The Japanese challenge to the neoclassical economic orthodoxy: Identity and interest in Japan's policies toward the East Asian miracle and the Asian Monetary Fund

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THE JAPANESE CHALLENGE TO THE NEOCLASSICAL ECONOMIC
ORTHODOXY: IDENTITY AND INTEREST IN JAPAN’S POLICIES
TOWARD THE EAST ASIAN MIRACLE
AND THE ASIAN MONETARY FUND
by
Yong Wook Lee
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(INTERNATIONAL RELATIONS)
August 2003
Copyright 2003 Yong Wook Lee
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UMI Number: 3116738
Copyright 2003 by
Lee, Yong W ook
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UNIVERSITY OF SOUTHERN CALIFORNIA
THE GRADUATE SCHOOL
UrOVERSITY PARK
LOS ANGELES, CALIFORNIA 90089-1695
This dissertation, written by
W o o k Jj & e .
under the direction o f h / S dissertation committee, and
approved by all its members, has been presented to and
accepted by the Director o f Graduate and Professional
Programs, in partial fulfillment of the requirements for the
degree of
DOCTOR OF PHILOSOPHY
Director
flare August 12, 2003
Dissertation Committee
y ^ AP--»rv..
Chair
. J' J hi . A j / a
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1 1
Dedication
For My Parents
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Acknowledgements
Throughout the entire process of writing this dissertation, I have been blessed
to receive the generous assistance and support of my teachers, colleagues, and
family. First and foremost, I would like to express my greatest intellectual debt to
Hayward Alker. When I began to grapple with this dissertation, I only had an
intuitive understanding of what I would do with what interested me. His perceptive
comments and conceptual insights first helped transform my rough ideas into a
viable project and then continued to help me keep a sharp focus on the project. He
has provided me with the intellectual stimulation that I would need throughout my
academic career.
Saori Katada was always available whenever I needed her help and support.
Her detailed and insightful comments and constructive criticisms proved invaluable
and significantly enhanced the quality of this project. Without her, I could not have
realized such fruitful research activities in Japan. Gordon Berger provided several
ways of improving this dissertation with his expertise in Japanese history and
politics.
I would like to extend special thanks to J. Ann Tiekner. Setting aside her
contribution to my understanding of culture and identity issues in international
relations, I was always impressed by the way she intellectually nurtures graduate
students. I certainly benefited from her devotion to graduate education. I am also
very grateful to the Center for International Studies at USC. I have been a part of the
CIS for the last 5 years playing various roles. I greatly appreciate the CIS’s support
for my research.
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IV
I would like to express my gratitude to Sunhyuk Kim, Daniel Lynch, John
Odell, and Apichai Shipper for their valuable comments and ideas for improvement.
I also thank Hiwatari Nobuhiro at the Institute of Social Science at the University of
Tokyo. He sponsored me during my research in Japan. I immensely benefited from
the research facility of the Institute. My fellow graduate students deserve special
thanks: Mara Bird, Eric Blanchard, Lyn Boyd, Jeany Choi, Gitika Commuri, Catia
Confortini, Alba Hesselroth, Fei Hwang, Melissa Ince, Angeliki Kanavou, Wei
Liang, Wendy Lords, Hyemee Park, Geert Poppe, Schjolset Anita, Laura Sjoberg,
Paul Steenhausen, Shinichi Suzuki, Pak Tang, Leslie Wirpsa. They all provided the
necessary intellectual context for the emergence of the final product. I am especially
grateful to Pak Tang for his editorial comments and assistance.
Finally, I thank my family. I would like to dedicate this dissertation to my
parents, Ik Bum Lee and Sook II Yoon. They have always had faith in me and
respected my independent thinking. This dissertation would not have been possible
without their love, sacrifice, and encouragement. I also deeply thank my parents-in-
law, Jin Soon Jeong and Su Ok Hwang. My father-in-law shared with me his own
graduate school experience, and this played a pivotal role in helping me tide over the
ups and the downs of graduate school.
Last but not least, my wife. Sun Hong, deserves my deepest thanks. The
extent of her support throughout my entire graduate school years is immeasurable
and most gratefully acknowledged. I also extend my heartfelt thanks to my two little
girls, Janice Jeong Haeng and Erica Eun Haeng, who wished to have more time to
play with dad.
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Table of Contents
Dedication ii
Acknowledgements iii
List of Tables vi
Abstract vii
1. Overview 1
2. Identity-Intention Framework and Alternative Explanations 30
3. The Diseursive Construction of Development Identity:
What Made It Possible for Japan to Challenge the Neoclassical
Economic Orthodoxy? 91
4. Binarization of Development Identities:
Japan and The East Asian Miracle 151
5. Japan and The Asian Monetary Fund 202
6. Conclusion 253
References 261
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VI
List of Tables
Table 3.1. Marxism, Japan's High Growth, and Normalcy 106
Table 3.2. Economic Liberalism, Japan’s High Growth, and Normalcy 118
Table 3.3. Developmentalism, Japan’s High Growth, and Normalcy 141
Table 3.4. Flying Geese Pattern 145
Table 5.1. Japan’s Foreign Direct Investments, FY 1992-FY 1996 207
Table 5.2. Japan’s Bank Lending in Asia, Year-end 1996 207
Table 5.3. Key indicators for Asian crises economies: Malaysia, Indonesia,
Thailand, and Korea 226
Table 5.4. Capital flows to Asian crisis economies: Malaysia, Indonesia,
Thailand and Korea 227
Table 5.5. External Debts and Foreign Reserves of Indonesia, Malaysia and
Thailand, 1992-1997 228
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v il
Abstract
This dissertation aims at providing a holistic account of a recent Japanese
challenge to the neoclassical economic orthodoxy by addressing two research
questions below. The first question is why Japan proposed to create the Asian
Monetary Fund(AMF) that intentionally excluded the U.S. from the membership
during the Asian financial crisis in 1997. This dissertation’s main original claim is
that Japan’s Ministry of Finance(MOF) officials’ conception of Japan and the U.S. as
two leaders of different modes of economic development provided the basis upon
which Japan proposed to create the AMF. Such identity topography on the part of the
MOF officials was internalized when they initiated the East Asian Miracle in the
World Bank in 1993. Using the identity-intention theoretical framework I develop in
this dissertation, I argue that the immediate cause of Japan’s AMF proposal lies in
Japan’s interest in defending the Asian model of economic development. This was
done by the MOF’s attempt to set up the AMF as a financial mechanism for quick
disbursement of funds to the crisis-affected regional economies in Asia. The
exclusion of the U.S. from the AMF membership was a key factor for realizing such
an interest.
The second question I ask is what made it possible for Japan to challenge the
neoclassical economic orthodoxy since the mid 1980s. I have found that their shared
“normal/abnormal” meaning structures about Japan’ own development identities
made this challenge possible. Their beliefs located Japan’s development experiences
in the context of the history of the world economy. On the basis of this state-led
economic development as “normal” meaning structure, the Japanese
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developmentalists delegitimatized neoclassical economic orthodoxy’s
commitment to a universal development philosophy. They claimed that the state-led
economic development has been a normal practice for all the successful late-
industrializers, rather than just an alternative, atypical possibility to economic
development.
Throughout the analysis, 1 focus on “identity,” a relational social construct, as
a critical source enabling the constitutive power of human interpretation to generate
such a social effect as the Japanese challenge, which was enacted domestically and
projected internationally.
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CH APTER 1. O VERVIEW
Introduction
The end of the Cold War reinforced the legitimacy of the U.S.-led liberal
international order with the demise of socialism as a viable alternative in organizing
humankind’s political economy. This event has strengthened to a significant degree
the political triumph of the “New Right” in the U.S. and Britain and seemingly
confirmed a long-held conviction among neoliberals that the free play of market forces
and a minimal role for the state in economic affairs would ensure efficiency and
productivity of the economy. Only self-regulating market forces would generate the
competition that would promote the most efficient use of resources, people, and
capital. Such an ideological and normative predilection of Western
govemments(particularly the U.S.) has sanctioned liberal capitalism(or the liberal
view of capitalism) as the only transhistorical, legitimate, and universal model of
economic development on the grounds of economic efficiency.
As such, the U.S.-led liberal international order has meant (re)creating an era
characterized by only one legitimate path to sustainable economic growth for national
economies. As was the case for the liberals’ attempt to construct a global market
society in the 19* century, proponents of the liberal international order have invoked
the “magic of the market place” and denied the positive role of the state in economic
development. Every state is encouraged to harness the power of the market. As a result,
the state has been increasingly regarded as an impediment to the free and natural
operation of the market: it corrupts international trade by protecting uncompetitive
industries, distorts market demand through deficit spending, artificially lowers prices,
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and encourages inefficiency. The relevance of the state for economic development
was delegitimatized as dysfunctional and ahistorical. In doing so, proponents of the
liberal international order have advanced the liberal view of the historical
generalization that all modern economically developed states have succeeded in their
economic development by relying predominantly on self-regulating market forces. As
such, in the discourse between top policy-makers in many Western developed states,
liberal capitalism is cited as a common evolutionary pattern for all the successM
developed states while the role of the state in économie development is associated
with intrusive and inefficient government.
Neoliberals’ commitment to a universal development philosophy, however, has
long been questioned and eriticized by critics of the neoliberal international order.
Following List, for example, Polanyi, Pollock, Gerschenkron, and Strange have argued
that a sharp departure from neoliberal doctrines was a prerequisite for successful
economic development in the history of the world economy. In other words, the
historical truism is rather that the rise of all the modem economically developed states
to industrial and commercial superiority has been due to their practice of the state-led
economic development when they began to industrialize. As Strange aptly puts, “if
world market shares are the name of the game for national governments, the most
successful contemporary players are those which recognize that the state has a
necessary role to play.”^
Despite critics’ questioning about the universal validity of the neoliberal(or
neoclassical) model of economic development, the U.S. has spearheaded the furthering
'strange 1991,30-31.
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of the globalization of the world eeonomy along neoliberal lines. The neoliberal turn
of the IMF and the World Bank in their poliey preseriptions and lending eonditionality
have been clearly indicative of the influence of the U.S.-led liberal international order.
Based on a particular conception of the relationship between the market and state for
economic development, these two Bretton Woods institutions have legitimized only
one path to economic development; developing states are expected to adopt the free
market blueprint, regardless of the conditions prevailing locally-opening their
economies up to foreign investment, financial deregulation, reductions in government
expenditure and budgetary deficits, the privatization of government-owned enterprises,
and the abolition of protection and subsidies. As such, with the collapse of socialism
as an alternative political and economic order, the U.S.-led liberal international order
has wielded unprecedented influence over the shape of the world economy by
homogenizing the political economies of every member state of the international
society.
