trade and Industry (MITI)?

JOHNSON: There is a vast array of institutions, including the Ministry of International Trade and Industry, but also the Ministry of Finance, the Economic Planning Agency and other economic ministries. There is also a most unusual, unprecedented in this country, organization of the private sector, in an almost corporatist manner, headed at the top by Keidanren, the Federation of Economic Organizations. Keidanren has the ability to process private sector priorities, and to enforce them. So we don't have the sort of situation you have in America , where the private sector never, ever speaks with a single voice.

In Japan there are thus a considerable number of institutions that contribute to the developmental state. The Ministry of International Trade and Industry is critically important because it is the agency in charge of so-called industrial policy. Industrial policy has become controversial among neo-classical economists because they don't want to acknowledge that such a thing exists. And yet, much of our economics today is unable to explain the growth of the Asian economies or the emergence of Japan as the world's richest nation. Japan is today the richest in terms of either per capita income or gross assets, and also the leading supplier of long-term capital on earth. This would suggest, among other things, that there's something wrong with our economic theory. But the reason we don't do much about that, in my view, is vested interests in the theory of the free market in America . We have been fighting the Marxists for so long that we no longer recognize challenges to our way of thinking based on non-Marxist, non-Smithian principles.

MM: What do you think about what people refer to as the Japanese threat to the American economy?

JOHNSON: Well, it is a threat in various senses. But it is not a threat in the sense of being malevolent. I think this should be understood. There may be a few Japanese who still believe that World War II isn't over, or something like that, but a much greater danger is the Americans who have the nerve to attempt to explain Japan , even though they have never been there, and don't read a single word of Japanese. Such people tend to project onto Japan what they think Japan 's reactions and behavior ought to be, rather than actually studying it.

Japan is today leading a campaign of foreign direct investment in the United States that is simply unprecedented in scope and velocity. And it is impossible to prove, as Kozo Yamamura has recently demonstrated in his new book on Japanese investment in the United States , that the jobs being created in Tennessee compensate for the jobs lost in Ohio. It is also a squandering of American resources for the State of Kentucky to spend $150 million in taxpayers' money to attract one of the world's richest firms, Toyota, to build a plant in Georgetown, Kentucky.

Another problem with Japan 's direct investment in the United States is the transfer of control. Control remains important because the trend today is not toward borderless economies, but more toward bloc formation. What with the single market in Europe in 1992 and the Canadian-American free trade agreement. The point is that if you believe Japanese investment in America has no consequences, you also would have to believe there is never going to be another recession, or that, if there were another recession the Japanese are going to fire Japanese before they fire Americans. I don't believe these are realistic assumptions.

I also think that it is a matter of elementary reciprocity. We cannot invest in Japan without going through an elaborate licensing procedure. Such a policy is, in my view, completely justified. The question is, why we don't have a similar licensing procedure? Regardless of what the economists tell us, Japanese foreign direct investment is going to lead to some resentment here, and that will at some point become ideologized.The most common headline in Hawaii today is "Last Golf Course in Maui Sold to Japanese." And I want to say after a while, if you didn't want the last golf course in Maui to be Japanese controlled, don't always blame the buyer. You could have come up with a public policy that prevents that.

Japanese say to me, "We would not have allowed you to impose such costs on us. It's up to you to come up with rules that say, Japanese investment is welcome, but it can only be in the old industrial heartland--that is, in Michigan, IIlinois, Indiana, and Ohio." And we don't do it simply because we are stymied by doctrine, by the Council of Economic Advisors, by the vestal virgins of St. Adam Smith who tell us it would be a sin. But we're perfectly capable of licensing and exercising our policing control; and we need to do it, it seems to me, in order to prevent worsening relations between Japan and the United States .

We don't have a foreign investors registration law in this country. The information that we have about foreign investment in America comes from the private sector. I believe we do not have such a law largely because of lobbying by the banking community which does not wish to have its transactions scrutinized for reasons that are all too obvious given the rate of both S&L and bank failures in America .

What I'm saying is that the Japanese threat to America is in some ways a self-inflicted wound. And the problem is not going to go away by harassing Japan . It basically is caused by incompetence in the American government.

Since money talks, what fool would believe it isn't going to talk when it owns a major source of cultural diffusion?

MM: And what you've been talking about here is rules, laws to control and direct the form that Japanese investment in this country takes?

JOHNSON: Exactly. Let's talk about an issue that threatens the world as a whole: the fact that the 10 largest banks on earth today are Japanese [this interview took place in November 1989]. It would seem to me that anyone with any prudence--particularly as one looks at the amounts of money we are going to use to bail out the savings and loan industry in Texas--would be asking themselves: what are the quality of the assets of these banks, particularly when we know that Tokyo real estate prices look like they're undergoing a tulip-panic again? We know that this is a speculative bubble that's going to burst at some point. Similarly, I believe that any prudent investor or person with a fiduciary responsibility would be curious to know the quality of bank examiners and bank regulation in Japan . Well, the truth of the matter is that they are almost non-existent. Let us not forget that the Great Depression of the 1930s began with a failure of a major bank in Austria . I find it easy to imagine, particularly in light of the U.S. stock market collapse of October 19, 1987, that a bank in Japan could collapse, or that the bottom could fall out from under this huge speculation and borrowing against inflated real estate values. This is a severe threat that requires public policy.

Managers and people in position of private sector responsibility in the United States are responding to the incentives that are put before them. The incentives are changed by legislators, not by economists. And this is where the problem lies. If you want a longer-term perspective on the part of American entrepreneurs, you've got to give them incentives that pay off better in the long run. Right now, they have the most extreme short-term incentives, largely legally imposed. The fiduciary responsibility of someone who invests the pension fund of the University of California is to shift out of National Semiconductor into Taco Bell if Taco Bell is performing better than National Semiconductors.

The critical relationships between Japan and the United States are anachronistic. They were created during the Allied occupation of Japan , at the time of the Korean War and as a result of the security treaty struggle at the beginning of the 1960s, when America was a hegemonic power. Japan was a late- developing and then economically-recovering economy. Today, these relationships are outdated--they no longer have any reality to them, in the sense that we are defending a nation to which we are simultaneously going into debt. This is an unstable situation to say the least, and this is where the threat lies.

How to deal with it depends, in part, on one's intellectual assumptions. If you assume, as most Americans have, that Japan and the United States are in some sense converging, that they are both becoming consumer-based, mass consumption, environmentally sensitive, haute bourgeois societies, then indeed the policies that we have pursued are accurate. These are the policies of the State Department, which are basically ameliorative, glossing over, painting over glitches and problems.

If you believe, as I do, that Japan and the United States are very different places, are not converging, and that the difference between a capitalist developmental state and a capitalist regulatory state is real, then these policies are mistaken, because they are merely suppressing fundamental differences that will at some point badly explode.

There is something utterly implausible about the idea that Japan and the United States are converging. The only reason the idea exists is because Americans know almost nothing about Japan ; there are very few people in the U.S. government who are in positions of responsibility who can read a word of the Japanese language. Therefore they deal with Japan by defining it as another version of Italy or France , which it isn't.

Both the Japanese and the American governments reflect vested interests built up in the 1950s and sixties to paper over differences and to suppress differences, rather than resolve them. Therefore we have a situation which is a bit like a pressure cooker that is slowly building up steam and becoming ideologized. We now have Americans who are using Japan as a scapegoat; and I can assure you as someone who reads Japanese, who has been reading the literature for the past 30 years, that there are Japanese who scapegoat the United States .

These are the sort of issues that I think are becoming significant. They certainly surfaced in the recent Sony acquisition of Columbia Pictures.

MM: In what sense?

JOHNSON: Well, as you know, there was a good deal of alarm expressed in the United States over that deal. Japan is the world's richest nation. And it's the world's leading source of long-term capital today. And it's investing all over the world. Since money talks, what fool would believe it isn't going to talk when it owns a major source of cultural diffusion? Now, if you recall, there was a movie that won an Oscar a couple of years ago, "The Last Emperor," about the last Chinese emperor. When it was shown in Japan several sections dealing with the rape of Nanking had to be cut out. That's a Columbia (now a Sony-owned) movie. So are "The Bridge of the River Kwai" and "From Here To Eternity." Meanwhile Mr. Morita, who is the recently resigned chairman of Sony, has just written a best- selling book together with another serious Japanese neo- nationalist, Mr. Ishihara. Mr. Ishihara is a sort of Jerry Falwell of Japan but he also just ran for the prime ministership of Japan . In their book, these two make neo-nationalist arguments about how they resent their dependency on the United States , and about American attitudes and work habits. Now if the next day we read that one of the main producers of American culture has been acquired by Mr. Morita's firm, and the only assurance we have is that the chairman of the board says that he is not interested in influencing things, I think it's worth being alarmed.

MM: What do you think about protectionist legislation?

JOHNSON: Well, I think the issue should not be viewed exclusively in economic terms and we shouldn't use the concept of protectionism. Remember that international trade theory, which is based on neo classical economics, always makes at least two errors. One error is that economists don't recognize that institutions are an important variable. Economic theory, especially of the Nobel Prize variety, is extremely abstract, and has to be translated into reality through institutions. And institutions are things created by people, not by markets.

Second, economic theory also fails to recognize that markets have rules and histories. The issue right now is not protectionism but how to maintain the global market. This means coming up with rules. The GATT rules are not something handed down by Adam Smith; they were written largely by Americans when we were the most powerful nation on earth. We are now trying to produce GATT rules that will keep the international trading system going in the 1990s. In a sense we ought to tell the economists to shut up. They have nothing intelligent to say on this subject because it is not an economic issue.

