Japan at the Crossroads

A specialist in international and corporate law and senior partner in the law firm of Sullivan & Cromwell, New York,ARTHUR H. DEAN was appointed by President Eisenhower as deputy to the Secretary of Slate with the rank of Ambassador, His was the difficult assignment of conducting the preliminary negotiations attempting to arrange the political conference envisaged by the Korean Armistice Agreement, and we have reason to be grateful for his firmness and long patience in that ordeal.

by ARTHUR H. DEAN

1

AMONG the encouraging changes that have taken effect in American foreign policy in recent years has been our growing realization that in addition to our moral disapproval of aggression we must take positive action to destroy the seeds of economic and social distress on which it feeds.

Japan is a good example of our failure before World War II effectively to do this. We conscientiously and rightfully opposed her desires and attempts to expand her empire by armed conquest. But we did not search for an alternative which would alleviate the problem of a growing population confined within a national territory possessed of relatively few economic blessings.

The contribution of the United States since Japan’s surrender on September 2, 1945, to the reorientation of Japanese political life and the reconstruction of its economy under the leadership of General Douglas MacArthur is a magnificent record of achievement. However, there is, I fear, an unawareness on the part of the American people of the continuing necessity for positive and imaginative assistance to the Japanese people in meeting their economic, social, and defense problems, and all too much inclination to fall back on the comforting illusion that the American Occupation permanently solved all of Japan’s basic problems — and if it didn’t we should let Japan stew in its own juice. We do not have this freedom.

As far as political matters are concerned, the Japanese people have traveled very far. They have free elections with no restrictions of property or sex on suffrage; a representative Diet which selects the prime minister and in which four principal parties, the Liberals, the Progressives, the Left and Right Wing Socialists, vie for political dominance; constitutional protection of civil rights enforced by their courts; and a free press.

Until the signature of the peace treaty on September 8, 1951, they were perhaps publicly impatient with the rate at which they were re-establishing their sovereignty. Since then they have been somewhat oversensitive to fancied violations of that sovereignty.

But in fact they have made truly remarkable progress in reclaiming control of their country. The role of American forces in Japan under the able command of General John Hull has changed from that of an enemy force exercising supreme power to that of friendly forces remaining in Japan for the same reason they are in Europe: to coöperate in repelling aggression. They are wholly withdrawn from the direction of Japanese civilian affairs.

It would be unwise, however, to let our enthusiasm over the constructive accomplishments of the Occupation blind us to the intense emotional and cultural shock which both the defeat in World War II and the Occupation have been to the Japanese people. The arrival of the American occupation force in Tokyo Bay in 1945 has been compared to the arrival of Commodore Matthew C. Perry in 1853 with both the shogunate and feudalism ending shortly thereafter. However, Commodore Perry opened an era of gradual penetration of Japan by the culture of the West; whereas the Occupation attempted in large measure to remake, not by precept and example but by edict, the centuries-old culture of Japan in the image of United States traditions and institutions. Some Japanese may well have felt that the Occupation was more like the Reconstruction period in our own South — at least in the depth of the emotional and cultural dislocation of the occupied populace, for Gone With the Wind has been one of the most popular movies ever shown in Japan. With the best intentions in the world we abolished the imperial rescript on education and imposed a decentralized educational system with a nine-year compulsory schooling period for children, based on our own individualistic traditions, Christian heritage, and material wealth, on a country of very limited financial means and steeped in a culture of emperor-worship, close communal living, family loyalties, and the ethical standards of Buddhism, Shintoism, and Bushido.

In doing so we tended unnecessarily to undermine the Japanese people’s pride in institutions which with suitable reorientation and adjustment might have provided the cultural foundation for a distinctively Japanese system of free political and economic institutions, and by providing familiar frames of reference achieved more effective educational and sociological results at less financial and social cost.

As a result of our failure to redefine our objectives in the context of the cultural world of the Japanese, who were striving to understand and realize them, there have inevitably been a serious disruption of society, misunderstandings, and regrets.

Thus the concept of individual rights, as against domination by the family or village elders, has often been, to the dismay of the older generation, the excuse for licentiousness and youthful defiance and disrespect for the family and for every vestige of parental or teaching authority.