The U.S.-led liberal international order, however, did not go unchallenged.
Japan has challenged the foundation of the liberal international order by “bringing the
state back in” for economic development since the mid-late 1980s. The Japanese
attempt to resuscitate the fortunes of the state-led economic development was
intensified in the 1990s, which resulted in numerous confrontations with the U.S. in
various forums of international finance and development, such as the Asian
Development Bank(ADB), the World Bank, and the Asian Pacific Economic
Cooperation(APEC). The Japanese challenge arguably culminated in Japan’s Asian
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Monetary Fund(AMF) proposal that intentionally excluded the U.S. from the AMF
membership during the Asian financial crisis.
As such, the Japanese challenge warns against still simplified perception that
the postwar Japanese foreign economic policy is nothing but the strategic pursuit or
free riding on the benefits of the U.S.-led liberal international order. This is
particularly so considering the fact that despite the historical truism touted by critics of
the liberal international order as noted above, Japan has remained as the only
developed state in the entire post Cold war era that directly questioned the neoliberals’
commitment to universal development philosophy.
In this context, this dissertation offers a holistic account of the Japanese
challenge to the neoclassical economic orthodoxy(or the U.S.-led liberal international
order) since the mid 1980s by addressing two questions below: (1) Why did Japan
propose the AMF in the middle of the Asian crisis while intentionally excluding the
U.S. from the membership?; (2) What made it possible for Japan to challenge the
neoclassical economic orthodoxy? The two questions are closely interrelated in the
sense that the former cannot be fully understood without explicating the latter. In other
words, this dissertation sets out to explain Japan’s AMF proposal in the context of the
Japanese challenge to the neoclassical economic orthodoxy, which was set since the
mid 1980s. While the empirical focus on the former is to find out the immediate
motivating causes, or primary reasons of the Japanese state officials(Ministry of
Finance officials)’ decision to propose the AMF(rather than configurative conditions),
the purpose of addressing the latter is to ontologically uncover the discursive, deep-
seated meaning structures that provide the justificatory foundation for Japan to
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challenge the neoclassical economic orthodoxy in the first plaee. The latter is about
how the Japanese ehallenge eame about.
In answering these questions, I draw on the insights of eonstruetivist
International Relations theory,^ which emphasizes the importance of normative and
ideational struetures in defining actors’ social identities and in shaping how aetors
interpret their material environment, and stresses the way in whieh actors’ social
identities affect their interests and the strategies they employ to realize those interests.
In contrast to a realist world of international relations where the identities of both
actors(states as unitary actors) and structure are fixed as an egoistic utility-maximizer
and anarchy respectively, the identities of both actors and structure(s) in a
constructivist world of international relations are socially and interactively eonstructed
to the effect that they can vary, as evident in Wendt’s “Anarchy is What States Make
of It.” ^ It takes eonstructivists to focus on the social, interactive processes of agent-
structure that transform actors’ identities and their associated interests. One should not
make a priori assumptions about agents’ interests. Neither interests nor identities(of
actors) could be conceived of prior to their interactions with others as opposed to
realists’ transhistorical emphasis on guarding against the moral and idealistic pretenses
of aetors and uncovering rational power ealculations behind their moves.
Despite constructivists’ emphasis on the importance of social interactions that
shapes identities and interests of actors, few constructivist research projects
empirically demonstrate the interactive process through which identities and interests
^ The term “constructivism” was first introduced into International Relations by Onuf. See Onuf 1989.
^ Wendt 1987, 1992.
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are historically redefined and transformed/ This neglect has drawn a lot of criticism
within and outside the constructivist scholarship. Checkle, for example, criticizes that
“operationalizing mutual constitution is a dilemma for all empirical constructivists.”^
The constructivist literature is too static. Normative structures(whether it be “ideas,”
“norms,” and “identities”) are already given, and empirical constructivists sequentially
measure changes in state behavior as effects of the already-given normative structures.
As a result, constructivists fail to establish more than a correlative relationship
between an identity and an outcome.^
By linking the analysis of domestic discursive meaning structures attached to
Japanese economic development identities, which have been historically formed as
“deep-seated cultural mentalities,”^ to Japan’s actual policy choice manifested in its
proposal to create the AMF that excluded the U.S., I attempt to help fill this gap. In
other words, I illuminate historically informed conceptual and theoretical insights into
the nature and evolution of the Japanese challenges to the neoclassical economic
orthodoxy. In doing so, I treat the “domestic” and “international” structures and
processes as two faces of a single social and political order by bringing them into a
unified analytical perspective.
As such, this dissertation first makes sense of the question of what made it
possible for Japan to challenge the neoclassical economic orthodoxy. As noted above.
' * One of the exceptions is Milliken. She heavily focuses on state interaction to account for “moves” that
states made in the Korean War. See Milliken, 2001.
’Checkle 1998, 332.
* Kowert and Legro 1996, 469.
’ Reus-Smit 1999, 161.
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addressing this question grounds the domestic discursive meaning structures* that the
Japanese themselves have historically attached to their economic development
identities(for example, class-led, or state-led, or market-oriented ), which in turn
enabled specific types o f political action(the Japanese challenges to the neoclassical
economic orthodoxy; see chapter 4) to be conceivable, plausible, and even compelling.
Before any policy choice is deemed appropriate by actors, it has to be “thinkable(and
possible)”in the first place.^ Weldes makes this point clear as saying:
Meanings.. .for states are necessarily the meanings.. .for.. .individuals who act
in the name of the state.. .And these.. .officials do not approach international
politics with a blank slate onto which meanings are written as a result of
interactions among states.. .Their appreciation of the world, of international
politics, and of the place of their states within the international system, is
necessarily rooted in collective meanings already produced, at least in part, in
domestic and cultural contexts.
Since identities themselves are embedded in discourses, addressing this
question requires investigating and specifying the range of economic development
discourses within Japan. Three major development discourses are identified: Marxism;
Economic Liberalism; and Developmentalism. Each development discourse, operating
within the original set of historical experience, interprets differently the role of the
state in Japan’s economic development. The diverging development identities of Japan
are therefore threaded through discourses.
* As will be discussed in chapter 3, uncovering a meaning structure attached to a Japanese economic
development identity as “state-led” is making sense o f Japan’s historicity o f its own development
identity. According to Alker, “historicity” is “the sense o f time-ordered self-understanding shared
among members o f a continuous human society.” See Alker 1996.
’ The notion o f “thinkability” can be linked to Bourdier’s habitus. Bourdier refers to habitus as “a
system o f schemas for the production of particular practices.” See Bourdier, 1984. Similarly, Hall(1989,
358) argues that new ideas/identities enter a terrain already defined by a prevailing set o f political
ideas(which he refers to as “political discourse of a nation”). What makes new ideas/identities
persuasive is thus the way they relate to a prevailing set of ideas/identities in a given political system.
Weldes 1999, 9.
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The focus is on the meaning structures of the state-led economic development
to which the Japanese developmentalists attached, the ultimate thread winning over
the others with the rise of the Asian economies in the 1980s. I demonstrate with a
longitudinal text analysis that despite Japan’s different politico-economic-historical
settings, evidence of interpreting(or constructing) the state-led economic development
as “normal” has since the Meiji Restoration been a penetrating theme for the Japanese
developmentalists.** By “normal,” it is meant that the state-led industrialization is a
prerequisite for economic development particularly for late-comers. The Japanese
developmentalists have made such a “normalcy” claim by locating the Japanese
development experiences in the context of their views on the role of the state in the
developmental history of the West(or Western advanced economies and later Asian
state-led economies). Such a longitudinal analysis enables this dissertation to escape
the trap of deriving identity-based argument from behavior, which tends to lead to the
kind of tautological, ad hoc reasoning of which identity-based analysis(broadly
cultural analysis) is often accused. In doing so, I account for a constructivist’s self-
criticism that “its practitioners are not beginning with the actual social construction of
meanings and significance from the ground up, but rather try to establish the existence
of a particular social fact and its impact on behavior.”'^
On this basis of the Japanese conception of “normalcy,” I then explain the
developments of Japan’s AMF proposal (from initial “cooperation” to “conflict”) as
emerging out of Japan’s changed subjectivity (or self-understanding) of the self in
“ As will be discussed in chapter 3, the question of whether Japan’s economic development experience
is “normal” has been also central to both Marxists and Economic Liberals.
12 ,
Ruggie 1998, 870-884.
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relation to the U.S.-led IMF bailout operation in Thailand. The changes of
identities(including both the self and the others) are necessarily constituted by
Japan(more precisely MOF officials)’s interpretation of the structure of its interaction
with the other participants noted above. The structure is social: that is, not as “an
environment that is external to and independent of the agent(Japan), but as a social
context woven from rules and meanings, which define relationships between the self
and others and give interactions their purpose."" Tracing closely the detailed
processes and timings of the social interaction between Japan and the U.S.-led IMF
bailout operation, I first demonstrate that the changed conceptions of the self and
others on the part of the MOF officials have determined the tracks along which the
dynamics of interests have been formulated and reformulated (both material and ideal,
but the empirical questions are what kinds of material or ideal interests were at stake
on the part of Japan). More precisely, I demonstrate how the MOF officials’
conception of the U.S. and Japan as the leaders of different modes of economic
development affected their interests and the strategies they employed to realize those
interests. Then, I demonstrate how the AMF proposal was deemed most appropriate
over the other range of possible policy actions by the MOF officials according to their
understanding of the structure of their interactions with the U.S.-led IMF bailout
operations. I argue that the immediate cause of Japan’s AMF proposal lies in Japan’s
interest in defending the Asian model of economic development by setting up the
AMF as a financial mechanism for quick disbursement of funds to the crisis-affected
" Milliken 2001, 9.
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regional economies in Asia. The exclusion of the U.S. from the AMF membership
was the key in realizing such an interest.
In addressing Japan’s AMF proposal, I also explicate the processes by which
the MOF officials(and other developmentalists in Japan) have since the late 1980s
internalized the binarization of Japan and the U.S as the leaders of different models of
economic development. The focus here is on Japan’s pushing the World Bank to
publish The East Asian Miracle in 1993. Not only did this event constitute a
“formative moment” where Japan officially established itself as the leader of the state-
led economic development, but also sowed the seeds of Japan’s AMF proposal. By the
latter I mean to demonstrate how Japan’s AMF proposal, which excluded the U.S.,
was built upon its own understanding of the conflict interactions with the U.S. on The
East Asian Miracle. This understanding of the past interaction becomes the basis for
the MOF officials’ prestructuring the intention of the US-led IMF policies in the
management of the Thailand financial crisis. Historically informed identity-based
prestructuring creates a propensity to understand and interpret a later event in a
particular way rather than other plausible ways.