Right now we are in our 21st year of bilateral trade deficits with Japan . We have tried all sort of things to reduce these deficits, from the Nixon surcharge to Ronald Reagan's devaluation of the dollar, all of which were based on good, sound economic theory, and yet they didn't work. We now have a $52 billion trade deficit with Japan --a deficit so big that it threatens the entire global trading system. International trade has made us all relatively wealthy, and it has made the Japanese and the Americans among the wealthiest people on earth. Obviously we would like to continue this, rather than see it destroyed. So we must attack the fundamental problems that cause this huge trade deficit to continue.

In my opinion, there are really only two things to do about it. Either we quit buying so much from Japan , or Japan buys a great deal more from us. Now, I believe we should quit buying so much from Japan ; it would be one of the easiest things on earth to achieve. We could simply dust off the Nixon surcharge again. Just as on August 15, 1971, when the Secretary of State called the Japanese Minister of Foreign Affairs, and said, "Watch TV tonight," the President could simply announce "There's a 25 percent surcharge on Japanese goods, because we Americans over-consume. And so we're going to force people to quit consuming so much."

But I think that by far the more important issue is to expand domestic Japanese demand. One of the things that led to the loss of the upper house majority by the Japanese conservative party last July, is the phenomenon of "rich Japan , poor Japanese." The Japanese are statistically the world's richest people, but they never feel that way, except perhaps when they go on vacations abroad. Every Japanese citizen wants better housing, for example. And better housing could be had if the political payoffs to agricultural landowners were ended. Japanese domestic demand needs to be expanded in that way, much as the Americans did in the 1950s when they invented the 30-year mortgage, and the National Defense Highway Act. The result came to be known as the American Dream, but it's a dream that doesn't go back before the war. The idea that all citizens in the country should their own houses. It made us all wealthy and it saved the Western world because the Americans were not protectionist.

It is obviously extremely dangerous to have our government financed by foreign savings, not just because of what the Japanese Ministry of Finance is doing, but because as you talk to American leaders today, you find American Senators realizing what they'd have to do if the Japanese fail to come to the next treasury auction.

In the case of Japan , it's not so much a matter of our becoming protectionist, it's a matter of saying that Japan can no longer continue to behave as if it were a developing economy. What is really needed in the Pacific is not more producers, but more markets, and Japan must become a real market. Our objection to agricultural protectionism in Japan is not just that we might supply some of their food; I think ultimately Australia might supply more of it. But agricultural protection forces Japanese households to spend more than a third of their income on food. And this is absurd in a nation as wealthy as Japan .

MM: What kind of role does organized labor play in Japan ?

JOHNSON: Well, one of the keys to the developmental state has been to restrict labor entirely. Labor in Japan does not play an important political role. This is a significant comparative advantage in making industrial policy. The people at the MITI do not have to ask themselves what is the position of labor on this or that issue. Labor is not truly exploited in Japan , but labor has no significant political role. Only now this is ever so slightly beginning to change.

MM: What do you think of Japanese Socialist Party Chair Doi?

JOHNSON: Well, we don't really know enough about her. On the one hand, she is that unique and exceptional Japanese politician, someone who is moderately charismatic. Most Japanese politicians are gray bureaucrats. Here is a smart, outspoken, telegenic, middle-aged woman who has a contralto voice. She's obviously interesting, and, in a world in which the media play a huge role, in which organized interests no longer command much voter respect, there is a huge middle class floating vote.

Ms. Doi's victory may renew democratic development in Japan by forcing the breakup of the vested interests on which the uninterrupted rule of the Liberal Democratic Party has rested since 1955, and which has stood in the way of producing effective change in Japan . That's why I regard it as a terrible mistake for our government to come out and lament the loss of conservative monopoly in Japan . It actually means we may now finally see some changes.

But if Ms. Doi is really going to become Prime Minister, she will have to put together a more stable coalition than she has right now. Clearly she is currently the beneficiary of a protest vote.

(6) Radio interview: Chalmers Johnson. ABC Radio National's program called "INDIAN PACIFIC"; Sydney, December 30, 1991.

Announcer: Peter Meares. Interviewer: DR RICHARD TANTER, (teaches International Relations at Kyoto Sec University in Kyoto). Transcipt produced from the audio by Peter Myers; Japanese names may be spelled incorrectly. At the time, Johnson was Professor of International Relations at the University of California in San Diego.

(announcer) ... Professor Chalmers Johnson, the leading U.S. expert on Japan. With the Cold War over, the most significant relationship in the world is no longer that between Washington and Moscow, but now it's between Washington and Tokyo. And though in this case we don't have to worry about Mutually Assured Nuclear Destruction, the Japan-U.S. relationship does have its own set of serious tensions, with the potential to send shock-waves through the rest of the world. United States politicians are upset at Japan 's massive trade surplus, and they want the Japanese to even things up a bit, by buying more American goods. The so-called Structural Impediments Initiative was supposed to help this process along, for example by getting the Japanese to spend instead of save, and ideally to do so in big American-style supermarkets, rather than those quaint little corner shops. Those small shops, the end-point of Japan 's complicated distribution system, infuriate U.S. economists, because they defy orthodox economic logic. But then, so much about Japan 's economy does. Professor Chalmers Johnson documented the unique role of the State in Japan 's economy, in his famous book on MITI, the Ministry of International Trade and Industry. In Canberra, he was interviewed for Indian Pacific by Richard Tanter.

(Q) Professor Johnson, you said in your address at Canberra that you thought that economists were precisely the wrong people to help in negotiations between the United States and Japan , in their trade and general economic difficulty. Why not economists?

(CJ) The economics profession has become the priesthood of the West in the Cold War. I mean, the Cold War is over and Japan won. The economists have been the defenders of Saint Adam Smith against Karl Marx. We got Karl Marx and he's gone, but meanwhile some people playing by different rules of the game have blindsided both of us. The economics profession did not anticipate great wealth in East Asia, still can't fully explain it, and is so threatened by it, they tend to alter the data in order to sustain the theory. That is to say, what we are in essence talking about is vested interests, in the economics profession, in the Cold War structure.

(Q) But how does this pan out in terms of the inappropriateness of, say, U.S.-theoretically-trained economists guiding American trade policy, for example through the Structural Impediments Initiative?

(CJ) The only foreigners I know of who talk about the United States without speaking a word of English, or ever having been there, are in the higher Party schools in Moscow and Peking. Unfortunately, this is also true of much of our policy toward Japan . That is, that it is defined by economists who do not read a word of Japanese, and have never, in many cases have ever been there, or if they've been there they've been only to a Tokyo hotel, and misinterpreted that our policy has been basically predicated on the belief that Japan was, or could be turned into, a clone of America. This is an impossible proposition on the surface of it: Japan is 1500 years older than the United States; the idea that it could have been turned into a clone of America by being occupied for seven years after World War II is as implausible as the idea that Czeckoslovakia, Hungary and Poland were turned into clones of the U.S.S.R by being occupied for forty years. What's wrong with American policy toward Japan is its success depends upon fundamental social change within Japan . I don't think any policy that depends upon the target changing is a very good policy.

(Q) Can you give us some examples of the kind of change that the American trade negotiators are requiring in Japan ?

Well, as I said, the Structural Impediments Initiative, in which they believe that the distribution system is a barrier to trade. The distribution system is extremely complex and it fits the Japanese style of small houses, inadequate refrigeration, the desire to shop every day, and yet it also produces some benefits: it produces crowded streets that are relatively free of crime, and things of that sort, a much more complex urban life than is indicated in general theoretical tracts. But these are in some ways innocent bystanders that we are attacking in Japan , when the real issue is the rejuvenation of Japanese politics. In my opinion, our fundamental problem with Japan is that it has a first-rate economy and a third-rate polity; these two are related, and they derive from the Cold War system. These issues have become hyper-salient right now, because of the end of the Cold War. I'm not trying to say that many of the economic problems in the bilateral relationship are not also reflective of serious policy errors in the United States . But by the same token, I want to say if the United States had almost perfect economic policy formation we would still have a serious problem with a country that is today an economy the size of two Germanys . But I would just want to stress, I believe the issues between Japan and the United States are not particularly cultural issues, and that probably in day-to-day life Americans and Japanese like each other a good deal.

(Q) That said, many people, in Japan as well as in the United States, perhaps for different reasons, do produce cultural explanations of the difference; that, they explain the success of Japanese management techniques from a predisposition to consensus, for example; rather more nastily, Americans looking at Japan say that there's simply no way we can penetrate, we're simply locked out, we can't fathom what's going on. In any way, benign or malevolently, do you take cultural explanations seriously as part of the explanation for the current relationship between the United States and Japan ?

(CJ) I guess I've become known for being extremely cautious about cultural explanations, basically because I think they aren't really cultural explanations, they're racist, nationalistic explanations that are extremely dangerous. Cultural explanations are almost totally imperialistic, that is, it's the Americans saying to the Japanese, the Japanese behave like Japanese because they're Japanese and this as thought-terminating an idea as ever came along, by the same token the Japanese wish to be exempted from international rules of procedure, of trade, of women in the labour force and anything else, by claiming exceptionalism, by claiming cultural exceptionalism. Now, let me say concretely, no social science is going to say that culture isn't important; it is ultimately the key concept on which the social sciences rest, but what we're talking about here is the misuse of cultural explanations and above all, they are so imperialistic they stand in the way of empirical examination of institutional change. I mean, for example, the famous Japanese savings rate, highest rate of savings out of personal disposable income, households', of any capitalist economy in peacetime. The Japanese would have you believe that this comes about because they are naturally frugal. The savings rate in Japan in 1930 was about what it is in the United States today, that is, households spent every yen they got. It's been turned around by institutional change, by massive incentives from the Ministry of Finance to save, ease of savings at the Postal Savings System, lack of enforcement of laws against tax avoidance, and numerous other such things that produce this goose that lays the golden eggs. This is what needs to be studied, and to recognise that culture in both cases is more commonly being used as an ideological excuse for non-action, and as a smokescreen for political or economic vested interests.