The eradication of militarism and the renunciation of aggressive war as an instrument of national policy have been interpreted as necessarily implying that complete pacifism is the only truly Christian and moral precept by which to live. This is not surprising in view of the text of Article 9 of the new Japanese Constitution, which reads: —

ARTICLE 9. Aspiring sincerely to an international peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as a means of settling international disputes.

In order to accomplish the aim of the preceding paragraph, land, sea, and air forces, as well as other war potential, will never be maintained. The right of belligerency of the state will not be recognized.

It is against thiis background that we must appraise Japan’s present position and what at first might seem to be wholly irrational responses to many current developments.

2

THE unfortunate aftermath of the detonation by the United States of a hydrogen bomb at Bikini atoll on March 1 of this year, in which twentythree Japanese fishermen on the Fukuryu Maru were contaminated by a fall-out of radioactive particles, following a shift of the winds, was the occasion for the creation of considerable hysteria in Japan; and the Japanese press, indulging in an orgy of bathos, renewed after one of the fishermen died, was by no means as responsible as it might have been in reporting the facts. The destruction of a sand atoll was represented as portending the possible complete destruction of the Japanese islands themselves as a retaliation by the Soviets for the launching of bombs by us from our bases there.

This incident is significant, not so much in itself — representatives of the Atomic Energy Commission have proclaimed the groundlessness of fears of long-range contanimation of the atmosphere (though some distinguished scientists disagree) or of the contamination of the fish in the Pacific fishing grounds — as because it provided an outlet for a good deal of latent anti-American sentiment which had been building up in Japan during the Occupation period, especially among those displaced or disgruntled by its edicts. It was symptomatic of the current Japanese pacifism, real popular anxiety over the plight of Japan, with its intensely crowded island population, in a hydrogen bomb war between the Soviet Union and the United States that might blow them out of existence, and disillusionment as to apparent American indifference to Japan’s economic plight.

In the area of military affairs, much impatience has recently been expressed with the apparent reluctance of the Japanese people to rearm. However, such criticism ignores the concerted effort during the Occupation, by such measures as the exclusion of military leaders from public life, the war crimes trials, and the provisions in the recently adopted Constitution, to destroy, discredit, and abase the military caste and the military spirit in Japan.

This effort was largely effective, though there has been a revival of military societies. Today many Japanese cannot understand how adequate Japanese defense forces can be established without recreating and placing power in the hands of such a caste. Moreover, as indicated above, many Japanese, under the influence of our Christian principles and as a token of their shame at the war crimes of their military leaders, have gone one step further and embraced pacifism and universal disarmament as basic tenets of their personal moral philosophy.

Also, many Japanese, with Japan’s limited income and dollar imbalance in mind, are concerned about the high cost of maintaining an adequate military establishment, and do not wish to cut back education and public welfare expenditures to pay for it. They fear, or profess to fear, that Japan’s forces are not to be used solely in Japan’s interest for her own defense, but as pawns in the international struggle for power between the competing Communist and Western blocs. In the light of this background the American people should be extremely patient with the Japanese political leadership in its approach to the rearmament problem.

Moreover, real progress is being made. The Japanese government has recognized the necessity for increasing the size of its defense forces, and the United States has agreed to help by supplying major items of military equipment pursuant to the Mutual Defense Assistance Agreement signed on March 8 of this year. Japanese ground forces are scheduled to reach a total of 130,000 men in 1954, and have already taken over the protection of the whole of the northernmost island of Hokkaido. It has been estimated that if this force were doubled and supplementary supply and service troops added, bringing the total to between 300,000 and 350,000 men, Japan could do without United States military support other than naval and air assistance.

3

TODAY the most immediate threat to continued Japanese political stability and security lies less in the realm of internal political crises or the threat of overt Soviet aggression than in the impending crisis in the Japanese economy.

Largely as a result of improved public health programs initiated during the Occupation, the attack on tuberculosis, and better diet, the death rate has declined from 17.6 per 1000 in 1946 to 8.9 per 1000 in 1953, and Japan’s population is increasing at the rate of a million persons per year.

