Table Of ContentAMERICAN POWER, THE NEW WORLD ORDER
AND THE JAPANESE CHALLENGE
Also by William R. Nester
THE FOUNDATIONS OF JAPANESE POWER
JAPAN AND THE THIRD WORLD
JAPAN'S GROWING POWER OVER EAST ASIA AND THE
WORLD ECONOMY
JAPANESE INDUSTRIAL TARGETING
American Power, the
New World Order and
the Japanese Challenge
William R. Nester
Assistant Professor of Political Science
St. Johns University of New York
M
MACMILLAN
© William R. Nester 1993
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First published 1993 by
THE MACMILLAN PRESS LTD
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and London
Companies and representatives
throughout the world
ISBN 0-333-57895-3
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Copy-edited and typeset by Povey-Edmondson
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Contents
Introduction 1
PART I LIBERALISM, NEOMERCANTILISM AND THE
NEW WORLD ORDER 13
1 Power and the Changing Nature of International Relations 15
2 American Liberalism: Triumph and Tragedy 56
3 Japanese Neomercantilism: The New Hegemony 90
PART II POLITICAL ECONOMIC BATTLEGROUNDS 121
4 The Shifting Balance of Economic Power 123
5 The Shifting Balance of Political Power: Hearts, Minds and
Policies 154
6 American Policy Toward Japan: The Sisyphean Dilemma or
What is the Sound of One Hand Clapping? 195
7 The Mature Industry Front 228
8 The Foreign Investment Front 280
9 The High Technology Front 312
10 The Financial Front 371
PART III WHAT IS TO BE DONE? 393
11 America and Japan into the 21st Century 395
Notes 438
Bib liography 461
Index 488
With deepest love to my grandparents, Evelyn and Bill,
Josephine and Mark
Introduction
Are international relations evolving into a "New World Order" in which,
according to President George Bush, "diverse nations are drawn together
in common cause to achieve the universal aspirations of Mankind: peace
and security, freedom and the rule of law"? Although the concept
remains vague, the world has changed remarkably over the past several
years. The most startling event was the Cold War's finale as President
Gorbachev essentially admitted defeat, the Soviet empire rapidly broke
up, Germany reunited under Bonn's leadership, and the Eastern
European countries and the former Soviet Union struggled to create free
political and economic systems. But the Soviet bloc is only the most recent
region to experience revolutionary political and economic change. From
Nicaragua to South Korea, and Nepal to Algeria left and right wing
governments are falling to mass democratic revolutions. Throughout the
1980s, virtually every Latin American country shook off military dictator
ship and embraced democracy, while into the 1990s similar pressures are
mounting across Africa, the Middle East, and Asia.
There is a virtuous relationship between political and economic freedom
- the transition into political democracy is at once stimulated by and
stimulates greater economic freedom. Political philosophers from Aristotle
to Jefferson have argued that democracy is best rooted in a middle class
society. But how do states create a viable middle class society? Inspired by
"economic miracles" in Japan, South Korea, Taiwan and Singapore,
increasing numbers of governments have rejected both pure free market
and state ownership of production strategies as inadequate means of
creating and distributing wealth. Instead, they are carefully managing
rather than outright controlling or completely freeing their economies:
strategic industries are targeted for development, public corporations are
privatized, markets partially opened, trade promoted.
As more states rely on increased trade to create more wealth, geoeco-
nomic problems are rapidly overshadowing geopolitical conflicts as the
number one agenda issue in international relations. Global and regional
economic interdependence deepens annually. Over 110 nations are
members of the international free trade organizations, the General
Agreement on Tariffs and Trade (GATT) and the International Mone
tary Fund (IMF), and dozens more are clamoring to join. In 1992 the
European Community (EC) and the European Free Trade Association
(EFTA) joined in abandoning all their internal trade barriers to create an
1
2 Introduction
enormous market of 380 million people, while a North American free
trade bloc is evolving through international treaties and an East and
Southeast Asian trade bloc under Japan's domination is emerging through
more subtle means.
With the Cold War's demise, nations can increasingly devote their
collective energy, time, and resources to combating such global problems
as poverty, disease, natural disasters, overpopulation, and, perhaps the
most catastrophic problem of all, the rapidly worsening greenhouse effect
which may eventually transform much of the earth to desert. The most
dramatic recent example of international cooperation, however, was the
United Nations' authorization of economic sanctions and a military
alliance to first drive Iraq out of Kuwait, and then ensure that Iraq's
nuclear, chemical, and biological warfare capacity is destroyed.