(Q) While the clear quality which is emerging in the Japan-America michubei debates, on both sides is a certain degree of, if you like racism and racialism, seeing things in racial terms and explaining the world and as well as the extremely negative side of that. Do you think there's a capacity in both countries to rise above that, or is it going to get deeper and deeper?

(CJ) I think it's one of our most serious problems; it irritates me terribly that people like Ishihara do wish to reduce our problems with Japan to issues of racism. I would not for a moment deny that here as we are talking on just a few days after the 50th anniversary of Pearl Harbour, that fifty years ago there was racism in America, and no doubt about it, and anti-Asian racism. It does seem to me, though, that we in America have tried to make these issues as explicit and open and to imagine affirmative action to deal with them, and so what bothers me about this charge of racism is that it suggests in fact a Japanese preoccupation with racial categories and that there is certainly a great asymmetry between Japan and the United States in that we are in America pre-eminently a multicultural society. Japan by contrast emphasises a monocultural, not just a monocultural society; it is a monocultural policy. You should understand that for all intents and purposes you cannot become a Japanese without being born the child of some Japanese. This means that Japan is able to communicate very effectively with its citizens; that they're able to organise their lives probably to much higher levels than are true in most other poly-ethnic societies; and that moreover they do miss the advantages of cultural diversity. These are serious problems between the two countries. It does seem to me that the danger here is racism as an ideology of Japan-baiting or America-baiting as an excuse for those who are discomforted by changes or, changes that ultimately serve the greatest good of society.

(Q) Just to follow up, do you think there have been any substantial institutional changes in Japan in the last five years, after all the Reagan government and Bush, the Reagan administration and Bush administrations, have through a succession of unilateral measures really pressed the Japanese really hard, and the Structural Impediments Initiative is simply the last and most systematic of that. For example, you took the case of the role of the Postal Account Savings system and the tax benefits arising from that; that's now been taken away. There've been measures of financial liberalisation in Japan . Do you see, for example in terms of your own famous work on MITI, the Ministry of International Trade and Industry, any flagging of that institutional powerhouse that you describe so well there?

(CJ) Well again, the problem that worries me here is the over-emphasis on change, the suggestion that our problems will be solved because the Japanese are about to change decisively in our direction and to look like us. I've been working on Japan since I first arrived there in 1953; you end up with a file cabinet full of articles called " Japan at the Crossroads" or "Changing Japan " or something of this sort, in which what Japan basically did was to look at the crossroads but not actually change at all. Now of course the society is changing but what I would want to suggest, in the danger of the emphasis on change, there is the thought that Japan is going to change to resemble us, and I don't believe that. I mean you know there is, Japan wastes female talent more seriously than any other advanced industrial democracy. There is a widespread belief on the part of feminists in the United States that Japan is going to change in the direction of the United States, whereas you have Japanese quite candidly saying to us that we're watching you make all the mistakes; we will sooner or later involve women in our division of labour, as the rest of the western world has, but we don't intend to sue each other or to produce as many divided homes as you people have. So that, I really just want to stress here, of course the agenda is changing, but the basic institutions of the Japanese developmental state, really it's not over the last 40 years; Suruhi Hikagi, a very prominent professor recently retired from Tokyo Metropolitan University, argues that there is direct continuity with the Cabinet system of 1885; that the allies misunderstood the postwar reforms as kakumai, as revolution, they were merely kaikaku, reform; but the continuity is still there, of the state performing roles that are not fully understood in the English-speaking world or in English-speaking political theory.

(announcer) So-called Japanese Nationalists, like Ishihara Shintaro, would like to see Japan break out of its established relationship to the United States, and scrap its postwar Constitution, especially Article 9, which prescribes the limits of Japanese military activity. This pressure is growing at a time when the established postwar security system is up for grabs: with no Soviet threat, there's no longer any external logic for Japan 's alliance with the United States . Equally, with the creation of a single market in Europe, and the continuing GATT trade talks, there are continental shifts taking place in the world economic system. Professor Johnson believes the current G7 grouping of major industrial countries will be distilled down, to either G2 or G3. These issues were discussed at a conference on managing international economic relations at the Australian National University in Canberra.

(CJ) ... this is one of the major controversial issues in this conference here, at ANU, is that the economists do want to separate out the economic system from the security system, where I want to argue that in fact they always have been intimately related, that to a certain extent, what we call GATT has an economic logic to it, but it also had an extremely powerful political logic, in that it was a grand strategy, implemented by the United States against the U.S.S.R., which was in part to trade economic benefits in the American market for political and military support in the Cold War; which concretely in the case of Japan meant the ability of the Americans to base American forces in Japan since essentially 1945; I first arrived there as a naval officer at the naval base at Yukowska, and that naval base is still there. These institutions maybe made great good sense throughout the Cold War, maybe they made great good sense in the period of the strategic triangle, of China 's development of nuclear weapons, of the fact there were wars being fought in this part of the world. They have been anachronistic since at least the end of the Vietnam War in 1975, and something remarkably anachronistic about the United States , now the world's largest net debtor nation, defending a nation that it was simultaneously borrowing money from. And now it seems to me that what is revealed is that the Japanese-American alliance is over; it lasted from about 1950 to 1990, and it continues today only as a matter of inertia, visibly slowing down, visibly beginning to show signs of irritation on both sides, but "New World Order"? New World Order doesn't yet exist. We don't know quite what it's going to be; so far it's only a slogan. It looks like it will be primarily some form of economic regionalism, and certainly in Europe that's the case. We're not yet sure for the rest of the world, if the rest of the world is G2 or G3. That is, G2 would be Europe and the Pacific with both Japan and the United States as members; G3 would be Europe, North America and a Asia-Pacific region dominated by Japan in which the United States has only observer status. These are very big issues that we're contemplating. The other, I think, equally important issue in this discussion, is the degree to which Japan and the United States are trading places: Japan, given its economic system, it is likely by the end of this decade to be be the world's leading concentration of wealth and technological power; a German-dominated Europe will probably be number 2, and the United States will fall into number 3. We're not at all certain what Japan will do with its enormous power; we're not certainly at all clear about how the Americans are going to react to waking up one day and discovering that they are number 3. So these are very, very big issues, but I think, no question that you're right, the linkage between trade and defence was the Cold War, it was the glue that held Japan and America together.

(Q) I was in Japan during the Gulf War, and one of the things that struck me was the peculiar role of the whole question of guiatsu, of foreign pressure, and it seemed to me that something new was happening there, that Kaifu cabinet, for all the weakness and the lack of coherence that you pointed to, was able to make significant gains in that incremental creep to change the Constitution and to change public opinion, by saying, "We have to send troops overseas, look it's not us that want to do that, it's the Americans forcing us to do it, they're bending our arms, Ouch! It's not us"; and of course it's been a long-term strategy of the Japanese state to change that constitution.

(CJ) What's on issue now is almost like a mystery novel, of things that happened 45 years ago, the idea is to say Macarthur was ordered to reform Japan by the Potsdam Declaration, that is, that Japan would be disarmed (Article 9), and this has worked, that is these reforms have been enormously effective and institutionalised in Japan; but it's not to say that Japan is pacifist or has been undefended all these past years. The institutional corollary of Article 9 is the Security Treaty, that is, that Japan wasn't just left out there as a bunch of pacifists who threw away their arms, it's been very actively defended and is defended to this day. These issues all made sense in the context of the Cold War. But that's over, it a awadiwashta, it's done with, and we now need new arrangements, whereas both sides have learned to enjoy the roles they played in the Cold War. There are huge vested interests still in the Cold War system, in my country as much as there is in Japan; but I said, on the Constitution itself, we had a major public opinion poll by the Omioi Shimbu, that's the largest newspaper in the country, last May, in which indeed the number of people wanting to revise the Constitution that was written in English by Macarthur's headquarters has gone up considerably, but I wasn't particularly alarmed by it. Basically those, about 33% of the informants, who wanted the Constitution revised, wanted two things written into the new Constitution. One, establish in the Constitution the right to defend the country, and secondly to legitimate the armed forces, which right now, as you know, some court decisions in Japan have said that the Self-Defence forces (Japan spends the third largest expenditures on earth for its defence) are unconstitutional. I do not find either of these two ideas particularly ominous. It does seem to me that we are not here talking about Japanese rearmament; we are talking about changed circumstances, old arrangements having become anachronistic, and that we would like to see Japan contribute to legitimate peace-keeping operations sanctioned by the United Nations or other legitimate international fora of that sort, and that, I think, what's called-for here, is amendment of the Constitution, not total rewriting of it, as indeed neonationalist organisations in Japan would like to do on nationalistic grounds. I do not discount their importance. Recently in talking with a prominent professor in Tokyo who's the head of the Japanese Political Science Association, I had quoted to him a couple of right-wing writers of the Ishihari Shintara variety, and he said to me, I dislike intensely that you read these kinds of writers, they are no more important in my country than the Moral Majority is in yours, and I said, Oh My God, that important is it, have you seen what it has done to the Republican Party in the United States, or that abortion is our leading political issue. I would therefore take quite seriously this kind of writing in Japan , but I still the predominant mainstream of politics is calling for amendments that are logical, legitimate and should be supported.