Her island territory of 147,690 square miles is about the same size as the state of Montana. Yet she must support an expanding population which today numbers 87 million— 16 million more than in 1940 — and which it is estimated will reach 100 million by 1970. Because of the rugged contours of Japanese geography, with its mountain ranges rising precipitately from narrow coastal plains, only 17 per cent of this area may be cultivated. This amounts to only 15 million acres, farmed by 6 million families, or something less than 2.5 acres for the average farm — 2 acres short of the estimated minimum needed to make farming profitable. With respect to arable land, Japan’s population has a density of 4000 to the square mile.

Consequently, despite intensive and intelligent cultivation, with high yields per acre, Japan must import from 20 to 25 per cent of its foodstuffs, and in 1953 spent approximately one half of the revenue from ils $1.2 billions of export trade to buy it.

Japan must also import large quantities of the raw materials necessary for its industrial machine. While the Japanese coal-mining industry supplies virtually all the standard coal necessary to sustain Japanese industry, heavy coking coal is very scarce and must be imported. The estimated Japanese petroleum deposits are merely .013 per cent of the world total, and 90 per cent of her annual oil requirements must be imported. The Japanese steel industry imports more than 90 per cent of the iron ore it requires — a considerably higher percentage than in the pre-war years. In the nonferrous metal field Japan has comparatively rich reserves of copper, lead, and zinc, but almost no bauxite or nickel.

The Japanese textile industry is almost entirely dependent upon foreign sources for raw cotton and raw wool, though it has a surplus of raw silk.

Japan possesses abundant natural water resources, which are employed for the production of electric energy in hydroelectric power generation plants throughout the country; but owing to the sharp seasonal variations in the water flow, it is necessary to have thermal power generation facilities available on a stand-by basis to fill the gap during the dry season.

In this beautiful land of earthquakes, typhoons, and mountains, these stark physical facts and statistics can never be far from the minds of the leaders of Japan, nor indeed from the fears and aspirations of her people, 45 per cent of whom earn their living from farming. They symbolize a potential of repression, poverty, and malnutrition on overcrowded islands — a potential infected sore in which a Communist virus could grow.

Foreign trade is essential to Japan’s existence, for only through trade can she earn the wealth needed to feed her burgeoning people and supply her industry with raw materials. Her trade, shipping, banking, and insurance have suffered severe dislocations as a result of World War II and its aftermath.

Japan’s trade with China and Manchuria, which used to be her principal market for chemicals, heavy industrial machinery, and steel, has been drastically reduced.

The post-war plethora of regulations, quotas, restrictions, and prohibitions imposed on international trade by the scramble for dollars and the protection of reviving local industry has seriously hampered Japan’s efforts to develop substitute markets in Southeast Asia, Europe, and America. She has not shared in the benefits of countervailing programs such as the Colombo Elan, and has yet to be admitted to full membership in the General Agreement on Tariffs and Trade, or GATT. Furthermore, because of the vastly increased tempo of the drive to industrialize on the part of “rawmaterial producing” countries, the textile industry, Japan’s largest export industry, in which its competitive cost advantage has been marked, is finding it increasingly difficult to market its wares in countries such as Indonesia and Pakistan, which are adopting the easiest of the manufacturing arts first and protecting this fledgling from competition. Moreover, exports of raw silk to more industrialized countries have been drastically curtailed because of competition from synthetic fibers.

Korea, Indonesia, and the Philippines are in large part refusing to trade until their claims for war reparations are settled, though the reparations agreement recently concluded with Burma may be a favorable augury. Japan is also now faced with the partial loss of a potentially important market in Indochina. Thailand and Burma, in recent years major sources of Japanese rice imports, are doubtless next on the Communist timetable.

Japan’s struggle for markets is intensified by the aggressive competition of Western Germany and Great Britain, who are fighting to regain their prewar industrial and commercial eminence, particularly in the heavy industry field in which Japan is striving to make good her losses in the textile trade. So desperate is the struggle that Japanese steel mills are reported to have contracted to ship 100,000 tons of pig iron to Argentina at a price yielding virtually no profit.

