JPRI Critique Vol. VI No. 3 (March 1999)
U.S. Government Secrecy About Japan
by Michael Schaller

Has the U.S. Beaten Off the Japanese Challenge?
by Eamonn Fingleton

U.S. Government Secrecy About Japan
by Michael Schaller

Readers of the recently published Foreign Relations of the United States (FRUS), vol. 22 on Japan, 1961-63, may have shaken their heads upon reading the "health warning" included in the front matter. In the opinion of the Advisory Committee on Historical Diplomatic Documentation, the text states, this volume "does not constitute a 'thorough, accurate, and reliable documentary record of major United States foreign policy decisions.'" What does it mean when a committee of independent scholars (on which I serve), charged by Congress with overseeing publication of this prestigious series, describes the product as neither thorough, nor accurate, nor reliable? In the case of Japan this means that documentation on a number of controversial subjects, such as nuclear weapons and covert political action, is missing.

A decade ago a bipartisan coalition in Congress mandated creation of the so-called Historical Advisory Committee to avoid the embarrassment of again publishing volumes such as those covering Iran and Guatemala in the early-1950s that made no mention of CIA or other U.S.-agency involvement in efforts to topple what were seen as unfriendly regimes. The new law gave the Historian's Office in the Department of State greater clout to pry documents from other agencies and established a public oversight board to assure the quality of the foreign relations series. Overall, the reform contributed to the publication of more detailed and useful FRUS volumes. Unfortunately, this is not true for Japan.

It is hardly a secret that during much of the 1950s and 1960s, issues such as nuclear weapons storage, the revision of the U.S.-Japan security treaty, the use of Japan and Okinawa as staging areas for the U.S. military effort in Vietnam, and the struggle for power between the Liberal Democratic (LDP) and Socialist parties in Japan were matters of great concern to Washington. The Defense and State departments and Central Intelligence Agency (CIA) all sought to protect their institutional interests as well as the common national interest by influencing public opinion and elections in Japan.

Several sources, including my recent book, Altered States: The U.S. and Japan Since the Occupation (Oxford University Press, 1997), describe efforts by diplomats and intelligence operatives to influence Japanese elections. Among other things, they provided money to LDP and moderate Socialist politicians, subsidized friendly newspapers, and supported conservative youth groups. Although these activities occurred during much of the 1950s and 1960s, details are difficult to chronicle. Several documents accidentally released to the U.S. National Archives in the 1990s confirm the payment of funds to Prime Minister Kishi Nobusuke and his immediate successors. Roger Hillsman, a high level State Department official in the Kennedy and Johnson administrations, confirmed aspects of these operations. But the bulk of the evidence remains secret.

The highly professional staff of the Historian's Office, which compiles FRUS, has located documentation of these types of operations in several countries during the Cold War. However, efforts to include such material in the Japan volumes have proved futile. The CIA, which holds "equity" in many of the documents, vetoed their release for the 1958-60 volume. Protests by the Historical Advisory Committee resulted in half-hearted efforts by senior State Department officials to get the White House to overrule CIA and expand coverage in the 1961-63 volume. But opposition from career Japan specialists in State and CIA--including then Ambassador Walter Mondale, who warned that confirming past interference in Japanese elections would undermine the tottering LDP and hurt future relations--bolstered the resolve of CIA to block the release of any significant documentation concerning these 30-to-40-year-old covert operations.

A frustrated Historical Advisory Committee considered recommending that no FRUS volume be published on Japan without inclusion of the disputed material. Ultimately, the committee endorsed the idea to include a disclaimer in the Japan volume. It did so because failure to include critical documentation on major policy initiatives in Japan rendered the volume something of a hollow shell--accurate in what it presented but misrepresenting facts through systematic omission of material on basic policies pursued by the United States.

Thus far, the committee's action has not provoked a groundswell of indignation nor shamed the CIA or other agencies into releasing classified materials. An interagency panel, convened to act as arbiter in declassification disputes, has generally sustained those who prefer to keep information about covert operations as secret as possible for as long as possible. State Department Japan specialists, CIA officials, and the political masters they serve continue to find reasons for not allowing the American or Japanese people access to the full record of bilateral relations. Today, as in the darkest days of the Cold War, this prevents honest discussion about a wide range of security, economic, and political issues that affect the Pacific allies. Unfortunately, it seems unlikely that forthcoming FRUS volumes will be any more inclusive than their predecessors.

MICHAEL SCHALLER is Professor of History at the University of Arizona. His books include Douglas MacArthur: The Far Eastern General; The American Occupation of Japan: The Origins of the Cold War in Asia; The United States and China in the Twentieth Century; and Altered States: The United States and Japan Since the Occupation. He contributed "America's Favorite War Criminal: Kishi Nobusuke" to JPRI's Special Report on the CIA and Japan, Working Paper No. 11 (July 1995).

Has the U.S. Beaten Off the Japanese Challenge?
by Eamonn Fingleton

The American press's triumphalism over the state of U.S.-Japan economic rivalry reached new heights during the past year. But has the United States really beaten off the Japanese challenge? Or are the American media instead suffering from disastrous illusions about the true nature of international economic competition? I believe a glance at one key element of their case will go far to elucidate how misinformed they are.