(Q) Ishihara Shintaro is the main bogeyman of this, because he speaks English so well; he was considered, even momentarily perhaps, but he was considered, even momentarily perhaps, as a possible candidate to be President of the Liberal Democratic Party and hence Prime Minister as the Young Turk, and that faded, but he was taken seriously, and he's certainly not alone in the opinions he's articulating. It seems to me there is that whole beyond moderate recognition of the realities of Japan as a world power approach that you're taking: there is that larger question, of for example if you do take the regionalisation approach, the G3 approach, Europe, Japan and the United States, there is the whole question of a military basis for Japanese power, which will mean East Asia and South-East Asia, and the reality is that while Japan has the third largest armed force in the world, in terms of spending at the moment, Japan is still intensely disliked because of the memory of the war and before that the war in China, and the colonisation of Korea. Do you think there is, in a sense, any realistic basis, for not just a more independent foreign policy stand by Japan , but a much more independent one, separate from the United States necessarily in points in conflict with it?

(CJ) Japan finally, after 44 years, has an Emperor not associated with World War II. I feel, and I believe many Japanese feel, it is high time that this Emperor should be travelling actively around Asia with some serious apologies, he needs to go to Nanjing, and he needs to say to the Chinese that military atrocities against the civilians in Chaing Kai-Chek's capital in December 1937, were really atrocities and we apologise for them. You've got a lot of things like that to do. I don't think it's impossible; the imponderable here is precisely Japanese neonationalism, it is Ishihara who claims that the Rape of Nanking never occurred, or that it's something invented by the Americans to cover up Hiroshima, or these kinds of arguments that, the astonishing thing is that they are listened to. But on the other hand I believe there are quite a few Asian nations today prepared for the first time to offer Japan leadership on a silver platter; who admire what the Japanese have achieved, who admire how they've achieved it, who also are interested in, there is a cultural resonance here, the people of Hong Kong, some young people in Korea even, say, well look, the clothes from Japan fit, they were designed for our bodies, the music is more attuned to us, that the Americans are not quite as culturally dominant as they might like to think, in these areas, but this is the big and open issue. Standing behind it all is, I think accurately, the belief that East Asia is less likely to face security threats, that the age of nationalism and the communist revolutions and decolonisation, and things like that, is over, and we may well see ethnic conflict and things of this sort in Asia, but that there are not major military conflicts. If there were, then it seems to me that it's clear that from Soeul to Sydney, Japan is not going to be trusted to be the arbiter, but this precisely why the American role is changing so rapidly, is that a combination of Mt Pinatubo and the Philippines Senate have just blown the United States out of Clark Field and Subic Bay, but nobody's terribly alarmed, because it's not certain that you still need those military bases. So long as that's true, Japan 's progress toward a new form of Greater East Asia Co-Prosperity Sphere, I think, is logical.

(announcer) So if the world is moving toward economic regionalism, if G7 is to become G2 or G3, where does this leave Australia ?

(CJ) Obviously, as an outsider, I hesitate to comment on Australian affairs on Australian radio and things of this sort, but none the less it seems to me that, in terms of fundamentals, Australia remains that the lucky country: it is the place that could supply food, raw materials, and things of this sort, for what is today the world centre of gravity for manufacturing; the complementarities there are enormous. I do believe it is probably true Australia has nowhere else to go, it really must become part of this region, but I think probably it will need some other alternative than simply APEC, the Asia Pacific Economic Cooperation apparatus that the Australians pioneered. I mean, I'm not opposed to APEC, but I do have the vaguest sense that it's a place to employ retired diplomats, rather than to actually solve these types of problems. That is to say, it needs to negotiate its way into what is defacto an emerging East-Asian economic group. Now I want to stress again, that whether the world of the future is G2 or G3, is still an open question: G2 would be Europe and the Pacific with both Japan and the United States as members, G3 would be Europe, North America and a Asia-Pacific Region dominated by Japan in which the United States has only observer status. The arguments for G2 would very much concern Australia and APEC; the arguments for G2 is, there is an odd symmetry between the United States and Japan, and that is, the United States is feared and envied in Latin America; Japan is feared and envied in South-East Asia and the rest of Asia. They, therefore, actually have a great deal, there's a great deal of logic that each should be the counterfoil for the other, that is Lew Kwan Yew many times has said that he expects the Japanese to play a much larger role in Asia, he just hopes they don't play it alone. Nonetheless, I think that the logic is more toward G3, simply because Japan has finally entered into a genuine horizontal division of labour, after the high Yen, with the ASEAN nations, with the newly industrialised countries, it is obviously carefully poised to begin to incorporate and to assist those areas of Asia caught in Leninist culdesacs or otherwise bad government, meaning the IndoChina states, Burma North Korea and Asiatic Russia; that it is actually making mainland China increasingly dependent. This is, the most important event, after the Cold War, in East Asia, is the degree to which the Japanese economy, a genuine superpower, with 50% of the GDP of the Pacific, is integrating the area through trade, aid, financial services, foreign direct investment, and Japan as a developmental model. I believe that trend is very powerful and that moreover, matching it by the end of the decade will be an America drawing inward as it becomes much more preoccupied with its domestic failures economically and with the demographic and political and environmental problems facing it south of its border. So that, I think it is G3, and that therefore my advice for Australia would be that they shouldn't put all of their eggs in the APEC basket, and the APEC basket is G2; so that I wouldn't be pessimistic about the Australian policy except insofar as it ties itself to forces that may not be around a decade from now.

(7) MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, by Chalmers Johnson

[MITI is now MEITI - Ministry of Economics, Trade and Industry.]


PERHAPS the oldest and most basic subject in the study of political economy is the relationship between governmental institutions and economic activity. The distinctions in this field lie at the heart of all modern political analysis: free trade versus mercantilism, socialism versus capitalism, laissez faire versus social goal setting, the public sector versus the private sector - and, ultimately, a concern with procedures (liberty) versus a concern with outcomes (equality). Japan occupies a preeminent place in this discussion as both a model and a case. Japan's postwar economic triumph - that is, the unprecedented economic growth that has made Japan the second most productive open economy that has ever existed - is the best example of a state-guided market system currently available; and Japan has itself become a model, in whole or in part, for many other developing or advanced industrial systems.

The focus of this book is on the Japanese economic bureaucracy, particularly on the famous Ministry of International Trade and Industry (MITI), as the leading state actor in the economy. Although MITI was not the only important agent affecting the economy, nor was the state as a whole always predominant, I do not want to be overly modest about the importance of this subject. The particular speed, form, and consequences of Japanese economic growth are not intelligible without reference to the contributions of MITI. Collaboration between the state and big business has long been acknowledged as the defining characteristic of the Japanese economic system, but for too long the state's role in this collaboration has been either condemned as overweening or dismissed as merely supportive, without anvone's ever analyzing the matter. With this book I hope to contribute to such an analysis.

The history of MITI is central to the economic and political history of modern Japan . Equally important, however, the methods and achievements of the Japanese economic bureaucracy are central to the continuing debate between advocates of the communist-type command economies and advocates of the Western-type mixed market economies. The fully bureaucratized command economies misallocate resources and stifle initiative; in order to function at all, they must lock up their populations behind iron curtains or other more or less impermeable barriers. The mixed market economies struggle to find ways to intrude politically determined priorities into their market systems without catching a bad case of the "English disease" or being frustrated by the American-type legal sprawl. The Japanese, of course, do not have all the answers. But given the fact that virtually all solutions to any of the critical problems of the late twentieth century - energy supply, environmental protection, technological innovation, and so forth - involve an expansion of official bureaucracy, the particular Japanese priorities and procedures are instructive. At the very least they should forewarn a foreign observer that the Japanese achievements were not won without a price being paid.

As a particular pattern of late development, the Japanese case differs from the Western market economies, the communist dictatorships of development, or the new states of the postwar world. The most significant difference is that in Japan the state's role in the economy is shared with the private sector, and both the public and private sectors have perfected means to make the market work for developmental goals. This pattern has proved to be the most successful strategy of intentional development among the historical cases. It is being repeated today in newly industrializing states of East Asia - Taiwan and South Korea - and in Singapore and other South and Southeast Asian countries. As a response to the original beneficiaries of the industrial revolution, the Japanese pattern has proved incomparably more successful than the purely state-dominated command economies of the communist world. Since the death of Mao Tse-tung even China has come to acknowledge, if not yet emulate, the achievements of the capitalist developmental state.

This study proceeds historically for reasons that are elaborated in Chapter 1. Its time frame of 1925 to 1975 is significant in that it begins with the creation of the official industrial-policy bureaucracy, covers the period in which the main issues of industrial policy were discovered and debated, and reflects the direct continuity that exists between the prewar and postwar periods in terms of personnel and organizations. . . .

[p. 16] Technology transfers - the third alleged "free ride" - were not exactly free, but there can be no question that they were crucial to Japanese economic growth and that the prices paid were slight compared with what such technology would cost today, if it could be bought at any price. Japan imported virtually all of the technology for its basic and high-growth industries, and it imported the greater proportion of this technology from the United States . But it is trivial and misleading to refer to this movement of patent rights, technology, and know-how across the Pacific and from Europe as a "free ride." It was, in fact, the heart of the matter.