Where does the United States fit into this "New World Order"? In his
1991 State of the Union address, President Bush spoke boldly of "the next
American century" and a "renewed America" which "can shape the
future".2 Bush's celebration of American power seemed fulfilled by the
dazzling victory of American-led forces over Iraq in the Gulf War. The
public was mesmerized by film of pinpoint accurate cruise missiles
destroying Iraqi command and control centers and burned out Iraqi
tanks strewn across the desert, as well as immensely relieved that the
victory cost little more than 150 American lives. President Bush summed
up the feelings of most Americans over the decisive victory against Iraq
when he exclaimed: "By God, we've kicked the Vietnam syndrome once
and for all!"
Bush's hopes for the continuation of America's pre-eminent position in
global affairs, however, may be extremely optimistic. His speeches, like
President Reagan's before him, are filled with visions of American power
and prosperity that do not correspond to reality. The outpouring of
American patriotism and support for the Gulf War - at one point Bush's
popularity rating soared to 89 per cent - is certainly understandable. After
two decades of failed presidencies, foreign policy debacles, and accelerating
economic decline and social problems, Bush's successful assertion of
American military power in the Gulf seemed like a godsend to most
Americans. But the "lessons" drawn from the Gulf victory, such as the
viability of "solving" complex issues with military means, may be as
ultimately self-defeating as the "lesson" of Vietnam which stressed a
continued military buildup while avoiding the use of force.
Any American celebration of the military triumph is undercut by
deteriorating conditions at home. Headlines blare such tragic realities
as: 2.3 million violent crimes in 1990, a 3.4 per cent rise from 1989; one in
eight children or over 5.5 million go hungry each day while an additional
6 million are underfed; America's public and private debt tripled from
Introduction 3
$3.4 trillion in 1981 to $10.6 trillion in 1990; in 1980 the average
corporate executive made 25 times more money than the average work
er, in 1990 executive salaries averaged 85 times greater than those of
workers; America's literacy rate is barely 75 per cent; over 35 million
Americans subsist without health insurance; the country is scarred by
thousands of bleeding toxic waste sites; bridges, roads, ports, and inner
cities crumble; hundreds of tons of smuggled drugs continue to feed
millions of addicts. America's domestic tragedies are mirrored by a
steady decline in its global economic power. During the 1980s, the
United States was transformed from the world's greatest creditor to worst
debtor country; suffered horrendous trade and payments deficits which in
1990 remained above $100 billion; saw its leadership in one product and
technology after another overtaken by foreign rivals while its economic
growth remained among the lowest and gap between rich and poor
among the highest of the industrial democratic countries.
Chalmers Johnson succinctly captured perhaps the most significant
result of the Soviet Empire's collapse and America's decline: "The Cold
War is over - Japan won!" The United States won the Cold War with the
Soviet Union while it lost the economic war with Japan. The next century
may well be Japan's rather than America's. By most measures, Japan has
replaced the United States as the world's most dynamic economic power.
Japan's average annual economic growth rate of about 10 per cent
between 1950 and 1973 was four times America's 2.5 per cent average,
while its 4.5 per cent average since then has been double America's 2.2 per
cent. In 1990, Japan's economy grew 4.7 per cent, twice America's 2.3 per
cent, while its inflation and unemployment rates of 2.6 per cent and 2.2
per cent respectively, were far less than America's 4.4 per cent and 5.7 per
cent rates. Although the United States remains the world's largest
economy, Japan's economy is already 70 per cent the size of America's
and will surpass it in fifteen years if current growth rates hold. This
represents an extraordinary development achievement and shift in
economic power. In 1960 America's GNP was 33 per cent of global
GNP while Japan's was only 3 per cent; in 1990, America's percentage of
global GNP had dropped to 21 per cent while Japan's had risen to 15 per
cent. Japanese are now wealthier than Americans - in 1990, Japan's per
capita income was $24500 while America's was $20 500. When Japan's
GNP eventually equals that of the United States, with only half the
population, Japanese will be twice as wealthy as Americans.
Japan has surpassed the United States by most financial, manufactur
ing, and technological standards. Japan is now the world's banker while
the United States has deteriorated into the world's largest debtor nation.
The world's eight largest banks, and 14 of the top 25 banks, are now
Japanese, and Japanese banks hold more than twice the assets of their