4

THESE external realities are aggravated by internal difficulties. Inflation has tormented the Yoshida government, which has undertaken an “austerity" program designed to cut imports and maintain the sinking value of the yen. Between 1950 and April, 1954, for example, the index of wholesale prices went up 95 points (1948 = 100) in Japan while in the U.S. it increased by only 7. This has discouraged venture capital and kept interest rates as high as 10 per cent for short-term bank loans.

Another legacy from World War II and Japan’s isolation from the Western world is the large proportion of obsolete plant and equipment still in use by Japanese industry. Striking examples are the Portland cement, the thermal electric power, and the hydroelectric power industries, where 80 per cent of the facilities are over twenty years old.

In spite of a power development program which includes a purchase in the United States of one of the newest and largest electrical generators in the world, Japan’s power requirements will be inadequate for many years to come. The construction of a nuclear power reactor in Japan — the imaginative proposal of Thomas E. Murray of the Atomic Energy Commission— would thus fill a real economic need as well as go a long way to prove to the Japanese people that “our interest in nuclear power is not confined to weapons.”

With capital equipment in this obsolescent state, it is not surprising that labor productivity is substantially less than before the war and labor cost substantially greater. Except in the textile field, cheap Japanese labor is often illusory. The Japanese coal miner’s production is 10 tons per month compared with 111 tons for the American miner and 27 tons for the British miner. It is only because his wage is one tenth that of his American and one third that of his English counterpart that the unit cost of production is roughly equal. The labor cost per kilowatt in Japan’s electric power industry exceeds that in the U.S.

During the Occupation, membership in Japan’s labor unions mounted to 7 million. Employers argue that the Occupation Labor Standards Law has been a major factor in raising wage costs and in pricing Japan out of many world markets. They assert that welfare payments, shorter hours of work, overtime, and compensation have reduced working time per worker by 30 per cent in the cement industry, 40 per cent in paper, 20 per cent in ammonium sulphate, and 20 per cent in rubber, and that they are required to employ more workers than are needed for the job because of the government’s concern over employment. To regain a competitive position in world markets and to encourage capital formation, they would freeze wages and abandon some of the progressive (and expensive) elements in the Labor Standards Law. An attempt to carry into effect this program, even if required by the cold logic of economics, would be political dynamite and play into the hands of Japanese Communists.

Because of these various factors, the gap between Japanese exports and imports was $756 million in 1952 and $1100 million in 1953. However, buoyed by the Korean War spending by the United States and its troops, which amounted to approximately $800 million a year, Japan did not need to adjust immediately to this underlying imbalance of trade, because the gap was covered by the warcreated receipts she was collecting and the reserve of close to $1300 million in foreign exchange she had accumulated during the Korean War.

With the continuation of the truce in Korea, United States expenditures dropped substantially (they have currently dropped to an annual rate of less than $600 million and may decline to $200 million within a year or two), and the inherent problem of an excess of imports over exports began to make itself felt.

Its most startling manifestation was the drain on the foreign currency reserve. It had been reduced to about $760 million as of June of this year, of which amount only $550 million was unrestricted, and at the then annual rate of withdrawal of $450 million, Japan was only a year away from serious economic trouble and the social unrest and political chaos which would follow in its wake.

Japan is itself at least partially responsible for her present economic straits, for educational and welfare expenditures have been maintained at a level incompatible with the necessary reconstruction of Japanese industry in t he light of the competition it must meet to survive. Investment capital that should have been guided into modernization of the export industries has been used to finance industries producing for the home market.

This is perhaps a harsh criticism in view of the Occupation’s own sponsorship of many of the welfare expenditures which, cruel as it may sound, may have to be reduced to provide the requisite industrial base for economic and political survival.

The Yoshida government has recently inaugurated an austerity policy involving the reduction of food imports, which increased markedly in 1952, to their level prior to that date, a tighter money policy with priority to the export industries, and decreased public works expenditures. That this policy has been a step in the right direction was indicated by the sharp reduction in the unfavorable balance of payments in the second quarter of this year and by the favorable balance of $38 million reported for the month of August. It is understood that this program contemplates an eventual balancing of Japan’s international payments in the 1955— 1956 fiscal year through an increase of $256 million in exports and a $342 million decrease in imports. This allows for a decrease of $285 million in invisible items, principally United States military expenditures.