More precisely, in both The East Asian Miracle and the AMF proposal, Japan
was a social and political junior partner to the U.S. Conflict erupted when Japan
refused to accept the boundaries of established institutional rules that routinized
Japan’s roles.In both events, Japan, while financially cooperating under the
auspices of the World Bank and of the IMF, was frustrated with the incompatibility of
In Langenhove and Harre’s term, second order positioning occurs when the first order positioning is
not taken for granted by one o f the persons(or actors) involved in the issue. Langehove and Harre 2000,
20.
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its economic development identity defined in terms of “state-led” with
SAL(struetural adjustment lending) at the World Bank and the IMF-led bailout
operation in the Asian financial crisis. In both events, Japan took steps in proposing its
own solutions to the problems(e.g., the apparent failure o f SAL and Thailand liquidity
problems). They were not recognized. “Money” but not “ideas” was all that the World
Bank and the IMF would accept in both events. The U.S. was a major force working
behind the two Bretton Wood institutions to block Japan’s initiatives. Japan
challenged the neoclassical economic orthodoxy in both events. The outcomes were
manifested in The East Asian Miracle and the proposal to create the AMF. In
particular, Japan’s experiences with the U.S. at the World Bank crucially affected the
MOF officials in the way they defined the institutional purpose of the AMF, and
excluding the U.S. from the membership was the key in running the AMF in line with
Japan’s preferred way of dealing with the Asian crisis.
Theoretically, I develop an identity-intention conceptual framework designed
to establish causality between an identity and an outcome(in the form of social
action).*^ I develop the framework by unpacking a constructivist claim that “identities
are the basis of interests”* ® to show how it is the case. This is premised on two things.
One is a constructivist notion of social causality that takes primary reasons as
causes}^ “Doing something for reasons means applying an understanding of what is
called for in a given set o f circumstances.”^^ The other is that national interests emerge
out of “the representations(or out of situation descriptions and problem description)
See chapter 2.
Wendt 1992, 398.
Davidson 2001.
Giddens 1984,345.
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12
through which state officials and others make sense of the world around them.”^ ^
Once a situation is defined or represented in a certain way over others, the situational
description informs actors of which actions are “valuable, appropriate, and
necessary.”^ ® Here identities are central to the situational description in providing the
basis for the interpretation of unfolding events. Any foreign policy decisions, after all,
are aimed at something external to the state, however much there is an internal game
to be played.^* The centrality of identities is inexorably coimected to the interactive
nature of international politics.^^ Identities, which are inherently relational(thus in the
realm of “the social”) and emerge out of the repeated interactions among actors,
provide each state with a meaningful understanding of other states, including its nature,
motives, interests, probable actions, attitudes, and role in any given political context.
In this way, identities become the basis of reasoning about what to want.
Throughout the analysis, however, 1 do not take Japan as a unitary actor, thus
opening up “the box.” As noted above, regarding the task of grounding the discursive
meaning structures associated with the Japanese economic development identities, the
three major economic development discourses, namely Marxism, Economic
Liberalism, and Developmentalism, are identified and discussed. Each discourse
interprets differently the role of the state in the successful economic development of
Japan as well as of the others. But they all ask the same question under their respective
’’ Weldes 1996, 280.
Wendt 1992, 396-403, 1999, 160-161; Finnermore 1996, 15-16.
As will be discussed below, it does not mean I skip over the domestic politics in the making of states
action. Needless to say, any foreign policy should survive first domestically before it goes externally.
In game theoretical terms, strategic behavior, the hallmark of game theory, involves how one agent
behaves when its choices depend on those of others. Interactive choices that cause players’ payoffs to
be interdependent are viewed as strategic. See Powell(1999) for the recent application o f game theory
in International Relations.
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theoretical framework if Japan is normal. I will attempt to show how the
developmentalist thread^^ won out over the other contending visions and became the
basis of the Japanese foreign economic policy beginning from the mid 1980s. The
focus is on the effect o f the Asian economies’ success on empowering the
developmentalist thread.
Regarding Japan’s AMF proposal, I pay attention to the interaction between
the MOF officials(embedded in the developmentalist discourse) and such others as the
MITI(Ministry of International Trade and Industry), the MOFA(Ministry of Foreign
Affairs), and big businesses in Japan. In particular, given the private sectors’(including
both financial and trading sectors) high exposure to the Asian financial crisis(so the
loss of their material resources was immediate), their posture on the AMF proposal is
carefully explicated vis-à-vis the MOF officials. Since any foreign policy decision,
after all, is aimed at something external to the state(however much there is an internal
game to be played!), the focus is on incorporating how the influence of diverse
domestic actors filters into the preferences of the chief executive or head of
government.
Puzzles
By pressing on the World Bank to publish The East Asian Miracle in
1993(thus challenging the orthodoxy^'*), Japan presented itself as a champion of “anti-
This thread consists of intellectuals(mostly economists) and the MOF(Ministry of Finance) officials.
It is these intellectuals and the MOF officials who have long been in charge o f Japan’s World Bank
policies, o f developing the Japanese alternative to the neoclassical economic orthodoxy, and of drafting
the AMF proposal. See chapters 3 and 4 for the detailed discussion.
By “orthodoxy,” it is meant here espousing greater roles for market mechanisms and the private
sector for economic development. It prescribes elimination o f subsides to inputs, liberalization of
product markets, and abolition of the state-run distribution system. It is often dubbed as the so-called
“Washington Consensus.” See Williamson 1990.
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paradigmatic(state-led^^)” views on economic development ideas. Why did Japan do
it? This simple question remains enmeshed in many folds. First, the Japanese
challenge theoretically gives a rebuff to Krasner’s provocative hypothesis on the
states’ preferences of regime “types”. He argues that small, poor states in the South
tend to support those regimes that allocate resources authoritatively, while the richer
states in the North will favor those regimes whose principles and rules give priority to
market mechanism.^® Was/is Japan a small, poor state in the South?
Second, the Japanese challenge seems to go against Japan’s economic interests.
If all developing states truly apply a Japanese model of economic development, which
is essentially protectionist, it will not be in the best interest of Japan or the most
internationally competitive Japanese multinational corporations. Put another way,
Japan, which has most benefited from the US-led liberal international order(as a free
rider),^’ had no incentive to turn the tide. As such, Lanciaux predicts that Japan would
not continue to promote the model that would not be in its best interests.^® The
Japanese challenge is thus puzzling even to those critics of free trade liberalism who
By “state-led,” it is meant here that the role o f the state in economic development or industrialization
is not limited to the provision o f a basic legal framework, public order, and external security. The state
actively encourages public services and other institutions favorable to industrialization and even
undertakes direct organizational activities in production. See Supple 1980; North 1990; Weiss and
Hobson 1995.
^ Krasner 1985. By “authoritative” regime, Krasner refers to principles, rules, and procedures that
increase the sovereign powers of individual states.
Gilpin 1987.
Lanciaux 1997, 473-479. Based on the historical analysis of timings o f economic model promotions
by the US and Britain, Lanciaux concludes that Japan’s promotion o f its model for economic
development is not analogous to earlier attempts to the US and Britain to promote models for their own
national interests. One of her vivid illustration is that while promoting the ideas of free trade, Adam
Smith was participating in the debate in Britain over whether the Americas should stay a colony of
Britain. Free trade was promoted as an alternative to holding colonies that provided Britain with the
benefits o f empire while relieving it of the responsibility and costs of governing and defending colonies.
See Semmel 1970, 1993. See also Krasner(1976) and Gowa(1987) for the reasons why a hegemon
prefers a liberal, open economic order.
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have long criticized the dual standards of economic development that advanced
states apply on the one hand to themselves/^ and on the other to those developing
states.
Third, Japan’s coming-out(the clear articulation o f its model by the Japanese
themselves) had the effect of making Japan vulnerable in bilateral trade negotiations
with the US. One of the effects was manifested in the U.S. adoption of a “result-
oriented” approach in bilateral trade negotiation with Japan.^® Lastly, the Japanese
challenge has since the mid-1980s taken place in the political-intellectual milieu that
globally toned down any positive social standing for the “state.” Put another way, as
Japan has become economically more powerful in the world market, why did/does it
not endorse free trade and discard the mercantilist element in its own history(like
everybody else)? What has been at stake in Japan’s turning against the tide?
Four years later in 1997, Japan took everybody by surprise by proposing to
create the AMF in the midst of the Asian financial crisis, financed and run by Asian
countries thus excluding the U.S. Japan at the Annual Meetings of the World Bank
and the IMF on September 21,1997 gave a reason for the necessity of the AMF to
help the governments in trouble to cope with the currency crisis. Intentionally
excluding its all-time postwar ally(or patron), the U.S., from the membership of such
^ It means that all the modem advanced states in this century industrialized behind protective walls-the
US in the 1830s and most other advanced states by the 1880s. As for the industrialization o f the US,
many economic historians point out that direct government initiatives in transportation was a good
example o f the essential role played by the government in American economic growth and
industrialization during the nineteenth century. Licht(1995), an economic historian, succinctly
summarizes his view on American industrialization as following: “developments in the nineteenth
century were marked by America’s passing from a mercantile to an unregulated and then to a
corporately and state-administered market society.” See also Tickner 1987, 1990. Taking one step
further, some traces the idea of the late industrialization back even further to sixteenth century Europe-
especially the relationship between Englandfthe late comer) and Venice. See Reinert 1994.
^ “Uriu2000.
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an international institution was Japan’s most bold and independent policy initiative
in the postwar era. This could arguably count, except for the wars fought against the
Western powers(Russo-Japanese War, the Pacific War), as the second(in conjunction
with Japan’s challenge at the World Bank) civilian revolt against the West since Japan
was forced to open up by Commodore Perry in 1853.^*
As is the case for the Japanese challenge at the World Bank, the question of
why Japan proposed the establishment of the AMF excluding the U.S. poses
challenges to the accepted wisdom of the day on Japanese foreign policy. First, the
Japanese proposal stands in stark contrast with its earlier EAEC^^(East Asian
Economic Caucus) back-off. Despite its initial interest, Japan, the assumed center of
EAEC, semi-officially refused to join it by not attending the April 1995 proposed
ASEAN-sponsored meeting in Thailand. Japan was known to be dragging its feet on
the issue mainly because of pressure from the US, which felt it would be left out in the
cold if a new trading bloc centered on Japan took shape. This elusiveness on the part
of Japan seems to reconfirm that Japan is a reactive state,” which would be well
endorsed by the realist account, given Japan’s market and security dependence on the
U.S.” Also, this evidence seems to enhance the notion of Japan’s aversion to regional
economic institutionalization.” Japan’s AMF proposal seems to run counter to Japan’s
” The first is Japan’s “racial equality proposal” at the Paris Peace Conference o f 1919. See
Shimazu(1998) for the detailed discussion o f the rise and fall of the racial equality proposal of 1919.
