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Americans' joint venture with Japan

ANY American who feels like complaining about Japan can surely find enough targets. But the familiar stories about overpriced rice and American companies shut out of big Japanese construction projects are not really news. The real story is that a thorough account of change in Japan makes the sore spots seem small. Think back to 1985, when United States Embassy officials in Tokyo began to lobby for a ``New Deal,'' based on easy credit, more housing, and a much bigger pork barrel. The Japanese have accommodated faster than most observers expected. In April, the maruyu system of tax-free savings will end for all but fatherless families and the elderly. Retail spending, car sales, and housing starts surged last year. Tariff barriers and import quotas have been removed from a wide range of products.

In 1985 Washington and Tokyo also took steps to speed up what the currency markets had already started. The yen has since risen more than 100 percent against the dollar, and the Japanese have absorbed pressure on their ``smokestack'' sector as fierce as what the US withstood from 1981 to '85. Yet social innovation, along with the 1986 oil-price plunge, has allowed them to steer clear of recession. Unemployment peaked at 3.1 percent and has since fallen to 2.7 percent. Last year, industrial production jumped more than 11 percent.

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Unfortunately, the typical American response is to assume that the adjustment must not have been so difficult, rather than scour it for lessons. The press preferred to dwell on the Toshiba scandal. At about the same time, Washington was urging American business to ship all manner of goods to the Soviet Union. That's more than a little strange. To make Japan the danger, and Russia the opportunity, is to forget President Harry Truman's observation that the only thing worse than fighting with allies is fighting without them.

What else has the United States done since 1985? Very little to reduce the structural budget deficit, and not enough to exploit the Japanese market. When Hong Kong and South Korea, their currencies declining in lock step with the dollar, can expand shipments to Japan six times as fast as US producers, something is wrong. Many West European nations, with currencies moving opposite the dollar, are also out-exporting the US.

Not since Theodore Roosevelt's time have Americans had to ``export to prosper.'' By contrast, postwar Japan flooded richer nations with manufactured goods because its commodity-import burden (oil, coal, soybeans, wheat) was heavy. It still is. Falling commodity prices through 1986 made Japan's trade surplus seem artificially high.

And that surplus has since expanded only if measured in dollar terms - because it now takes a greater stack of dollars to buy the same Japanese goods. By volume, which reveals much more about how one country's products affect another country's markets and job trends, Japan's trade surplus peaked in the fall of 1985.

Now it is Americans' turn to stress exports. A devalued dollar invites higher inflation, and slightly lower living standards, to narrow the trade deficit. As Americans tighten up, the Japanese lighten up: They spend on imports for the sake of the consumer (and international goodwill) while the US bets on exports for the sake of the producer (and its international credit needs). This is broadening the perspective of each government - something the world would welcome in areas beyond trade.

For example, when it comes to defense, Americans complain that one-time samurais ride for free on the back of GI Joe. Yet Japan foots more than a third of the bill for US bases there, with a defense budget that has grown faster than the US's over the last decade. In any case, it does little good to impose upon Japan the ``percent-of-GNP'' thinking that distorts the US defense dialogue. We should instead discuss what it would make good security sense for the Japanese to do.

Foreign aid: Japan's power happens to be money. Why not let it be the West's primary banker, and conscience, in the poorer regions? Japan's current-account surplus could keep debt-heavy Americans from further International Monetary Fund and World Bank bailouts.

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Strategic defense: Japan's stance on ballistic-missile defense is more important than its conventional activities. What about a well-timed call from Tokyo for peace shields for all responsible powers? After all, Japan has the greatest moral authority to speak out against the horrible alternative.

Distribution: Japan still avoids the shift the US completed 50 years ago - from mom-and-pop food shops to chain stores. One big reason is that, since 1 in 4 elderly Japanese must work, Tokyo fears that modernization will impoverish old couples. If they could help solve this dilemma, US exporters would be rewarded with a less feudal distribution network. (And they should not overlook the potential for reformist coalitions with the Japanese distributors of bulk merchandise.)

Education: Former Prime Minister Yasuhiro Nakasone raised his country's awareness of how TV affects the schoolroom. Japan has more-effective grade schools; Americans have the better colleges. How might each country more quickly learn from the other's successes?

The next century: It is Liberal Democratic Party policy to create an ``information society.'' What exactly does that mean? What is Japan doing with future technologies like telecommunications, biotech, and lasers? What could be the US equivalent of Japan's ``Salaryman'' comic books on superconductors?

This isn't 1985, and the right question is no longer what Japan should do for the US. It is: What should both nations do for the world, and for their own economic well-being? That sort of win-win mind-set could change the tone of the Japan-US dialogue from shouting match to seminar. Given the uncertain state of financial markets, that change could not come one moment too soon.

Eddie Mahe is chairman of Eddie Mahe Jr. & Associates Inc., a business and political consulting firm. Frank Gregorsky edits the House Republican Policy Committee's newsletter.

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