The importation of technology was one of the central components of postwar Japanese industrial policy, and to raise the subject is to turn the discussion to MITI and the Japanese government's role. Before the capital liberalization of the late 1960's and 1970's, no technology entered the country without MlTI's approval; no joint venture was ever agreed to without MlTI's scrutiny and frequent alteration of the terms; no patent rights were ever bought without MlTI's pressuring the seller to lower the royalties or to make other changes advantageous to Japanese industry as a whole; and no program for the importation of foreign technology was ever approved until MITI and its various advisory committees had agreed that the time was right and that the industry involved was scheduled for "nurturing" (ikusei).

From the enactment of the Foreign Capital Law in 1950 (it remained on the books for the next thirty years), the government was in charge of technology transfers. What it did and how it did it was not a matter of a "free ride" but of an extremely complex process of public-private interaction that has come to be known as "industrial policy." MITI is the primary Japanese government agency charged with the formulation and execution of industrial policy.

Thus I come to the final school, in which I place myself, the school that stresses the role of the developmental state in the economic miracle. Although the rest of this book is devoted to this subject - and to some of the nonmiracles produced by the developmental state in its quest for the miracle - several further points are needed by way of introduction. What do I mean by the developmental state? This is not really a hard question, but it always seems to raise difficulties in the Anglo-American countries, where the existence of the developmental state in any form other than the communist state has largely been forgotten or ignored as a result of the years of disputation with Marxist-Leninists. 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; but this school is not exactly in the mainstream of economic thought in the English-speaking countries. Japan is therefore always being studied as a "variant" of something other than what it is, and so a necessary prelude to any discussion of the developmental state must be the clarification of what it is not.

The issue is not one of state intervention in the economy. All states intervene in their economies for various reasons, among which are protecting national security (the "military-industrial complex"), insuring industrial safety, providing consumer protection, aiding the weak, promoting fairness in market transactions, preventing monopolization and private control in free enterprise systems, securing the public's interest in natural monopolies, achieving economies of scale, preventing excessive competition, protecting and rearing industries, distributing vital resources, protecting the environment, guaranteeing employment, and so forth. The question is how the government intervenes and for what purposes. This is one of the critical issues in twentieth-century politics, and one that has become more acute as the century has progressed. As Louis Mulkern, an old hand in the Japanese banking world, has said, "I would suggest that there could be no more devastating weakness for any major nation in the 1980s than the inability to define the role of government in the economy." The particular Japanese definition of this role and the relationship between that role and the economic miracle are at once major components and primary causes of the resurgent interest in "political economy" in the late twentieth century.

Nowhere is the prevalent and peculiarly Western preference for binary modes of thought more apparent than in the field of political economy. In modern times Weber began the practice with his distinction between a "market economy" (Verkehrwirtschaft) and a "planned economy" (Planwirtschanft). In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developnlental functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of government-business relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates. A regulatory, or market-rational, state concerns itself with the forms and procedures - the rules, if you will - of economic competition, but it does not concern itself with substantive matters. For example, the United States government has many regulations concerning the antitrust implications of the size of firms, but it does not concern itself with what industries ought to exist and what industries are no longer needed. The developmental, or plan-rational, state, by contrast, has as its dominant feature precisely the setting of such substantive social and economic goals.

Another way to make this distinction is to consider a state's priorities in economic policy. In the plan-rational state, the government will give greatest precedence to industrial policy, that is, to a concern with the structure of domestic industry and with promoting the structure that enhances the nation's international competitiveness. The very existence of an industrial policy implies a strategic, or goal-oriented, approach to the economy. . . . .

[p. 25] The political nature of plan rationality can be highlighted in still other ways. MITI may be an economic bureaucracy, but it is not a bureaucracy of economists. Until the 1970's there were only two Ph.D.'s in economics among the higher career officials of the ministry; the rest had undergraduate degrees in economics or, much more commonly, in public and administrative law. Not until Ueno Koshichi became vice-minister in June 1957 vvas modern economic theory even introduced into the ministry's planning processes (Ueno studied economics during a long convalescence from tuberculosis before assuming the vice-ministership). Amaya Naohiro reflects this orientation of the ministry when he contrasts the views of the scholar and of the practitioner and notes that many things that are illogical to the theorist are vital to the practitioner - for instance, the reality of nationalism as an active element in economic affairs. Amaya calls for a "science of the Japanese economy," as distinct from "economics generally," and pleads that some things, perhaps not physics but certainly economics, have national grammars. One further difference between the market-rational state and the plan-rational state is thus that economists dominate economic policy-making in the former while nationalistic political officials dominate it in the latter.

Within the developmental state there is contention for power among many bureaucratic centers, including finance, economic planning, foreign affairs, and so forth. However, the center that exerts the greatest positize influence is the one that creates and executes industrial policy. MITI's dominance in this area has led one Japanese commentator to characterize it as the "pilot agency," and a journalist of the Asahi who has often been highly critical of MITI nonetheless concedes that MITI is "without doubt the greatest concentration of brain power in Japan ." MITI's jurisdiction ranges from the control of bicycle racing to the setting of electric power rates, but its true defining power is its control of industrial policy (sangyo seisaku). . . . .

[pp. 32] As late as 1973 MITI was writing that Japan 's industrial policy just grew, and that only during the 1970's did the government finally try to rationalize and systematize it. Therefore, an individual interested in the Japanese system has no set of theoretical works, no locus classicus such as Adam Smith or V. I. Lenin, with which to start. This lack of theorizing has meant that historical research is necessary in order to understand how MITI and industrial policy "just grew." Certain things about MITI are indisputable: no one ever planned the ministry's course from its creation as the Ministry of Commerce and Industry (MCI) in 1925, to its transformation into the Ministry of Munitions (MM) in 1943, to its reemergence as the MCI in 1945, down to its reorganization as MITI in 1949. Many of MlTI's most vital powers, including their concentration in one ministry and the ministry's broad jurisdiction, are all unintended consequences of fierce intergovernmental bureaucratic struggles in which MITI sometimes "won" by losing. This history is well knovvn to ministerial insiders - it constitutes part of their tradition and is a source of their high esprit de corps - but it is not well known to the Japanese public and is virtually unknown to foreigners. . . . .

[p. 35] Instead, I am concerned to explain why the discrepancy between the formal authority of either the Emperor (prewar) or the Diet (postwar) and the actual powers of the state bureaucracy exists and persists, and why this discrepancy contributes to the success of the developmental state.

Japan has long displayed a marked separation in its political system between reigning and ruling, between the powers of the legislative branch and the executive branch, between the majority party and the mandarinate - and, in the last analysis, between authority and power. As a result, a discrepancy exists between the constitutional and the actual locus of sovereignty that is so marked the Japanese themselves have invented terms to discuss it - omote (outer, in plain view) and ura (inner, hidden from sight), or tatemae (principle; Edward Seidensticker once proposed the word should be translated "pretense") and honne (actual practice).  . . . .

[p. 41] For reasons that are still none too clear, the occupation authorities, or SCAP (Supreme Commander for the Allied Powers), never singled out the civilian bureaucracy as needing basic reform. However, SCAP eliminated completely from political life one major rival of the economic bureaucracy, the military; and it transformed and severely weakened another, the zaibatsu. Both of these developments propelled the economic bureaucrats into the vacuums thus created. Equally important, SCAP broke up the prewar Ministry of Home Affairs (Naimu-sho), which had been the most prestigious and powerful of ministries under the Meiji Constitution. The powers of the old Home Ministry were distributed primarily among the new ministries of Construction, Labor, Health and Welfare, Home Affairs (at first called "Local Autonomy"), and the Defense and Police agencies. But the loss of power by the Home Ministry also offered new jurisdictions into which the economic bureaucrats could expand; for example, the Home Ministry's wartime regional bureaus and its police power to enforce rationing passed, respectively, to the Ministry of Commerce and Industry and the Economic Stabilization Board. . . . .

[p. 78] MITI itself, as the descendant of one of the original ministries dating back to 1881, is certainly a "welfare community," but it also has several characteristics that distinguish it from the other economic bureaucracies. It is the smallest of the economic ministries in terms of personnel, and it controls the smallest share of the general account budget. This last feature is important because it frees MITI from the commanding influence of the Finance Ministry's Budget Bureau, which all the other ministries must cultivate. MITI exercises control over money through its ability to approve credit or authorize expenditures by the Japan Development Bank, the Electric Power Development Company, the Export-Import Bank, the Smaller Business Finance Corporation, the Bank for Commerce and Industrial Cooperatives, the Japan Petroleum Development Corporation, and the Productivity Headquarters, all of which are public corporations that it controls - or in which its views are decisive. Although MlTl's official budget in fiscal 1956, for example, was only 8.2 billion, the MITI Press Club concluded that the ministry actually supervised the spending of some 160.9 billion. . . .

[p. 157] AS JAPAN entered the Pacific War, the Ministry of Commerce and Industry could look back on a decade of considerable accomplishment in terms of planned industrial expansion. Between 1930 and 1940 Japan's mining and manufacturing production had more than doubled, and, equally important, the composition of manufacturing had changed drastically from light industries (primarily textiles) to heavy industries (metals, machines, and chemicals). In 1930 heavy industries accounted for approximately 35 percent of all manufacturing, but by 1940 this proportion had grown to 63 percent. Another way to visualize this shift of industrial structure is to look at the top ten companies in terms of their capital assets in 1929 and 1940 (see Table 10). Whereas at the end of the 1920s three of Japan 's ten largest enterprises were textile companies, a decade later only one was. Interestingly enough, the top ten of 1940 bear a much greater resenlblance to the top ten of 1972 than they do to the top ten of 1929 (Japan Steel, Mitsubishi Heavy Industries, Hitachi, and Toshiba were ranked first, second, fourth, and eighth respectively in both 1940 and 1972, whereas only Mitsubishi was even on the list in 1929). . . .