In December 1990, Malaysian Prime Minister, Mahathir Mohamed, proposed to form an economic
arrangement restricted to East Asian countries, excluding Australia, New Zealand, and the U.S.(those
APEC members). The Malaysia’s leader appears to have thought of EAEC as being at the minimum a
Uruguay Round lobbying group, and at the maximum a nucleus for a potential full-blown formal trade
bloc in East Asia. Far Eastern Economic Review, September 15, 1994. See also Low 1991.
” Calder 1988.
” Hirschman 1969, 13-40. Waltz 1979, 152-160.
” Grieco 1997, 111. See also Katzenstein 1997, 23-31.
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aversion proposition as well as the realist-based accounts noted above. Knowing the
U.S. aversion to any East Asian bounded economic institution, how could a reactive
state as Japan possibly initiate it, and even excluded the U.S.?
Second, the Japanese proposal does not seem to derive from Japan’s economic
interests(material interests narrowly defined as immediate, short-term economic gains).
Despite many Japanese banks’ high exposure to the Asian economies in trouble, many
of them supported the solutions through the IMF and argued against the AMF because
“such a fund as the financial last resort creates a psychology of dependence”.^
Moreover, many businessmen, particularly from the manufacturing or exporting
sectors, demonstrated their doubts about the AMF. Many of them were aware that it
would be dangerous to provide easy money in the name of an Asian rescue that could
undermine the reforms and adjustments that the stringent conditionality of the IMF
usually provided, and they were also aware that such action(creating the AMF that
allows the affected countries to have more maneuver with the IMF) might result in the
loss of golden opportunities for further liberalization of the Asian markets.” These
oppositions from private sectors evidently invalidate the claim that Japan would use
such a fund to help Japanese industrial and financial sectors withdraw from Thailand
and possibly from other financially troubled countries in Asia without accruing
significant losses. Who calculates the utility of the AMF better than the Japanese
private sectors having risked their assets in the troubled economies in Asia?
Asahi Shimbun, September 20, 1997, quoted in Katada 2001, 196.
Asahi Shimbun, November 6, 1997, quoted in Katada 2001, 196. An interview article with Mr.
Hayami, former president of Nissho lwai(a Japanese trading company).
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Lastly, the Japanese proposal came so abruptly after Japan’s initial
cooperation with the IMF in managing the Thai crisis. When the financial crisis hit
Thailand in May 1997, Japan hosted an international conference(led by the IMF) in
Tokyo to help facilitate concrete terms o f an agreement between Thailand and the IMF.
By August 4,1997, Thailand and the IMF reached a basic agreement. Japan began to
participate in an IMF bailout plan after $17.2 billion for Thailand was finalized on
August 11, 1997. In less than forty five days of working with the IMF, Mitsuzuka,
Japan’s finance minister at that time, put the idea of the AMF, the “Asian only
institution,” on the table on September 21, 1997. What happened in between around
and after Japan’s participation in the IMF-led bailout? What made it imperative for
Japan to set up the AMF that excluded the U.S.?
Given the unusually aggressive nature of the Japanese challenge to the
neoclassical economic orthodoxy, many studies have explored the questions of why
Japan challenged the neoclassical economic orthodoxy, focusing their attention on
Japan’s initiative to publish The East Asia Miracle, and why Japan wanted to launch
the AMF. As for the former, for example, Yasutomo argues that in the 1980s, there
were three specific catalyst for the Japanese challenge to the neoclassical economic
orthodoxy: the assumption to office of the Reagan administration, with its strong
ideological commitment to a universal development philosophy; the intensification of
the accumulated debt crisis in Latin American states; and the impressive
accomplishments of state-led economic development in Asian states.^^ The track
records of the structural adjustment loan(SAL) programs in both Latin America and
Yasutomo 1995, 75.
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Africa provided Japan with instructive case studies of a failure of the neoclassical
economic orthodoxy. In contrast, the emergence of an economically successful Asia
provided an alternative answer to the question of sustainable development. In short,
these two phenomena eombined triggered in Japan a reassessment of its own
development experienced^ and reinforced doubts about the Reagan administration’s
seemingly inflexible development approach. This explanation, which explicitly or
implicitly relies on the concept of “learning” defined as “changes in belief systems or
cognitive structures as the result of experience and study,”" * ® however, might provide
necessary, but not sufficient conditions for the emergence of the Japanese challenge to
the neoclassical economic orthodoxy. That is, it does not explain as to why the
“learning” derived from these objective realities did not take place in other
industrialized states. Japan has been at least since the mid 1980s the only'” developed
state that has challenged the orthodoxy based on different ideas about economic
development.
More specifically, Wade gives four possible reasons for the Japanese challenge
to the neoclassical economic orthodoxy. Apart from Japan’s(more precisely MOF
According to Yasutomo, it was not until the successful Asian state-led development that Japan began
to seriously engage in studying an alternative development model. Before that, Japan was passive about
selling its development strategy. Japan believed that its economic success would derive from its unique
historical, cultural, and institutional backgrounds. But this observation is not empirically sustainable.
The Japanese export o f its development model to Asia began in the early 1960s. By the mid-1980s,
Japanfthe MITI) has already been advising many Asian economies on the development of export-
oriented industries. As will be discussed in chapter 3, the Asian successes played a pivotal role in
empowering the Japanese developmentalist conviction of the state-led economic development. See
Johnson 1992, 21-26.
Bennett 1999, 3.
The word, “only,” needs some qualification since such industrialized European states as France and
Germany have their own current economic practice not dominated by the market and show some
reservations about advocating “market only” approach. Their approach is, however, far less assertive
than that o f the Japanese. Their acknowledgement of the role o f the state in economic development is
limited to their being positive about state-run enterprises. On the spectrum, this is much closer to
neoclassical than the Japanese revisionist alternative.
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officials) ideological conviction of its own or Asian state-led eeonomie
development and possibly its narrowly defined material interest/^ he sees it as part of
a wider attempt by the Japanese elite to develop an ideology that goes beyond Japan’s
uniqueness and yet remains distinct from free trade and orthodox liberalism. In other
words, the latter points to Japan’s desire to overeome a sense of being
inferior(“economie superpower and politieal pygmy” or “dinosaur with a huge body
but a tiny brain”) to other states and to assert its own views on appropriate rules for the
international economy. Although all these possible reasons are very suggestive for
explaining the Japanese challenge, they eventually faee the same predieament as
Yasutomo’s three specific catalysts mentioned earlier(besides they are underspecified
as to what of the relative importance of the four reasons). That is, why Japan but not
others, such as France and Germany, challenge the orthodoxy? In the end, it is well
known that Japan patterned its state-led economic development after the French and
German models(even the Hamiltonian American model) of eeonomie development
when it began to eall for “enriching the nation, strengthening the army” in the late
nineteenth century.
As such, any advanced state could have ehallenged the neoelassieal economic
orthodoxy in the face of such unfolding events in the world economy of the 1980s.
With respect to Japan’s material interest, Wade says(1996, 13) that “interventionists policies in East
and Southeast Asia can potentially help Japanese firms and the Japanese government consolidate profits
and influence in the region-enabling the Malaysian government, say, to give special support to the
Malaysian joint-venture partner of a Japanese firm, or to the Japanese firm directly through targeted
loans and protection.” This reasoning seems to perfectly fit a conventional view of Japan, which
portrays Japan as shirking international responsibility and interested only in narrowly defined self-
interested economic gains. However, Wan(1996) argues against the conventional wisdom of Japanese
foreign policy. In his study in Japan’s policies in the Asian Development Bank, a major finding is that
as Japan has become more powerful in the ADD, it has also become less concerned about its tangible
and immediate economic gains from the bank. This point will be further discussed below.
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Any of them could have done it out of a desire to make an ideational or ideological
contribution to the international society. Any of them could have done it to exercise a
leadership role by becoming a source of meta-policies for developing states as well.
The possibility was open to any o f them who shared the historical experience o f the
state-led economic development/^ but only Japan did it. How come such an idea of
state-led economic development resonate more in Japan and less in others? As such,
the question of why Japan challenged the neoclassical economic orthodoxy could not
be fully addressed without answering the question of what made it possible for Japan
to challenge it.
When it comes to Japan’s AMF proposal, three plausible reasons have been so
far suggested by previous stu d ie s.T h e first one stems from the exposure of Japanese
banks to troubled Asian economies. Japan could take advantage of the AMF on its
mission to rescuing their banks. The second one is linked to Japan’s ongoing efforts to
build its influence in Asia through playing a leadership role. The third one is
“ideational.” The AMF could have been a perfect mechanism for Japan to help put its
developmental ideas into practice while effectively managing the crisis.
Although all of these explanations are suggestive and illuminating in
accounting for Japan’s plausible motivation(s) to create the AMF, all these researches
tend to shy away from stating the relative importance of each plausible reason as is the
case of the general question of why Japan challenged the neoclassical economic
orthodoxy. All these reasons are put forward simultaneously in a descriptive fashion.
Gilpin 1987, 48-49.
^ See, for example, Altbach 1997; Rowley 1997; Bergstein 1998; Higgot 1998; Armyx 2000; Hughes
2000; Cohen 2001; Green 2001; Katada 2001; Rapkins 2001.
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It is partly because their research focus is not solely on the AMF per se. But the
underspecification pivots on their failure to pay due attention to Japan’s intention to
exclude the U.S. from the membership. It is not an exaggeration to say that what the
AMF was, is equivalent of why the U.S. should be excluded. Invoking, for example,
mere ideational interests(although it hits the core of why the U.S. should be excluded)
is limited in accoimting for variation in Japan’s policies(from initial cooperation to
conflict) regarding the U.S.-led IMF bailout operation in Thailand.
As such, all these previous studies’ shortcomings(or underspecification) for
addressing the Japanese challenge in general and Japan’s AMF proposal in particular
result from their bracketing the social processes that influence the formation of the
identities and interests of Japan as an actor in the realm of international finance and
development. The deep-seated normative meaning structures that constitute particular
interpretive dispositions that create certain possibilities and preclude others, inform
actors’ senses of self, and eventually shape their interests should be explored in order
to establish a fuller account of the Japanese challenges. The historically barren
conception of rationality defined in terms of “the efficient pursuit of exogenously
determined interests” does not help understand the historically contingent forms(e.g.,
The East Asian Miracle and the AMF proposal with the exclusion of the U.S.) of the
Japanese challenge to the neoclassical economic orthodoxy.