The extent to which the Yoshida government can politically continue to adhere to this deflationary economic policy is problematic. It is creating discontent and dissatisfaction not only among laboring groups but also among many businessmen.

It would not be in keeping with our tradition or our long-term interests in Japan to insisi that Japan sacrifice all its social gains before the United States will lend a helping hand. Moreover, Japan’s most impelling economic need is not for dollar loans from the United States government. A loan specifically earmarked for the replacement of obsolescent industrial machinery and equipment, particularly in heavy industry, producing products salable in hard currency markets would aid in solving Japan’s current crisis. (This would also be the most helpful and rewarding role for foreign equity capital.) But what Japan requires most of all over the long term is foreign markets in which she can sell at a reasonable profit the products of the export industry, which the Yoshida government is currently working to expand, in sufficient quantities to employ and support her growing population.

An enduring solution of Japan’s economic problems will require a bold undertaking by many countries, particularly by the United States and the British Commonwealth, to remove or reduce obstructions to world markets such as quotas and tariffs; the granting of Japan’s application for full membership in the General Agreement on Tariff’s and Trades under which the participating countries reciprocally guarantee most-favored-nation treatment; simplification of customs procedures; elimination of discriminatory buying by governments, such as is required by the United States’ “Buy America” Act, and by private parties; freer convertibility of currencies, particularly between sterling and the dollar; and a program to increase the purchasing power of the nations of the free world through increased capital investment and technical assistance, especially in the non-Communist countries of Asia.

Great Britain made a helpful start, last January when, over the protests of her textile and pottery industries, she signed the Anglo-Japanese trade and payments agreement raising the quantitative limits on Japanese imports. Negotiation of a new trade treaty between Japan and Canada under which Japan will receive most-favored-nation treatment in the Canadian market is also an encouraging development.

A so-called Marshall Plan for Southeast Asia could indirectly be very beneficial to Japan if focused on the development of natural resources such as coke, timber, and petroleum upon which Japan’s industries live and for which she now pays largely in dollars. Since Southeast Asia has not forgotten its recent occupation by the Japanese builders of a co-prosperity sphere, it is understandably reluctant to emphasize this complementary relation to a nation which it. still dislikes and distrusts.

Fortunately, the SEATO regional defense pact, which Japan has not thus far been invited to join, erects no economic walls that would contribute to the economic drives encouraging militarism.

The advantages which will accrue from allowing Japan freer access to world markets are not confined to the political benefits of permanently linking Japan to the free world, for Japan is a good customer of the United States and of the Commonwealth and her continued purchases of t heir exports — she bought 25.7 per cent of U.S. cotton exports in 1953-1954—must eventually depend on her ability to earn the money to pay for them through foreign trade.

The present one-sided trade ratio may be illustrated by a few figures with respect to her purchases and sales of merchandise (disregarding invisibles): Japan currently buys $700 million of goods in the United Stales and sells $258 million; buys $105 million from Canada, sells $15 million; buys $50 million from the Philippines, sells $24 million; buys $175 million from Australia, sells $9 million. This cannot continue unless Japan can earn the foreign exchange to pay for her purchases.

The selling nations have a vital stake in maintaining their sales even at the expense of additional competition with certain home industries. But the task of convincing local businessmen in the affected industries will not be an easy one. American locomotive manufacturers bitterly complained when the FOA was considering placing an order for locomotives for India exclusively with the Japanese firms which had made the lowest bid. As a result 50 per cent of the order went to American manufacturers.

5

ONE frequently suggested palliative which is politically undesirable, at least from the United States viewpoint, and of dubious economic efficacy to the Japanese, is the lifting of Japan’s rigorous export controls on trade with Communist China which Japan imposed in cooperation with the UN despite its nonmembership, and the reopening of Sino-Japanese t rade.