[p. 195] Virtually all Japanese regard the defeat of 1945 as the most important watershed in modern Japanese history since the Meiji Restoration of 1868. However, from the point of view of the history of industrial policy, I believe that the 1940's are one continuous era: the period of the high tide of state control. Beginning with the policies of the Tojo government and continuing with their acceleration by SCAP, the Japanese state came to dominate virtually all economic decisions, from those of zaibatsu enterprises to those of individual households. Tojo and his associates intended this outcome but were unable to achieve it completely; the Allied reformers did not intend it but promoted it anyway, first out of their commitment to making the government more responsible, and subsequently out of their commitment to Japanese economic recovery and growth as part of the renewed global resistance to totalitarianism. The prime political beneficiaries of these developments were the economic bureaucrats; the ultimate economic beneficiaries were the Japanese people.

The longer-range significance of the achievement of state control, however, was to reveal its weaknesses. 1he fundamental political problem of the state-guided high-growth svstem is that of the relationship between the state bureaucracy and privately owned businesses. If this relationship is overbalanced in favor of one side or the other, it will result in either the loss of the benefits of competition or the dilution of the state's priorities. State control refers to the attempt to separate management trom ownership and to put management under state supervision. Whereas big business typically prefers self-imposed control, economic bureaucrats typically prefer state control. During the 1940's, when state control was achieved, its weaknesses - the growth of bureaucracy, irresponsible management, corruption, and lowered efficiency - were also fully manifested. The result was that just as the deficiencies of self-control under the Important Industries Control Law of 1931 led to the movement toward state control, the deficiencies of state control under the Ministry of Munitions and the postwar MCI led to the government-business relationship of the high-growth era - that is, to genuine public-private cooperation. . . .

[p. 205] A typical Japanese group includes a big bank, several industrial firms, and a general trading company. The bank plays the critical role during expanding business conditions by supplying capital to the members, and the trading company plays the critical role during contracting business conditions by importing raw materials on credit and fiercely promoting exports of products that cannot be sold domestically. SCAP broke up the old zaibatsu trading companies, but as soon as the occupation was over, MITI busily rebuilt them. Mitsui Bussan and Mitsubishi Shoji were dissolved on November 30, 1947, and their liquidation completed on August 31, 1950. The largest and most successful Mitsui offshoots were the Dai Ichi, Sanshin, and Kyokuto trading companies, while the leading Mitsubishi splinters were the Tozai, Fuji, and Toyo trading companies. Bv the end of 1952, the Successor Mitsubishi companies had already recombined, but Mitsui took until the end of 1955 to come back together. . .  .

[p. 217] The Foreign Capital Law dealt with this problem. It established a Foreign Investment Committee and stipulated that foreign investors wanting to license technology, acquire stock, share patents, or enter into any kind of contract that provided them with assets in Japan had first to be licensed (kyoka) by the committee. (At the end of the occupation the powers of this committee were transferred to the Enterprises Bureau). SCAP approved the law in order to guarantee the availability of foreign exchange for license payments, but the Japanese were more interested in restricting the import of foreign technology to those cases deemed necessarv for the development of Japanese industries As SCAP wrote, "Restrictive provisions of the law were to be relaxed and eliminated as the need for them subsided."' But restrictions did not even begin to be relaxed until 1968, long after Japan 's balance of payments constraints had been overcome. . . .

[p. 276] The very thought of capital liberalization struck terror in the hearts of MITI officials and Japanese industrial leaders. In their view trade liberalization had meant only meeting world competition in terms of products (quality, design, price, and so forth), a level at which Japan had worked out the successful strategy of importing technologv from Europe and America, combining it with Japanese labor power, and then offering to the market products that were able to compete profitably with those of other countries. But capital liberalization meant competition at every level of an enterprise - in technology, capital resources, managerial skills, and all the rest. The low levels of capitalization of Japanese firms, a consequence of the indirect financing system invented during the capital shortage of the Korean War period, made them easy targets for foreign acquisition. The issue, of course, was nationalistic rather than economic - the belief on the part of some Japanese that the United States had for all intents and purposes "bought" Western Europ e- and was about to buy Japan, as well. . . .

[p. 283] The contemporaneous foreign criticism of the ministry - James Abegglen's term "Japan, Inc." and the London Economist's references to "notorious MITI" - never fazed MITI officials, but domestic criticism was taken seriously. The main issues raised by domestic critics, in addition to the steel merger, were environmental damage, overcrowding, alleged collusion with big business, and a host of other side effects of high-speed growth that the public demanded be addressed. . . .

[p. 308] Perhaps surprisingly, in light of the determined efforts of the American occupiers to change Japanese economic institutions, a considerable degree of continuity also exists throughout the Showa era in the means adopted by the state to achieve economic development. The great discontinuity is of course in the discredited reliance on military force to achieve economic security via imperialism. This failed so disastrously that after 1945 it was totally repudiated. But this does not mean that the strictly economic development policies attempted during the militarist era were or should have been repudiated. Instead of being rejected, they came to form a repertoire of policy tools that could be used again after peace and independence had been attained. There is actually nothing surprising about this: just as the activism of the postwar American state had its roots in the New Deal and just as the totalism of the postwar Soviet state had its roots in the Stalinism of the First Five Year Plan, so the developmentalism of the postwar Japanese state had its roots in the economic initiatives of the 1930's. In this sense the experience of the 1930's and the 1940's was not by any means totally negative for postwar Japan ; these were the years in which the managerial tools of the developmental state were first tested, some being rejected and others proving useful. Overcoming the depression required economic development, war preparation and war fighting required economic development, postwar reconstruction required economic development, and independence from U.S. aid required economic development. The means to achieve development for one cause ultimately proved to be equally good for the other causes.

There are striking continuities among the state's various policy tools over the prewar and postwar years. Yoshino and Kishi discovered industrial rationalization during the late 1920's as a means to overcome the recession; their proteges Yamamoto, Tamaki, Hirai, Ishihara, Ueno, Tokunaga, Matsuo, Imai, and Sahashi applied it again during the 1950's and 1960's to achieve modern, competitive enterprises. During both periods the state attempted to replace competition with cooperation, while not totally losing the benefits of competition. Governmental control over the convertibility of currency lasted uninterruptedly from 1933 to 1964, and persisted even after that time in attenuated forms. The Petroleum Industry Law of 1934 is the precise model for the Petroleum Industry Law of 1962. The plans and planning style of the Cabinet Planning Board were carried over to the Economic Stabilization Board and the Economic Planning Agency, particularly in their use of foreign exchange budgets to implement their plans. MlTI's unique structural features - its vertical bureaus for each strategic industry, its Enterprises Bureau, and its Secretariat (derived from the old General Affairs Bureau of MCI and the General Mobilization Bureau of MM) - date from 1939, 1942, and 1943, respectively. They continued to exist in MITI down to 1973 unchanged in function and even, in some cases, in name. Administrative guidance has its roots in the Important Industries Control Law of 1931. Industrial policy itself was, of course, as much a part of the Japanese governmental lexicon in 1935 as it was in 1955.

Perhaps the greatest continuity is in terms of the people who executed the state's industrial policy. Yoshino, Kishi, Shiina, Uemura, and virtually all other leaders of politics, banking, industry, and economic administration were prominent in public life before, during, and after the war. The continuities between MCI and MITI are not only historical and organizational but also biographical. The late 1970's marked the end of an era, but the change above all was a change of generations: the top leaders of the bureaucracy were no longer men who had experienced service during wartime and the postwar occupation. The new officers of MITI during the 1980's will be young Japanese born during the 1960's, and their easy familiarity with peace and prosperity makes them different from all other Japanese born during the preceding years of the twentieth century.

The wrenching changes that MITI was forced to undertake during the late 1970's were caused at least in part by the fact that the ideas of the people who had guided Japan's economy from approximately 1935 to 1965, the generation that is typified by Sahashi, were no longer adequate to the new problems facing the nation and the ministry. The old cadres had been first of all managers of heavy and chemical industrialization. But the 1970's and beyond demanded specialists in managing an already industrialized economy whose very weight gave it global responsibilities. It is to MlTI's credit that it produced such leaders, and that they set out to engineer a new change of industrial structure, one that emphasized postindustrial "knowledge-intensive" industries. The greatest assurance of their likely success in such a difficult venture, however, was the fact that they had been reared in an organization that had already changed the industrial structure once before.

The fundamental problem of the state-guided high-growth system is that of the relationship between the state bureaucracy and privately owned businesses. This problem erupted at the very outset of industrial policy in the schemes of Yoshino's Temporary Industrial Rationality Bureau, and it persisted uninterruptedly down to the Mitsubishi revolt and to the Fair Trade Commission's attack on MlTI's administrative guidance cartel for the petroleum-refining industry. It is a problem that will never disappear; it is inherent in the capitalist developmental state. Over the past 50 years Japan developed and attempted to implement three different solutions to this problem - namely, self-control, state control, and cooperation. None of them is perfect, but each is preferable to either pure laissez faire or state socialism as long as forced development remains the top priority of the state.