Alternative Explanations
Against the argument so far discussed, I explore(in chapter 2) a number of
alternative explanations. I collected them from the existing literature on Japanese
foreign policy. I identify three approaches(variants within each approach are
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considered as well), and they are “interest group,” “state-centered,” and “systemic”
approaches. These three approaches show a striking parallel to mainstream IR theories
on foreign policy. “Interest group”works on liberalism(not neoliberalism) as is
domestic grand strategy for “state-centered.” “Systemic” approach reflects the two
neo-utilitarian theories'‘ ^(neoliberalism and neorealism). They all assume policy
actions arising from exogenously determined interests that define the ends that actors
intentionally pursue by choosing from among the available alternative courses of
action. Simply put, policies can be understood primarily on the basis of plausibly
inferred materially determined utility maximizing interests of key actors. They differ
on who are the key actors. By deductively drawing inferences from these alternative
explanations, I test them against empirical evidence to see whether they can be
persuasive or plausible in accounting for the particular features of Japanese actions
noted above.
Methodology
This dissertation is premised on a constructivist approach that endogenizes
actors’ interests rather than treats them exogenously.'*^ Actors’ interests are formulated
and reformulated in interaction with other actors. In particular, this dissertation
endogenizes a state’s interests by connecting them theoretically and empirically to the
Ruggie(1998) lumps together neoliberalism and neorealism as “neo-utilitarianism” because they are
variants within rational choice model that takes actors and their interests exogenously given. See also
Mearsheimer(1995) for a similar treatment by putting a residual category to neoliberalism.
Jepperson, Katzenstein, and Wendt(I996, 60-61) points to two way in which identity is prior to
interests. The first one is that states may develop interests linked to particular identities. The second is
that domestic identity politics may be reflected in foreign policy interests. While the former is the case
for the question o f what made possible for Japan to challenge the neoclassical economic orthodoxy, the
latter can be applied in Japan’s AMF proposal(about the shift of identities according to the MOF
officials’ understanding of the structure of their interaction with the U.S.-led IMF bailout operation in
the management o f the Thai crisis.
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dynamics of identities and their associated discursive practices both at the domestic
and international level.'*’
Endogenizing a state’s interests makes it imperative to bring together the
threads of discursive meaning structures(that made possible the very act of the
Japanese challenge), identities, and interests. It thus requires investigating three
interrelated processes: (1) identifying the discursive terrains(or raw materials for
identities) of a society for a particular issue(such as economic development); (2)
empirically demonstrating how the members of each discourse(within and outside
Japan) offer understanding of unfolding events(such as the rise of the Asian
economies and the U.S.-led IMF bailout operation in Thailand) from within their
collection of identities; (3) making the case that a decision maker(s) is part of a
particular discursive structure(such as “Developmentalism” in Japan) that constitutes
actors’ particular identity(such as proponent of state-led economic development).
Interests should be derivable from identities, in a sense that interests are associated
with actors’ conception of their identities.
Given this dissertation’s emphasis on dealing with “internal” matters(or what
John Hall calls “intrinsic objects”" * * ) of actors’ practical interests in relation to the
inter subjective content of the world they saw it, the method employed in this
dissertation combines interpretation with the practice of “specific history(rather than
configurational history).” Such a combination, which is based on the verstehende
project of identifying intrinsic sociohistorical objects meaningful to historically
In this way, this dissertation differs from Wendtian systemic constructivism. See chapter 2 for more
detailed discussion. For the exemplar researches for endogenizing a state’s interests, see Brubaker 1992;
Price 1998; Reus-Smit 1999; Weldes 1999; Cederman and Dassae 2001; Abdelal 2001; Hopf 2002.
' * * Hall 1999, 99.
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located individuals who participated in the events subject to analysis, allows for
explicating the intentional actions of particular individuals and groups though intrinsic
narrative approach/^ Followings are specific qualitative and quantitative method
techniques o f data collection and analysis for addressing the two research questions
noted at the outset: discourse analysis, economic data gathering, and interviews.
(1) What made possible for Japan to challenge the neoclassical economic
orthodoxy?
Discourse Analysis: Discourse analysis does three jobs for the question above.
First, it inductively^® brings out Japanese development identities(it is not a single
identity as frequently noted), which are embedded in three schools of economic
thoughts in Japan, namely Marxist, Economic Liberal, and Developmental. Second, it
involves discerning a prime concern among the three discourses that shaped the ways
in which they interpreted and developed the Japanese development identities. This
contextualization illuminates the meaning of such an identity as “state-led” as
“normal(rather than just an alternative possibility to economic development within the
developmentalist discourse).”^ * Third, by intertextualization, I show that despite
Japan’s different politico-economic-historical settings and time frames, evidence of
constructing the state-led development as “normal” has since the Meiji Restoration
been a commonly shared theme for the Japanese developmentalists.
H alil 999, 210-216.
The level of induction does not satisfy the atheoretical qualify as set by “phenomenology(letting the
subject speak),” because I already limited the identity-space to the three main schools o f thoughts. But
the closure may be justified on the grounds that no other serious school o f economic thoughts contends
in Japan on the interpretation of economic development of Japan as well as o f others.
As will be discussed in chapter 3, this state-led as “normal(the meaning o f identity),” which
essentially claims that the state-led industrialization is a prerequisite for economic development for late
comers, is a framework o f meaning for such a policy as the Japanese challenge.
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A simple rule for choosing texts(and authors) is to select those that are most
widely read and cited. My final selection was based on choosing those authors known
to he most actively participating in the making of the Japanese government economic
policies. In this way, this part o f the analysis is able to reduce the gap between
economic ideas and actual policy choices as much as possible. All the authors
introduced in chapter 3 were either directly involved in Japan’s economic policy
making as career bureaucrats or indirectly influenced it as economic advisors.
(2) Why did Japan propose to create the AMF while intentionally excluding
the U.S.?
Applying the identity-based perspective to a specific empirical problem
requires several steps of analysis, necessary to avoid tautological reasoning and ensure
falsifiable research. Three crucial variables-identity, preference, and policies-must he
kept analytically and empirically distinct. It is first because the influence of identity in
formulating preference is not direct in this dissertation. Identity is here employed to
affect the way actors understand the external world(particularly others in interaction).
The material and social incentives for particular actions thus take on different
meanings according to one’s identity so that an actor can interpret and react to them.
Therefore, rather than “the” preference or “the” action to do,” actors choose the most
appropriate course of action with the help of specific knowledge about the situations in
which they find themselves.
Relatedly, preferences cannot be inferred from policies themselves, which are
the outcomes a researcher is supposed to explain. In the language of rationalist
approach, this means one cannot assume that policies “reveal” preferences. It is
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because constrained choices reveal more about actors’ preferences for certain
actions than they do about their preferences for the outcome of the situation they are
in/^ One needs to inquire into or construct independent measures of reasoning
processes in light o f state officials’ points o f view. This is also a way to avoid the
pitfall of the so-called “fallacy of imputed preference.” Interviews with state officials
and government white papers can help specify the reasoning processes of state
preferences.
Lastly but perhaps most importantly, if one assumes(as advocated here) that
human beings act on the basis of their interpretations of the world, one needs access to
these interpretations in order to explain what they do and why they do it. Ultimately,
what one tries to do to explain actions is to look for meanings made by the actors
themselves, not the meanings one wishes to assign. It is thus imperative to demonstrate
whether or not state officials themselves in fact share the social meaning context in
which a specific identity is discursively situated. Locating state officials in the identity
contexts helps define their best course of action, because they provide the
understanding of the action’s meaning and significance to the state officials. Other
than that, there are few ways to identify identity-based reasoning processes leading up
to a particular policy decision. Explaining action means “elaborating, justifying, or
possibly excusing the action rather than simply ‘refuting’ the hypothesis’’^ ^ through
the reconstruction of actors’ goals, purposes, and reasons behind intentions.
Keeping these in mind, I combine for these two research questions a
comprehensive survey of the existing scholarly works on the topics with close content
Bueno de Mesquita 2003, 299.
Kratochwil 1989, 25.
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analysis of various primary sources, including government documents and official
and unofficial statements from key state officials in Japan. Newspapers are significant
sources as well. Particular attention is to be paid to arranging and conducting
interviews with key officials at the Ministry o f Finance in Japan. The interviewed
information and that of primary and secondary sources are carefully examined in the
context so as not to be mistakenly blended.
Organization of the Dissertation
The next chapter first explores alternative explanations for the two research
questions noted above. Then, it introduces an identity-intention conceptual framework
designed to establish causation between an identity and an outcome in the form of
social action. Chapter 3 deals with the question of what made it possible for Japan to
challenge the neoclassical economic orthodoxy. Chapter 4 illuminates the processes by
which the MOF officials have since the mid-late 1980s internalized the binarization of
Japan and the U.S. as two leaders of different modes of economic development. The
focus is on Japan’s clash with the U.S. at the Asian Development Bank and the World
Bank. In particular, it shows how Japan’s pushing the World Bank to publish The East
Asian Miracle in 1993 not only constituted a “formative moment” where Japan
officially established itself as the leader of the state-led development, but also sowed
the seed of Japan’s AMF proposal in 1997. Chapter 5 examines Japan’s AMF proposal
by the combination of process tracing and an “intrinsic” narrative of Japan’s road to
the AMF proposal. The focus is on the intentional actions of the MOF officials. The
final chapter summarizes the overall findings, and highlights the contribution of this
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dissertation to social science in general and the field of International Relations in
particular.
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CH APTER 2. IDENTITY INTENTION FRAM EW O RK AND
ALTERNATIVE EXPLANATIONS
Introduction
Is it worthy to study an actor’s preferences defined in terms of “those interests
of a given actor that determine how the actor rank-orders the possible outcome”* in
such a field^ called International Relations? Realists say it is not necessary.^
International politics differs fundamentally from domestic politics in its anarchic
character. It is not the realm of normal relationships and calculable results. Anarchy is
a condition of rule in which states interact."* It is thus even futile to make a distinction
between state interest and state preference. Morgenthau maintained that “a realist
theory of international politics.. .will guard against two popular fallacies: the concern
with motives and the concern with ideological preferences.”^ A theory of international
politics must be focused on “the concept of the national interest,”^ but not the national
preference. Waltz followed that “to say that a country acts in its national interest
means that, having examined its security requirements, it tries to meet them.”’