The single biggest flaw in the triumphalists' case is the belief that by retreating from manufacturing to concentrate on postindustrial products, the United States has stolen a decisive march on Japan, whose economy remains strongly based on manufacturing. In the triumphalists' view, postindustrial services such as computer software, entertainment, and finance are self-evidently better businesses for an advanced economy than manufacturing industries, which are viewed as relics of the much despised Machine Age that can safely be abandoned to lesser economies.

At first sight this seems to make sense, but only if we accept the unexamined triumphalists' definition that modern manufacturing consists of mere snap-together assembly activities of the type carried out in the television set factories of Mexico and Thailand. If this were all there was to modern manufacturing, the triumphalists would have a point, because such assembly activities are highly labor-intensive and therefore fundamentally unsuitable for high-wage economies such as the United States, Japan, and Germany.

But in fact assembly is only the final, and generally by far the least sophisticated, stage in a long series of manufacturing processes. The earlier stages involve many highly sophisticated activities that are both worthy of the attention of the world's richest economies and offer far better long term prospects than the vaunted postindustrial services on which the United States is staking its economic destiny. One obvious early manufacturing stage is the production of the components needed to make the world's consumer products. A still earlier stage is the production of the materials that go into such components. Then there is the production of the machines that make such components and materials. These earlier stages in the manufacturing process constitute what is best described as advanced manufacturing. Such activities have three important advantages over postindustrial services:

1. Jobs. Manufacturing creates a wider range of jobs and thus makes the most of the talents of everyone from ordinary factory floor workers to managers and engineers. By contrast, postindustrial services are highly exclusionist in their hiring since they generally provide jobs for only a narrow elite of intelligent workers, typically people whose IQ ranks in the top 10 percent of the population.

2. Exports. Manufactured goods are generally highly exportable because they require little or no adaptation for different markets around the world. By contrast, postindustrial services are generally culture-specific, which can drastically impair their exportability. Many computer software programs, for instance, must be expensively adapted before they can be sold abroad.

3. Wages. Adjusted for the relative level of capability required of workers, wages for advanced manufacturing are generally higher than those for postindustrial services. This is because manufacturing requires large amounts of both capital and proprietary production knowledge. Although such requirements may seem at first sight to be a disadvantage, they are really a blessing in disguise. Lower-wage nations, which are almost by definition short of capital and knowhow, will have difficulty in entering and competing in such fields.

By contrast, postindustrial services are typically easy to enter in that they generally require minimal levels of both capital and proprietary production knowhow. Thus in the long run they are wide open to competition from lower wage nations. For example, India, China, Russia, Latvia, and Poland have begun to make rapid inroads in the computer software industry. Of course, these nations are starting from a small base and as yet have made only a minimal dent in the American software industry's job base, but they represent a major future threat. In advanced manufacturing, by contrast, the world's main producers are generally located in the highest wage nations, where they are clearly destined to stay.

All this brings us back to Japan, which is today the world's dominant manufacturing nation. Of course, not everything in Japan's economic garden is rosy. Banks and securities firms have come through a wrenching time since the Tokyo stock market bubble burst in January 1990. But finance is far from the whole story. When the history of the 1990s is written, Japan's financial problems will be seen to have done little if any damage to its manufacturing sector, which remains the real engine of Japanese economic growth.

In judging which nation is really the world's leading economy, one should recall the two criteria used to describe Japan's 1980s economic juggernaut. First, Japan was rising rapidly in the table of world incomes. Second, its exports were increasing rapidly. So it is worth seeing how Japan has been doing on these criteria in the 1990s.

1. Japanese wages have continued to rise relative to those of the United States. This reflects the continuing long-term trend of the yen's rise against the dollar. With the yen up about 22 percent in dollar terms so far in the 1990s, Japanese wage rates were at last count running 37 percent higher than American levels. Japan's success in lengthening its lead in wages is all the more remarkable in being accompanied by minimal levels of unemployment. (Although Japan's unemployment rate of 4.3 percent in calendar 1998 was high by past Japanese standards, it still represented the lowest rate of any major economy and was less than half of France's, for example.)

2. Japan's exports, despite countless media predictions that they would be hollowed out by lower wage competitors such as South Korea and Taiwan, rose by 53 percent in the first eight years of the 1990s. Thus, for the decade so far, current account surpluses have totalled $749 billion dollars. That represents nearly 2.7 times the then phenomenal total of $279 billion Japan achieved in the first eight years of the 1980s.

The full significance of these numbers is apparent only when one considers that every current account dollar Japan earns represents another dollar added to its overseas assets. Japan's overseas investments have risen by about 50 percent in the 1990s as a direct result of its success in advanced manufacturing. All this has been achieved at a time when American triumphalists were loudly proclaiming that manufacturing no longer matters.

EAMONN FINGLETON is the author of Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000 (Houghton Mifflin, 1995). His new book In Praise of Hard Industries will be published by Houghton Mifflin in August 1999.

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