Pleading Poverty Pays Off

Back to Contents of Issue: June 2003

Feigned failure lets Japan shirk the wages of war.

by Eamonn Fingleton

At the time of the Gulf War, the American media was still portraying Japan as the unstoppable juggernaut of the global economy. When American policy-makers looked for other nations to share the burden of the war, Japan had nowhere to hide. Under pressure to pick up a large part of the tab, Japanese officials feigned disarray as the excuse for its monumentally stingy first offer: a meager $100 million contribution towards America's costs. US president George Bush, Sr. called Japan's bluff and angrily intimated that if government officials did not dig much deeper into their pockets, they could kiss goodbye to Japan's "special relationship" with the United States. His arm-twisting paid off when, within a few weeks, panicky Japanese officials ponied up no less than $13 billion, a 130-fold increase on their original offer.

In 2003 the United States has again waged war on Saddam Hussein. But this time, American policymakers and diplomats have not pushed Japan as hard for a contribution. Although Japan has officially backed the allied coalition, it has flatly refused to pay a single cent of the military costs.

Japan's economic problems have been exaggerated
-- key areas are stronger than ever

Japanese officials have sweetened the pot by promising to help later with Iraq's post-war reconstruction. But in making such a promise, Tokyo was merely committing itself to doing what it would undoubtedly have done anyway. One of the purposes of Japan's huge overseas development aid budget is precisely to help disaster-afflicted nations get back on their feet. In any case, Japan's aid contributions to Iraq are likely to amount to far less than its bill for the Gulf War. And much of the money this time will return to Japan, in that it will typically be spent on construction plants, broadcasting equipment, electricity generating stations and countless other forms of capital equipment sourced from Japan.

Compared with 12 years ago, Tokyo is getting off remarkably lightly. After all, Japan is much poorer now -- at least that is Tokyo's story, and the Bush administration has evidently had no trouble believing it.

But while Japan has certainly suffered big financial problems in the last decade, the rot has hardly pervaded the entire economy. Far from it. Japan's economic problems in the last decade have been vastly exaggerated in both the Japanese and the Western media.

Japan's holdings of foreign assets in particular continue to burgeon. Even as shares have slumped in Tokyo, corporate Japan has been quietly building factories around the world. As a result, Japan has ranked as by far the world's largest source of direct investment in recent years. Meanwhile Japanese financial institutions have been voraciously investing in London and New York. Thus, as measured by the International Monetary Fund, Japan's net foreign assets shot from $294 billion to $1,158 billion in the 11 years to December 2000. By comparison, America's net foreign liabilities multiplied more than forty-fold to total $2,187 billion.

Consider some other key yardsticks:

• The Japanese yen has strengthened against most currencies since the Gulf War and has gained nearly 15 percent against the US dollar.

• Japan's current account surplus is likely to top $150 billion this year -- well over double the $68 billion it recorded in 1991.

• Japan's all-important savings rate has remained one of the highest in the developed world.

• Capital spending continues at a frenetic pace with Japanese manufacturers investing about twice as much per worker as their American counterparts.

According to, a global database on tall buildings, 80 skyscrapers were built in Tokyo in the 90s versus just 49 in the 80s. Comparable figures for London were 33 versus 28. And for New York there was actually a decline -- from 257 skyscrapers erected in the 80s to just 103 in the 90s.

How about Japanese living standards? Actually, most Japanese consumers remain in robust form. They are among the world's best dressed and best fed people, for instance.

About 2.2 million more Japanese households now own a car than a decade ago. Many are equipped not only with CD players and television sets but with sophisticated satellite-guided navigation equipment. At last count, fully two-thirds of all the car navigation devices in use in the world were in Japan.

In electronics in general, the Japanese clearly lead the world. As every first-time visitor to Tokyo immediately notices, mobile phones, for instance, are more advanced in Japan than in the United States or Europe.

Even in health care, Japan has made major strides: It has recently overtaken Sweden and Switzerland to achieve the highest life expectancy in the world.

Why don't we hear more about Japan's wealth? Reporters assume that the economy must be a basket case merely because shares have crashed. Japanese economic officials clearly encourage this error. Why? The gloom has magically reduced foreign pressure on Japan to open its markets. Moreover, like a rich miser, Japan knows that looking poor is the best way to keep beggars at bay.

Which brings us back to the war on Saddam. It is quite obvious that Japan did not want the war. But Japan being Japan, it wanted to pursue what is politely referred to as "omnidirectional diplomacy." This is less politely called "having it both ways." By pleading poverty it can stiff the United States without appearing to do so. The joke is that, as its burgeoning net overseas assets testify, Japan is actually in considerably better shape to contribute this time than last. Who says the Japanese are hopeless diplomats? @

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