' Frieden 1999,42.
^ I follow Bourdieu in defining “fields” as “differentiated social microcosms operating as spaces of
objective forces and arenas o f struggle over value which refi-act and transmute external determinations
and interests.” See Bourdieu 1996.
^ Interestingly enough, in his most recent article, Waltz(2000,46) puts “national honor” on a level
equivalent to “survival” as one form of national interests. In the realm of international political
economy, Krasner(1978), based on the acts and statements o f central decision makers in the White
House and the State Department, shows a persistent rank-ordering in the U.S. national interest(ranked in
order of increasing importance): stimulating economic competition; insuring security o f supply; and
promoting broader foreign policy goals, such as general material interests and ideological objectives.
George and Keohane(1980) identity three types of national interests without a strict set of preference
ordering, “life, liberty, and property.” Wendt(1999,235-238) have four national interests, namely,
“physical survival,” “autonomy,” economic well-being,” and “collective self-esteem.”
“ Onuf 1998,62-63.
^ Morgenthau 1978, 5-6.
® Morgenthau 1958, 54.
’ Waltz 1979, 134.
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International politics is the realm of recurrence and repetition where the theory of
survival is appropriate.* Anarchy, offensive capabilities(of others), and uncertain
intentions(of others) combine to leave states with little choice but to compete
aggressively with each other.^ One can thus deductively assume that states have one
ultimate interest, “survival” while power and plenty(wealth) are immediate interests or
the necessary means enabling states to ensure such an ultimate goal. States interests
are materially christened in terms of the distribution of capabilities. Realists utility
function should not incorporate such ideational factors as ideas, identities, and norms.
They are the sources of “organized hypocrisy”* ® in the way of objectively seeing
problems of international politics as they are.
Constructivists say it is necessary to investigate the formations of state(or
national) interest to make better sense of the concrete actions of states. Realist
renderings of the national interest defined as “the security and survival of a state” are
so general as to be indeterminate. If one agrees to assume that interests imply choices,
a realist analysis of international politics is not very helpful for explaining and
understanding specific choices of particular policies over alternative means for
achieving, say, security. The dictates of power and survival are never clearly manifest
by themselves in international politics.'* Part of the reason is that realism deals with
“the perennial conditions that attend the conduct of statecraft, not with the specific
conditions that confront the statesman.”* ^ But more fundamental in constructivists
* Wight 1995, 32.
’ Mearsheimer 1995.
Krasner 1999.
'' Rosenau 1972, 353; Rosenberg 1990, 291.
Tucker 1961,463.
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argument for the indeterminaey of state aetion in realism is that it ignores the
centrality of processes of interpretation on the part of aetors(or state officials) in the
making of choice/^ As Waltz himself admits, “we cannot predict how states will react
to the pressures of structure without knowledge of their internal dispositions.”* ' *
Defining what the particular situation faced by a state is necessarily takes place prior
to defending the “correct” national interest with respect to that situation. Without this
interpretive labor, realists purely naturalistic empirical analysis can be more exposed
to the pitfalls of what Bourdieu once termed “the scholastic bias”-the tendency of
social analysts to project their own relations to the social world into the minds of the
people they observe.
Constructivism, as a way of studying social action in interpretive approaches,*^
can provide a better way of theorizing states action. It is precisely because
constructivism critically concerns the issue of human(or actors’) consciousness
capable of reflecting or learning in the web of social relations. Such an emphasis on
the human capacity as social being better positions constructivists to interpret the
" Weldes 1996, 277-279.
Waltz 1979,71.
Bourdieu 1998, chapter 6 .1 use the term “more” here because such a tendency o f realist analysis is
only statistically meaningful in comparison to other theoretical approaches. No social theorist including
constructivists can be perfectly free of such a bias or fallacy. It lies in the nature of social inquiry
attributing the problems o f theoretical understanding to people not engaged in theory as such.
As opposed to the ambition o f rationalists to formulate a general theory o f international relations
regardless of historical epoch or differences in internal complexions of states, most constructivists find
the pursuit of a general theory of international relations too ambitious. The constitutive forces
constructivists emphasize, such as ideas, norms, and culture, and the elements of human agency they
stress, such as corporate and social identity, are all inherently variable. There is simply no such thing as
a universal, trans-historical, disembedded, culturally-autonomous idea or identity. Thus most
constructivists confine their analysis to providing compelling interpretations and explanations of
discrete aspects o f international politics, going no further than to offer qualified contingent
generalizations. As such, constructivists repeatedly insist that constructivism is not a theory, but rather
analytical framework. See Onuf 1989, 35-43; Finnermore 1996, chapter 1; Katzenstein 1996, chapter 2
and conclusion. Maybe one exception to this is Wendt(1999) who has attempted to formulate a
comprehensive social theory of international relations.
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meaning and significance that actors ascribe to the situation in which they find
themselves. In this way, constructivism offers analytical means for studying the
historically and socially contingent content of the national interest as identified and
pursued by actors.
Studying the social processes that influence the formation of interests thus
does not make constructivism neither materialistic(or rationalistic) nor idealistic.*’ In a
constructivist world, actors are rational, in the sense that they have goals and make
choices accordingly. These goals reflect actors’ needs and wishes in light of their
social and material circumstances. They order preferences, which requires them to
compare possible outcomes of choices. Then, the question to be posed to
constructivists who are not willing to treat actors’ interests as exogenously given is:
how can an actor reason about what to want in the first place? More precisely in
international relations, “how do states reason about what to want?” After all, Adam
Smith himself, who has been known to make all of us understand the truth that “self-
interest dominates the majority of men,” discussed extensively the prevalence and the
important social role of such values as sympathy, generosity, public-spiritedness, and
Some constructivists arc idcationally oriented in arguing that ideas broadly determine interests and
that the distribution of shared ideas matters much more than the distribution o f material capability. For
example, Hass(1990, 2) for the discussion of the relation between interests and values. He argues,
“contrary to lay usage, intérêts are not the opposite o f ideals or values... Interests cannot be articulated
without values. Far from values being pitted against interests, interests are unintelligible without a sense
of values to be realized.” In a more idealist vein, Sikkink(1991, 243), rejecting “ideas” as a kind of
intervening variable that mediates between interests and outcomes, claims that “ideas are the lens,
without which no understanding o f interests is possible... Ideas about economics and politics are
present from the beginning in the very process of formulating interests, shaping not only actors’
perceptions of possibilities but also their understanding of their own interests. ” More succinctly, “how
person chooses among potential alternatives is not only a matter o f ‘what he wants’ but also of ‘what he
believes’, and for some kinds o f choices an actor’s beliefs or theories may play a most crucial role. See
also Wendt 1994, 1999; Finnermore 1996; Finnermore and Sikkink 1998. As will be discussed later, 1
think it is better to take such ideational arguments to be a set o f hypotheses to be empirically tested on a
case-by-case basis. As is the case for the brute materialism, the extreme version o f ideationalism is hard
to be compatible with constructivist possibility ontology.
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other affiliated eoncems: “we do not need to invoke ‘benevolence’ to explain why
the butcher, the brewer, or the baker wants to sell their products, and why the
consumers want to buy them.”
In what follows, this chapter develops an identity-intention conceptual
framework to address the question right above. This discussion will begin in the
context of the agent-structure problématique in International Relations. I develop the
framework by unpacking a constructivist claim that “identities are the basis of
interests(and, in turn, action)” to show how it is the case. The framework is designed
to establish causality between an identity and an outcome(in the form of social action).
This is premised on two things. One is a constructivist notion of social causation^® that
takes primary reasons as causes?^ “Doing something for reasons means applying an
understanding of what is called for in a given set o f circumstances. The other is that
national interests emerge out of “the representations(or out of situation descriptions
and problem descriptions) through which state officials and others make sense of the
world around them.”^ ^ Once a situation is defined or represented in a certain way over
others, the situational description informs actors of which actions are “valuable.
Smith, quoted in Sen 1998, 3.
Wendt 1992, 398. Wendt(1999, 224-232) talks about four types of identities, l)personal or corporate,
2)type, 3) role, and 4) collective. He further advances two general hypotheses on which identities are
more important for actors facing identity conflicts: 1) “in any situation the solution to identity conflicts
within an actor will reflect the relative “salience” or hierarchy o f identity commitments in the Self, and
2) that hierarchy will tend to reflect the order in which I presented the four kinds o f identity above.”
However, as Hopf(2002,292) points out, it is questionable to specify a priory which ones are more
fundamental if identities are constructed in relations to others.
The two terms, causality and causation, tend to be interchangeably used within social science circle. I
prefer to go with causation because it is more intentionality oriented.
Davidson 2001.
“ Giddens 1984,345.
^ Weldes 1996,280.
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appropriate, and necessary.”^ '* Here identities are central to the situational
description in providing the basis for the interpretation of unfolding events. Any
foreign policy decision, after all, is aimed at something external to the state, however
much there is an internal game to be played.^^ The centrality of identities is inexorably
connected to the interactive nature of international politics.^^ Identities, which are
inherently relational(thus in the realm of “the social”) and emerge out of repeated
interactions among actors, provide each state with a meaningful understanding of
other states, including its nature, motives, interests, probable actions, attitudes, and
role in any given political context. In this way, identities become the basis of
reasoning about what to want.
Domestic politics cannot he overlooked in the framework. Before an identity
becomes the common ground for social action on behalf of a state and is subsequently
adopted and implemented by the political leadership, it must survive competition from
other competing identities and interests.^’ Which conception of national interests
prevails would be largely a function of the domestic political struggles. In the
empirical chapters, I will explicate two distinct but interrelated processes: (1) the
social construction of a framework of meaning that gave the Japanese proponents of
Wendt 1992, 396-403,1999,160-161; Finnermore 1996,15-16.
^ As will be discussed below, it does not mean I skip over the domestic politics in the making of states
action. Needless to say, any foreign policy should survive first domestically before it goes externally.
^ In game theoretical terms, strategic behavior, the hallmark o f game theory, involves how one agent
behaves when its choices depend on those of others. Interactive choices that cause players’ payoffs to
be interdependent are viewed as strategic. See Powell(1999) for the recent application of game theory
in International Relations.
The question o f how a certain ideas(or identities) are going to acquire force is discussed by several
authors. Their general conclusion is that ideas(or identity) influence policies only when they are carried
by individuals and groups with political clout. This dissertation is generally in agreement with the
above conclusion. See Hall 1989,370-73; Adler 1987,11-13; Goldstein 1989, 71; Sikkink 1991,19-28;
Berger 1996.