Self-control means that the state licenses private enterprises to achieve developmental goals. The typical institution is the state-sponsored cartel, in which the state authorizes cartels in industries it designates as strategic but then leaves to the enterprises themselves the task of fashioning and operating the cartel. This was the approach adopted for the Important Industries Control Law of 1931, and for the steel industry from the public sales system of 1958 to the Sumitomo Metals Company incident of 1965. The primary advantage of this form of government-business relationship is that it affords the greatest degree of competition and private management in the developmental state system. Its greatest disadvantage is that it leads to control of an industry by the largest groups in it (as in zaibatsu domination), and to the likelihood of divergence between the interests of the big operators and the interests of the state (as, for example, in the war-time "control associations"). This form of government-business relationship is the one typically preferred by big business.

State control refers to the attempt to separate management from ownership and to put management under state supervision. It was typically the form of the relationship preferred by the "reform" (or "control") bureaucrats of the late 1930's and by the whole state bureaucracy during postwar reconstruction and the early stages of high-speed growth. Its principal advantage is that the state's priorities take precedence over those of private enterprise. Its primary disadvantages are that it inhibits competition, and therefore tolerates gross inefficiency in the economy, and that it fosters irresponsible management. The closest Japanese approximations to it occurred in Manchuria, in the prewar and wartime electric power generating industry in the wartime munitions companies, in the postwar coal industry and in the hundred or more public corporations of contemporary Japan . The inefficiencies of state control are commonly blamed for the poor performance of Japanese industry during the Pacific War. . . .

[p. 311] The third form of the government-business relationship, that of public-private cooperation, is by far the most important. Although all three forms occurred throughout the entire 50 years of this study (depending primarily on variations in the political power of the state and private enterprise), the broad pattern of development since the late 1920's has been from self-coordination to its opposite, state control, and then to a synthesis of the two, cooperation. The chief advantage of this form is that it leaves ownership and management in private hands, thereby achieving higher levels of competition than under state control, while it affords the state much greater degrees of social goal-setting and influence over private decisions than under self-control. Its principal disadvantage is that it is very hard to achieve. It flourished in Japan during the 1950's and 1960's primarily because of the failure during the 1930's and 1940's of both of the other modes of the government-business relationship. During high-speed growth Japanese-style government-industrial cooperation came as close to squaring the circle - to achieving social goal-setting without the disadvantages of socialism- as any form of mixed economy among all the historical cases.

The chief mechanisms of the cooperative relationship are selective access to governmental or government-guaranteed financing, tar- geted tax breaks, government-supervised investment coordination in order to keep all participants profitable, the equitable allocation by the state of burdens during times of adversity (something the private cartel finds it very hard to do), governmental assistance in the com- mercialization and sale of products, and governmental assistance when an industry as a whole begins to decline.

This form of the government-business relationship is not peculiarly or uniquely Japanese; the Japanese have merely worked harder at perfecting it and have employed it in more sectors than other capitalist nations. The so-called military-industrial complex in the United States , to the extent that it identifies an economic relationship and is not merely a political epithet, refers to the same thing. If one were to extend the kinds of relationships that exist between the U.S. Department of Defense and such corporations as Boeing, Lockheed, North merican Rockwell, and General Dynamics to other sectors of industry, and if one were also to give the government the power to choose the strategic sectors and to decide when they were to be phased out, then one would have a close American approximation of the postwar Japanese system. The relationship between government and business in the American national defense industries - including the unusual management and ownership arrangements for the nuclear weapons
laboratories and the existence of such official agencies as the former Atomic Energy Commission and the National Aeronautics and Space Administration - is thought by Americans to be exceptional, whereas it was the norm for Japan's leading industrial sectors during high-speed growth. It is also perhaps significant that aviation, space vehicles, and atomic energy are all sectors in which the United States is preeminent, just as Japan is preeminent in steel production, ship-building, consumer electronics, rail transportation, synthetic fibers, watches, and cameras.

As noted earlier, the cooperative government-business relationship in the capitalist developmental state is very difficult to achieve and maintain. Even with such deeply entrenched social supports for cooperation as a shared outlook among government and industrial leaders because of common education (for instance, at Todai Law) and an extensive cross-penetration of elites because of early retirement from government service and reemployment in big business, the Japanese have difficulty in keeping public-private cooperation on the tracks. Industry is quite willing to receive governmental assistance, but it does not like government orders (as the steel and automobile industries illustrate). Government is often frustrated by the excessive competition and preemptive investment of industries it is trying to foster (as the petrochemical and textile industries illustrate). Nonetheless, the Japanese have worked hard to create cooperative relationships and have developed numerous unusual institutions through which to pursue them. These include the official "deliberation councils" such as the Commerce and Industry Deliberation Council of 1927, the Cabinet Advisers Council of 1943, the Industrial Rationalization Council of 1949, and the Industrial Structure Council of 1964; MITI's vertical bureaus and the corresponding officially sanctioned trade associations for each industry; the temporary exchange of officials between the state and private enterprise (for example, the posting of young MITI officers to Keidanren headquarters); the formal "discussion groups" implemented in the wake of the failure of the Special Measures Law; and the practice of administrative guidance, in which government officials and representatives of banking and industry can coordinate their activities unconstrained by law and lawyers.

In addition, the Japanese have fostered social supports for cooperation. We have already mentioned two of them- the essentially bureaucratic education of both public and private managers and the extensive "old boy" networks. It should not be thought that these are the only social supports or that they are not duplicable in other societies. They would be very hard to duplicate in other societies, since they rest on long-entrenched practices, but they are not pure cultural givens. As this book has sought to show, there was more consensus and cooperation in Japan during the 1950's than during the 1930's, which suggests that the reasons for this difference are to be found in changed historical circumstances and political consciousness and not in something as relatively unchanging as cultural mores. Some other social supports for government-business cooperation include the virtual impotence of corporate stockholders because of the industrial financing system; a work force fragmented among labor aristocrats enjoying semilifetime employment, temporaries, small-scale subcontractors, and enterprise unions; a system of collecting private savings through the postal system, concentrating it in government accounts, and investing it in accordance with a separate, bureaucratically controlled budget (FILP); some 115 government corporations covering such high-risk areas as petroleum exploration, atomic power development, the phasing out of the mining industry, and computer software development (these corporations are the successors to the national policy companies of the 1930's, the eidan of the wartime era, and the kodan of the occupation); and a distribution system that serves not only to retail goods but also to keep the unemployed, the elderly, and the infirm working, thereby weakening demands for a weltare state in Japan.

In Japan , as compared with the United States , one of the most powerful social supports for private managers' cooperation with the government is that Japanese managers enjoy freedom from being judged exclusively in terms of short-term financial performance. Just as the essential spirit of Japanese industrial policy after the late 1920's lay in the search for ways to replace competition with cooperation without a drastic loss in efficiency, the industrial rationalization campaigns sought criteria of good management other than short-term profitability. These included the maintenance of full employment, increased productivity, expansion of market share, cost reduction, and the management of long-term innovation.

Morita Akio, chairman of Sony Corporation, believes that the emphasis on profitability has been a major cause of American industrial decline. He asserts, "The annual bonus some American executives receive depends on annual profit, and the executive who knows his firm's production facilities should be modernized is not likely to make a decision to invest in new equipment if his own income and managerial ability are judged based onlv on annual profit." Morita believes that the incentive structure of postwar Japanese business has been geared to developmental goals, whereas the incentive structure of American business is geared to individual performance as revealed by quick profits. The result is not simply a lack of long-term planning in the United States but also exorbitant executive salaries, private corporate aircraft, palatial homes, and other major discrepancies between the rewards of labor and management. In postwar Japan the living standards of top executives and ordinary factorv workers have differed only slightly (Morita observes that the American president of Sony's U.S. subsidiary makes more in corporate salary than Morita himself receives from Sony). On the other hand, it might be noted that managers in Japan have access to corporate entertainment funds of a size unparalleled in any other economy. The National Tax Agency calculated that during 1979 corporate social expenses amounted to some 2.9 trillion, or 13.8 billion, which meant that corporate executives were spending 38 million per day on drink, meals, golf fees, and gifts for their colleagues and customers.

The point is that Japan's more flexible means of evaluating managers contributes to smoother labor-management relations than in some other countries and also avoids disincentives to cooperate with other enterprises and with the government. These Japanese practices came into being as a result of postwar conditions. According to Morita, "There is nothing in Japanese history to suggest that smooth labor-management relations came naturally"; prewar Japanese capitalism was "stark in its exploitation of labor." The postwar leveling of all Japanese incomes because of inflation and national adversitv made possible the relative equality of rewards that existed during high-speed growth, as well as the emphasis on measures other than profitability for managerial performance. These social conditions are of considerable advantage to Japan in competing with countries such as the United States, but obviously they would be very difficult to transplant: although the salaries of American managers might be reduced, the institution of some other measure of performance than short-term profitabilitv would require a revolution in the American system of allocating savings to industry through stock markets.

The priorities and social supports for cooperation among the Japanese might not be replicable in other societies, but it is easv to imagine that they might be matched - that is, a different society might be able to manipulate its own social arrangements in ways comparable to those of postwar Japan in order to give top priority to economic development and to provide incentives for public-private cooperation. If this vvere the case, then such a society would need an abstract model of the Japanese high-growth svstem to use as a guide for its own concrete application. Specialists on modern Japan will differ as to the precise elements and the weight to be attached to each element in such a model, but the following, based on the history of MITI, is my own estimation of the essential features of the Japanese developmental state. For purposes of this discussion, I stipulate that Japan 's particular history would not have to be reexperienced, and that the social inputs of popular mobilization and the incentives to cooperate already exist in the society trying to emulate Japan (assumptions that are not necessarily realistic, as this study has sought to demonstrate).