While Japan’s pro-World War II exports to greater China were about a fourth of Japan’s foreign trade, the conditions which fostered this commerce no longer obtain with their same force. A large portion of exports to the Chinese mainland went to the Japanese puppet state of Manchukuo or the leased territory of Kwantung, where the chief purchasers were Japanese interests. Exports to China proper were about 10 per cent of Japan s foreign trade. Today even in consumer goods free from export controls China is importing very little from Japan. Moreover, the Chinese drive for industrialization means China herself needs the raw materials she formerly exported to manufacturing countries; and what raw materials are available for export, Communist China prefers to ship to Russia and the satellite state’s. According to a recent report of the Soviet Union’s State Planning Commiltee, projected Soviet assistance to Communist C hina in the six-year period ending in 1959 will provide the heavy industrial equipment necessary to increase the capacity of China’s iron and steel industry 300 per cent, her coal 60 per cent, and eleclric power 100 per cent. Even discounting the roseate character of Soviet economic statistics, the aid to date has been substantial and will doubtless continue to grow.

Although Communist China could profit from the brains, experience, and capital of her industrialized neighbor, any large-scale economic outlet there for Japan’s exports might prove to be illusory. In any case, it is unlikely at any price short of Japan’s withdrawal from its present position as an ally of the West. This would include rupture of the Security Treaty, signed the same day as the Japanese Peace Treaty, under which the United State’s has live right to maintain armed forces in Japan, and some assurance from Japan that she will reject any invitation to participate in SEATO or any ot her non-Communist regional security pact. Communist China’s Mao Tse-tung is reported to have stated flatly that Japan must throw out United States troops and abrogate its bilateral treaties with the United States. If there is even further absorption of Southeast Asian nations into the Communist bloc, the incentive for Japanese acceptance of such terms will increase as the area in which she can earn her livelihood diminishes.

Similar conditions will doubtless attach to Soviet Russia’s abandonment of its veto of Japanese membership in the United Nations, about which we hear almost nothing from our Western friends who are so free in their criticism of our opposition to Communist China’s membership.

The possibility may not be discounted, especially in view of the recent trip of Diet members to Peiping, that the more opportunistic Japanese political leaders might, as a means of enhancing Japanese bargaining power, flirt with a Communist alternative which they really do not want. The risk of Japan with all its industrial potential and skilled manpower becoming a part of the Communist, bloc is a risk the Western world just cannot afford to take. We can avoid it not by a series of economic handouts, but by recognizing that Japan must trade or perish and by making room for her in free world markets.

The particular role of the United States in helping Japan through the current crisis, and in ihe more lasting adjustments that must follow, does no1 lie solely in the economic area — in which, in any event, long-term solutions will depend on the joint action of many countries within the AVeslern world and noton unilateral action by the United States,

Another basic and equally significant challenge to the United States is the task, largely neglected by the Occupation, of relating the American principles and institutions which we attempted to impose on the Japanese people to fundamental Japanese traditions and institutions which will give them a continuity and cultural basis thus far significantly lacking.

This objective should not be exclusively a governmental project, but should also he the concern of responsible leaders of the business community, educational institutions and foundations, church organizations, and private citizens. Japanese residents of the United States, so many of whom have only recently become eligible for citizenship, as a result of the McCarran Act’s change in our naturalization laws, can be of particular service in this connection.

In this process, Americans can learn a great deal from the Japanese. Too often their extraordinary facility to copy others has been mistakenly regarded as a sign of lack of creative ability. The fear which the American and British businessmen have of Japanese competition indicates a grudging recognition of their ingenuity in manufacturing. But even more obvious is their artistic creativity—• their art, literature, poetry, and music should not be patronized because they are different from our own. Friendship between the United States and Japan can, and indeed must, rest on more than anti-Comnuinism or mutual material benefits.

Despite a cultivated emotional stoicism, there are a deep substratum of emotion and a great love of beauty in the Japanese character, and we may find with Lafcadio Hearn that an aesthetic sensitivity is a bettor approach to the Japanese than the ruthless logic of facts.

We must find means to convince them that we enjoy working with them on a truly cooperative basis, and that they are not mere pawns in our war with Communism. We cannot assist them to rearm in order to have “Asians fight Asians.” Such slogans are grist for the propaganda mills of the Communists, and immeasurably harmful to mutually cordial relations with the Japanese people.