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the state-led economic development the rationale sufficient enough to challenge the
neoclassical economic orthodoxy and (2) political contention, or how such a shared
self-understanding of the Japanese economic development as “state-led” won out over
other contending interpretations and became the basis of the Japanese foreign
economic policy beginning from the mid-to late 1980s?*
Before introducing the discussion of the identity-intention framework, the first
half of this chapter will consider whether policies can be imderstood primarily on the
basis of plausibly inferred interests of key actors without recourse to identity-intention
dynamics. In doing so, I will explore below a number of alternative hypotheses that
have prominently been used to explain Japanese foreign economic policy; “interest
group,” “state-centered,” and “systemic” approaches. They all place little emphasis on
the role of identity in the formations of interest. I will test each of these hypotheses by
asking the two specific questions central to this dissertation: what made it possible for
Japan to challenge the neoclassical economic orthodoxy?^^ and why did Japan propose
to create the AMF which intentionally excluded the U.S.?
Alternative Explanations
Interest Group Approach
The interest group approach focuses on the influence of societal actors(vis-à-
vis the state) in economic and political development. It attributes the adoption of
economic policies to the pressures of powerful economic interests, usually the
See Herman(1996, 283-288) for a similar theoretical treatment of the political contestation of
identities that links the international and the domestic politics.
Since all these alternative hypotheses are designed to answer “why” type questionsfnot “how
possible”), I will also make an effort below to assess if they successfully offer insights into the question
of why Japan did challenge the orthodoxy.
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industrial class or big businesses.^® It points out that policy choices are the result of
competition among groups or individuals for political and economic benefits. In this
theoretical framework, the state per se does not determine a policy choice. Rather, it
tends to play the role o f a referee.^* In other words, this approach views policy as
either reflecting the preferences of the dominant group or class in society, or as
resulting from the struggle for influence that takes place among various interest groups
or political parties, and a state, therefore, does not have much autonomy from sectoral
pressures. In either case, the approach explains foreign economic policy as a function
of domestic politics and renders the system-society nexus flexible, less deterministic,
and more situational,^^ though it does not discount the importanee of systemic factors
under certain circumstances.^^ As such, national interests themselves are internally
determined and deducible from the preferences of societal actors within the domestic
political economy.^'*
^ “Lindblom 1977; Milner 1988, 1997.
It means that the state or government institutions essentially provide an arena for group competition
and do not exert a significant impact on the decisions that emerge. This point is, however, called into
question by the Duke Project on Political Economy of Policy Reform in Developing Countries. Based
on their research results. Bates and Krueger(1993,454) claimed that “one o f the most surprising
findings o f our case studies is the degree to which the intervention of interest groups fails to account for
the initiation or lack o f initiation of policy reforms.” Going further, they suggest that their studies
reveals not just that interest groups do not drive the policy reform process but that interest groups may
in fact be unable or unwilling to act in support o f policies that favor their interests. They argue that the
fundamental problem with society level analysis is that it wrongly assumes that interest groups are
organized in stable coalitions and that such coalitions are dynamic sources o f policy initiatives that best
promulgate their own interests. Rather, it is the role of the state in setting the agenda for the interest
groups. See also Bate(1981) for the role o f the state setting out options within which interest groups
organize and influence policies and their implementation.
Yasutomo 1995, 50. See Pempel(1987, 1997), Calder(1988, 1993), Rosenbluth( 1996), and Muramasu
and Krauss(1987) for analyses that put more emphasis on society-state level dynamics in determining
Japan’s foreign economic policies. Pempel(1987,286-287) in particular argues that “the centripetal
politics o f Japan Inc. had been superceded by a centrifugal politics of numerous pockets o f pluralist
power.”
^ Katzenstein ed. 1978, 11.
^''Frieden 1988, 88.
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When it comes to Japan’s foreign eeonomie policy making, this economic
interest group approach shows a strong tendency to emphasize the shift in the balance
of power between the state bureaucracy and big business in Japan.^^ The main claim is
that internationalization o f Japanese industry and finance sharply enhanced the
influence of the private sector vis-à-vis the bureaucracy and politicians. Even in the
sphere of financial policy,w idely considered as the best tool the Japanese state
possessed to influence industrial outcomes, Calder, for example, argues that private
sector strategic moves and calculations make a big difference, not administrative
guidance by the state.
Within this framework, the Japanese challenge to the neoclassical economic
orthodoxy with emphasis on the role of the state in eeonomie development can be
portrayed as the ideology and project of the Japanese internationalized industrial
classes(or big businesses) and of their technocratic allies in the state. It seems clearly
in the interests of the Japanese internationalized big businesses to support the active
role of the state in eeonomie development of developing countries. The state-led
economic development proposes prioritizing industrialization through providing
incentives and subsidies for industrial development and improving financial and
exchange policies to facilitate industrial growth. It explicitly and implicitly
presupposes a considerable degree of state autonomy(strong state) vis-à-vis society for
For example, Calder 1993; Ramseyer and Rosenbluth 1993; Rosenbluth 1996.
^ Finance is widely known to be the ties that bind the state to the industrialists in the developmental
state. In other words, financial controls are the nerves o f the developmental state. See Woo-cumings
1999, Introduction.
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successful implementation and consolidation of industrial policies.^’ From the point
of the successfully internationalized Japanese big businesses, interventionist policies
in developing countries can potentially help them secure and consolidate profits and
influence in those interventionist countries more easily than would be otherwise. For
example, the Japanese big businesses in collaboration with the Japanese government
influence and enable a certain interventionist developing country to give special
support to them(or the host country’s joint ventiu-e partner of them) directly through
targeted loans and protection. In this way, the Japanese business elites could vertically
integrate, say, Asia into their production network by supporting interventionist
policies in East and Southeast Asian developing countries. As swch, for this
economic interest group explanation to be convincing, one needs to show a pattern o f
industrialist(big business) support for and championing ofpromoting the state-led
economic development in developing countries, and a pattern o f alliances between
state technocrats and industrialists that facilitated the developing countries ’ adoption
o f the state-led economic development.
The results of my research in the Japanese challenge to the neoclassical
economic orthodoxy and its policy toward the AMF proposal increasingly call into
” Evans, Rueschemeyer, and Skocpol eds. 1985; Sikkink 1991; Evans 1992, 1995. For the critique of
this view, see Hamilton 1982.
Hatch and Yamamura 1997. However, one of the big problems with Hatch and Yamamura viewing
the Asian state-led developmentalism as an ideologyfor thinly veiled justification of Japan-cum-Asian
capitalists) imposed by an external force, Japan, is that they present a political world in which the Asian
developing countries are treated as objects rather than subjects, debasing the validity o f many Asian
contributions to the global development debate. Along with this line, Katzenstein and Rouse(1993,238-
239 conclude, through exploring Thailand and Indonesian(which they consider are most dependent in
Asia on Japanese trade, aid, and investment) economic relations with Japan, that not only did Japan not
want its relations with these two countries to be dominated by Japan, but also the host countries view
Japan’s involvement in their countries and their involvement with Japanese businesses in multilateral
terms; they welcome Japanese capital, loan, and investment because they want to become more
important and more diversified participants in the world economic system, not being led by Japan.
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question the validity of this economic interest group approach. Particularly
problematic for this interpretation was that most Japanese big businesses failed to
facilitate or even did not support promoting the Japanese alternative to the neoclassical
economic orthodoxy. For example, at a time when Japan became serious about and
started to promote an alternative to the neoclassical economic orthodoxy in the mid-
1980s, and the early revisionist writings^^(about Japanese political economy) appeared
in the mid-1980s suggesting that Japan should be recognized as having deviated
significantly from neoclassical free market principles, the state-led developmental
ideas were promoted by the MOP officials and intellectuals, often faced with an
uncooperative business elite as well as such other ministries as the MITI and the
MOP A. Out of either fear that the self-revealed Japanese practice(this means the
Japanese challenge to the neoclassical economic orthodoxy with the state-led
mercantilist element) would backfire on them in the world economy, or a genuinely
different understanding of the Japanese political economy, the Japanese industrial
elites in cooperation with the MlTl and the MOP A often tried hard to prove that the
Japanese economy was squarely within the neoclassical framework and that the
The basics of the revisionist argument can be summarized as follows: the U.S.fbased on neoclassical
economic model) economic policy focuses on consumption as the primary engine of economic growth
and seeks to maximize consumer welfare at any given moment. Much consumption is either subsidized
or taxed very lightly, while interest earned on savings, investment, and capital gains is taxed relatively
heavily or otherwise penalized. National security is seen related to economic policy only in the narrow
sense of managing the capability to manufacture weapons. Japanfbased on the state-led economic
model), by contrast, has emphasized production as the means o f assuring sustained economic growth. In
Japan, consumption is taxed while production is treated favorably. The Japanese believe that promoting
production is the best way to ensure long-term increases in living-standard-that consumers will not be
able to consume unless they produce. Moreover, Japan has tightly linked economic policy and national
security. For example, the MITTs Vision o f Japan for the 1990 speaks o f achieving technological
autonomy and bargaining power with other nations through technological and industrial leadership. See
Frestowitz 1993, Introduction. The major revisionist works include Johnson(1982), Fallows 1988;
Prestowitz 1988; van Wolferen 1989; Choate 1990.
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Japanese simply operated the neoclassical model more efficiently.'*'^ One of the
leading economists in Japan commented regarding the revisionist argument: “although
their analysis is correct in some respect, overall the revisionists’ viewpoint lacks
balance and is inappropriate, and the object of their policy is not constructive.”'" In the
early 1990s, both Akio Morita, Sony Chairman'*^ and Gaishi Hiraiwa, the powerful
head of Japan’s big business alliance(Keidanren)'*^, endorsed free trade and urged to
discard the mercantilist element in Japan, which they thought was a obstacle to the
efficient market operation of the Japanese economy and elsewhere.
Furthermore, in Japan’s AMF proposal, the Japanese financial and
manufacturing sectors that heavily invested in the crisis-laden Asian region showed
their strong reservation about the MOF’s AMF proposal. When it comes to Japan’s
financial sectors, despite many Japanese banks’ high exposure to the Asian economies
in trouble, many of them supported the solutions through the IMF and argued against
the AMF because “such a fund as the financial last resort creates a psychology of
dependence.”'* '* Moreover, the businessmen from the manufacturing and exporting
sectors did indeed oppose the AMF. Many of them claimed that it would be dangerous
to provide easy money in the name of an Asian rescue that could undermine the
reforms and adjustments that the stringent(market-based) conditionality of the IMF
usually provided.'*^ At the same time, however, they also recognized that such
action(creating the AMF that allows the affected countries to have more maneuver
‘ “’Prestowitz 1993, 16.