The first element of the model is the existence of a small, inexpensive, but elite bureaucracy staffed by the best managerial talent available in the system. The quality of this bureaucracy should be measured not so much by the salaries it can command as by its excellence as demonstrated academically and competitively, preferably in the best schools of public policy and management. Part of the bureaucracy should be recruited from among engineers and technicians because of the nature of the tasks it is to perform, but the majority should be generalists in the formulation and implementation of public policy. They should be educated in law and economics, but it would be preferable if they were not professional lawyers or economists, since as a general rule professionals make poor organization men. The term that best describes what we are looking for here is not professionals, civil servants, or experts, but managers. They should be rotated frequently throughout the economic service and retire early, no later than age 55.

The duties of this bureaucracy would be, first, to identify and choose the industries to be developed (industrial structure policy); second, to identify and choose the best means of rapidly developing the chosen industries (industrial rationalization policy); and third, to supervise competition in the designated strategic sectors in order to guarantee their economic health and effectiveness. These duties would be performed using market-conforming methods of state intervention (see below).

The second element of the model is a political system in which the bureaucracy is given sufficient scope to take initiative and operate effectively. This means, concretely, that the legislative and judicial branches of government must be restricted to "safety valve" functions. These two branches of government must stand ready to intervene in the work of the bureaucracy and to restrain it when it has one too far (which it undoubtedly will do on various occasions), but their more important overall function is to fend off the numerous interest groups in the society, which if catered to would distort the priorities of the developmental state. . . .

[p. 319] The Japanese of course rely on law, but on short and highly generalized laws. They then give concrete meaning to these laws through bureaucratically originated cabinet orders, ordinances, rules, and administrative guidance. All bureaucracies, the Japanese included, are inclined to abuse this rule-making authority (compare, for example, the chaos of rules churned out by the American Internal Revenue Ser- vice); but the answer to this problem seems to lie in finding better bureaucrats, not in eliminating their discretionary powers. In the case of flagrant bureaucratic abuse, the offended party may have to turn to the courts - something that the Japanese began to do during the 1970's more than in the past (for example, in the pollution suits and in the FTC's resort to the courts in the Yawata-Fuji merger case and the black cartel case). Nonetheless, compared to the participants in other systems, the Japanese seek to avoid litigation, relying instead on tailor-made government solutions to concrete problems (as in the Maruzen Oil Company case), and thereby avoiding legal impact on sectors that do not need it. At its best Japanese administrative guidance is comparable to the discretionary authority entrusted to a diplomat negotiating an international agreement. Success depends upon his skill, good sense, and integrity, and not on a set of legal requirements that no matter how well crafted can never truly tell a negotiator what to do.

The fourth and final element of the model is a pilot organization like MITI. The problem here is to find the mix of powers needed by the pilot agency without either giving it control over so many sectors as to make it all-powerful or so few as to make it ineffective. MITI itself came into being through a fortuitous process of accretion. MCI originated from the separation of agricultural and commercial-industrial administration. It developed by adding industrial functions while shedding commercial ones, obtained a planning capability when the Cabinet Planning Board was merged with its General Affairs Bureau in MM, and gained complete control over energy only when coal, petroleum, and electric pover administration were com-

[p. 320] bined during the MM era. The war also provided the ministry with micro-level intervention powers through its Enterprises Bureau. MITI itself finally resulted from the union of MCI and the apparatus for controlling international trade (the BOT). MITI has never had jurisdiction over transportation, agriculture, construction, labor, or finance, although it has had a strong influence over them, particularlv over finance, through such institutions as the Japan Development Bank. The fight over Sahashi's Special Measures Law revolved primarily around MlTl's efforts to extend its jurisdiction to cover industrial finance.

It is obviously a controversial matter to define the scope of the pilot agency. MlTl's experience suggests that the agency that controls industrial policy needs to combine at least planning, energv, domestic production, international trade, and a share of finance (particularly capital supply and tax policy). MITl's experience also suggests the need not to be doctrinaire; functions can and should be added and subtracted as necessary. The key characteristics of MITI are its small size (the smallest of any of the economic ministries), its indirect control of government funds (thereby freeing it of subservience to the Finance Ministry's Bureau of the Budget), its "think tank" functions, its vertical bureaus for the implementation of industrial policy at the micro level, and its internal democracy. It has no precise equivalent in any other advanced industrial democracy.

(8) Chalmers Johnson on the Flying Geese model.
Shorenstein Reports on Contemporary East Asia
Number 5 May 1995

by Chalmers Johnson

One problem that has always existed with Japan's idea that the East Asian economies were like a V-formation of flying geese, with Japan as head goose (aside from the fact that China may not always like being number two goose), is that nobody ever asked where these geese were flying. They were actually flying to Los Angeles! One important fact about the post-Cold War world is that this destination can no longer play its traditional role. A new primary market for Asian manufactured goods must be found. ...

The U.S. market cannot continue to play its traditional Cold War role for at least four reasons. First, the U.S. economy is not growing fast enough to continue to absorb most of Asia's exports. Second, the produce of Asia is now so large that no distant foreign market could possibly absorb it all. Third, the United States needs to cut consumption as a percentage of GDP (gross domestic product) in favor of savings and investment, whereas Japan needs to increase consumption. Consumption in the United States constitutes fully 68 percent of the domestic economy, whereas it is only about 56 percent in Japan . I agree with the Japanese that we Americans consume too much; one of the best places to cut down would be on Japanese imports. Fourth, the United States has no alternative but to attend to the demographic and socioeconomic trends in its southern neighbors, particularly Mexico . To do otherwise is to leave open the possibility that what happened in Nicaragua during the 1980s will occur along the length of our southern border. Our answer is to give Mexico privileged access to our market, which implies some closure of the American market to Japanese platforms in Malaysia and elsewhere in Southeast Asia.

... We have every reason to promote multiparty democracy in Japan , and if that means that we force the zaikai, or business community, to liberalize by pressuring them with the high yen, retaliatory trade actions, and managed trade, then that is what we should be doing.

The major new element in the Asia-Pacific region is a China growing at double-digit rates. When the world's largest social system begins to grow as fast as it is growing today, it alters the regional and world balance of power very rapidly. In a very short period of time, China can have an economy as big as or bigger than that of the United States but with a per capita income still only one-fourth to one-sixth that of the United States. When such economic power is combined with China's thermonuclear capabilities (including its continued nuclear testing), its scheduled absorption of Hong Kong within less than three years, its growing economic community of interests with Russia (China has moved from being Russia's seventeenth trading partner before the onset of perestroika to second place today, just behind Germany), and its cultivation of the overseas Chinese as investors and as potential members of a "Greater China," one has a right to be concerned.

(9) Fickle, Bitter, and Dangerous - An interview with Chalmers Johnson by David Ross.
http://www.zmag.org/ content/showarticle.cfm?SectionID=40&ItemID=5255

... Chalmers Johnson: We created satellites in East Asia after World War II in the areas that we had conquered in exactly the same way and for more or less the same reasons that the Soviet Union created satellites in Eastern Europe - satellites that gained their independence from the Soviet Union after the Berlin Wall was breached in 1989. ...

Chalmers Johnson: One of the things that worried the United States throughout the 1980s was that it became the world's largest net debtor nation-we owed more money to other people than anybody else-whereas Japan became the world's largest creditor nation. ...

We became deeply concerned, however, about the fact that Japan was becoming such a rich and powerful manufacturing country. All you have to do is look at any American parking lot to see what I'm talking about: The kind of enormous competition that Japan offered to the American automobile industry, and the fact that virtually all consumer electronics are made in Japan , South Korea , or Taiwan today.

Therefore, there's no question that we used organizations that are our surrogates, our proxies - the International Monetary Fund (IMF), the World Bank, and the World Trade Organization - to destabilize various nations in East Asia and to make them subordinate to us. ...

A special study on the "Asia Crisis":

* How To Kill A Tiger: Speculators Tell The Story Of Their Attack Against The Baht, The Opening Act Of An Ongoing Drama

* Special Meeting of the ASEAN Foreign Ministers in Kuala Lumpur on 31 May  1997 decided to admit Burma

* Rush to  embrace Burma's dictators will be swept aside in march of history
by MARK  BAKER, in The Age, Melbourne, June 7, 1997; and Sydney Morning Herald, June 7, 1997:

"The decision by ASEAN foreign ministers to admit Burma as a full member next month in open defiance of the United States ... is likely  to seriously complicate ASEAN's future relations with Europe and the US ... It is the ASEAN leaders who now stand isolated and who, with their Burmese military cohorts, will be swept aside in the inexorable march of history"

* Mahathir And Soros: Currency Crisis And Political Agendas

* Albright 7/27  Remarks At The Asean Regional Forum

* Paul Krugman defends Speculators

and more ... all at asia-crisis.html.

Kinhide Mushakoji on the political polarities of East Asia: mushakoji.html.

Edith Terry, How Asia Got Rich: Japan , China , and the Asian Miracle (foreword by Chalmers Johnson): terry.html.

James Fallows' article How the World Works, on how Asia's economies are based on the philosophy of Friedrich List: soros2.html.

How the U.S. Government forced Marcos and Suharto out of power: asia.html.

Francis McCollum Feeley
Professor of American Studies/
Director of Research
Université Grenoble-3
Grenoble, France