Shimada quoted in Prestowitz 1993, 16.
Morita 1992.
The Washington Post, March 1, 1992.
Asahi Shimbun, September 20,1997, quoted in Katada 2001,196.
Asahi Shimbun, November 24, 1997.
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with the IMF) might result in the loss of golden opportunities for further
liberalization of the Asian markets."^^
Taken together, empirical evidence shows that the Japanese business elites
were either indifferent to or occasionally involved in moves to undermine the MOF’s
attempts at promoting the Japanese economic development alternative, let alone their
initiative forcing the Japanese government to promote it for their own business profit.
There was no such evidence as alliances between industrial and financial elites and
state technocrats that can help explain the Japanese challenge to the neoclassical
economic orthodoxy either. As such, there is no evidence bearing that societal
preferences are aggregated into state preferences for the Japanese challenge to the
neoclassical economic orthodoxy and Japan’s AMF proposal.
State-Centered Approach
The state-centered approach postulates a state as an autonomous political actor
relatively independent from social pressures in determining policy outcomes'*^: “The
state is at least relatively autonomous and an active participant in the policy-making or
supply process. The government, therefore, does not simply respond to societal
demands(and international pressure). Rather, the state possesses interests and makes
choices that are central to understanding policy.”'* * In other words, it is the state that
Asahi Shimbun, Novermber 6, 1997, quoted in Katada 2001, 196
The notion of state autonomy was first theoretically postulated by Weber in his well-known
defmition(1978, 54). One o f the most monumental books in marking the state-centered approach is
Evans, Rueschemeyer, and Skocpol eds. 1985.
Lake 1988, 35-36. This notion of the state is similar to neo-Marxisf s
reconceptualization of the state as the “material condensation of a relationship of
forces among classes and class fragments,” rejecting both the understanding of the
state as a tool of the dominant class with no autonomy whatsoever and of the state as a
subject to external to social classes. Based on this notion of the state, neo-Marxist
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mobilizes societal actors(including business elites) to achieve its goals rather than
the other way around. In this approach, the state is, with its own mind and will,
associated with instrumental institutions capable of influencing and structuring
society, rather than with a system that is subjected to that apparatus."*^ The state is
capable of setting agenda of policy decision and subsequently mobilizing required
social resources to achieve its policy goal in the context of the domestic and
international structures and constraints. As such, in order to control policy outcomes,
the state can capitalize on both offensive and defensive strategies that can create new
rules of the game, mitigate damage, and adapt to or avoid changes altogether.^'’ It is
the state through public policies(both domestic and foreign policies) that shapes
societal preferences, which are frequently uncoordinated among different societal
actors. To the extent that societal actors shape the choices of government policy, their
parochial nature of interests could not determine the state’s overall policy even in a
specific sector.^' In a nutshell, the state is the purposive entity that can envision and
implement policies contributing to the overall increase of national wealth and power.
theories eventually argue that because of the materiality of the state and the
contradictions among various component within it, the state possesses a certain degree
of relative autonomy from any given class fraction. Policies are therefore the result of
class conflict mediated through a relatively autonomous state. Despite this
acknowledgement of relative autonomy of the state, neo-Marxist theories in the final
analysis view the state as representing and organizing the long-term interests of the
dominant class as a whole. Therefore, compared to the statist discussed above, neo-
Marxist version of relative autonomy of the state is much far limited. See
Poulantzas(1978) in Sikkink 1991,10-12. Similarly, Lindblom argues that by the
nature of the market system, the state will act in the long-term interest of capital,
regardless of direct pressures from business interests. See Lindblom 1977, 175.
Biersteker 1990, 180.
Ikenbery 1986, p.54.
Katzenstein 1977, 18.
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given the interests and actions of other actors(including other states and societal
interest groups).
When applied to the making of foreign economic policy, this state-centered
approach generated the analytical distinction between strong and weak states.^^
Depending on the degree of the state autonomy from sectoral(or societal) pressures in
the process of attaining the state’s prescribed goals(national wealth and power), some
states such as France and Japan were considered as strong states while others, for
example, the U.S., as weak states.
The usefulness of the distinction between strong and weak states was,
however, later questioned for a number of reasons. First, a state’s ability to impose its
own interest upon policy outcomes is neither constant over time nor across issues
areas.Second, such a distinction may confuse state capacity, which is about state
flexibility in controlling policy outcomes and extracting social resources for its policy
goals, with state strength, which measures state strength in terms of the degree of state
intervention in the society. The ability to impose the market, for example, can be as
powerful an indicator of state capacity as the ability to intervene in the economy. As
such, the distinction may preclude the analysis of the policy-relevant coalition
building between the state and societal actors. Lastly, a state can be vertically a strong
state, while being a weak state laterally. A state may be insulated from sectoral
pressures(strong state vis-a-vis society), but nevertheless, as in the cases of the U.S.-
Goldstein 1988,217.
Katzenstein ed. 1977; Krasner 1978.
Haggard 1988.
^^Ikenberry 1986, 135.
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Japan negotiations on Japan’s market liberalization, it may produce a policy
outcome that is no different from the outcomes of a weak state
Despite such weaknesses of the strong-weak state distinction as an analytical
tool, the idea that Japan is a strong state has been widely endorsed. The state-centered
approach to Japanese foreign policy making was often associated with the elitist
model of “iron triangle.” The elitist model depicts a Japanese state in which decision
making power is concentrated in the hands of the bureaucracy, the ruling Liberal
Democratic Party(LDP), and big business, which constitute “iron triangle” as a whole.
And yet, power is not evenly distributed among them. The definition of the Japanese
state in the elite model is bureaucrat-centric: the bureaucracy presides on the top of the
power triangle supported by the two other powerful actors, the LDP and big business.
As such, the bureaucracy controls and determines national policy with the LDP and
big business playing secondary roles.
At the same time, this elitist model assumes the Japanese state as “a unitary,
interest-maximizing, rational actor.”^ ^ The Japanese state is thought to pursue
relentlessly economic growth, supported by a consensus among those three actors in
“iron triangle”(as a merchant or trading state).The Japanese state makes economic
^ Mikanagi 1991,22. For the U.S.-Japan negotiation on Japan’s market liberalization measures, see
Campbell 1993; Ito 1993; Schoppa(1993); Schwartz 1993; Rosenbluth 1996; Bullock(2000);
Uriu(2000).
Okimoto 1988, 307.
Rosecrance 1986. See also Rosecrance and Taw 1990; Johnson 1995; Wan 1995; Heginbotham and
Samuels 1998. Interestingly but ironically, the notion o f Japan as a trading state can be traced back to
the so-called Yoshida doctrine, which laid foundation for the postwar Japanese foreign policy but has
been taken as the root causes of the reactive nature of Japanese foreign policy. The doctrine is
characterized by: 1) a close and expanding alliance relationship with the United States; 2) a minimalist
security policy based on a security treaty with the United States and maintenance o f strictly defensive
military capability; 3) an unflinching pursuit of economic growth through an export-oriented
development strategy. The third characteristic became the main source of Japan being a mercantile
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policies and imposes them upon society. In this context, Chalmers Johnson’s
contention that Japan was a “developmental state” led hy the MITI gained great
influence in the study of Japan’s policy-making.^^ It is the highly trained state
bureaucrats who plan and direct the Japanese foreign economic policies, and their sole
purpose of it is an “unflinching pursuit of economic gain(of Japan as a whole)”
through strategically participating in the world economy. In short, Japan’s model of
action is an epitome of what Schimiegelow calls “strategic pragmatism” in which
Japanese public and private leaders(usually big business leaders as a junior partner)
unite in one direction which is called “strategic,” and they derive that direction from
trading state(along with the notion of a strong state) while the first two characteristics help Japan
continue to stay with as a reactive state. Therefore, depending on which aspect o f Japan one looks at,
Japan can be seen in either way(even though reactive Japan and aggressive mercantilist Japan are poles
apart!). Deriving from the combination of the interdependence and the economic statecraft literature,
Inoguchi’s notion o f Japan as a support, not a challenger, stands in the middle. For the Yoshida
doctrine, see Akaha and Langdon eds. 1993, 6. For the reactive state thesis, see Calder 1988; Miyashita
1999. See also Inoguchi(1986) for the notion o f a supporter state.
Johnson(1982), especially chapter 1. See also note 21 for the revisionist writings.
However, some claim that hy the mid 1970s, the LDP politicians have gained
increasing expertise and thus influence in policy-making, even though the Diet, which
is constitutionally the highest authority of Japanese state power, still remained passive,
and the bureaucracy continued to he the main source of policy-making. See, for
example, Muramatsu and Krauss 1984. In addition, there has been a rising call among
political, business, and intellectual leaders for administrative reforms in order to
restrict the power of the bureaucracy. On this point, Okimoto(1988) presents a useful
issue typology based on the functional divisions of the state bureaucracy. He argues
that each issue and ministry in charge of the issue possesses a different degree of
politicization depending on the type of political exchange between interest groups and
the LDP. This typology helps to clarify the division of labor between the LDP and the
bureaucracy. Moreover, it demonstrates that sectors under certain ministries such as
the MITI and the MOF are less politicized than those under other ministries such as
the Ministry of Agriculture, Forestry, and Fisheries. Okimoto’s typology, however,
has a limitation in dealing with political relationships in Japan, because it wrongly
assumes that the type of relationship between an interest group and the LDP is
constant over time(Mikanagi 1996,22-23). For example, the relationship between the
LDP and rice producers seems to he becoming less politicized today than it was under
the LDP’s rule before 1993(Rosenbluth 1996). For the economic and administrative
reforms, see Carile and Tiltoneds eds. 1998; Mishima 1998.
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the nature of the changing problems(that affect the distribution of economic and
technological resources of Japan) to be solved, called “pragmatism.”^ ®
For this state-centered explanation to convincingly address the question o f
why Japan challenged the neoclassical economic orthodoxy(and Japan’ s subsequent
policy toward the AMF), one needs first to show a pattern o f strategic consensus
among the bureaucracy, the LDP, and big business(led by the bureaucracy) in their
joint efforts at propagating and justifying its development alternative to positively
affect the distribution o f economic and technological resources o f Japan as a whole.
Second, this approach’ s emphasis on the “ strategic ” nature o f Japanese foreign
policy deriving from the narrowly drawn materialist conception o f interests leads one
to expect to see the uneven geographical distribution o f Japanese efforts at
implementing(not just verbally challenging) policies that aim at promoting the
adoption o f its state-led alternative in developing countries. Japan would be far less
concerned about spreading its alternative to Africa where its economic interests are
least salient.^’ Third and more specifically, one needs to show a pattern o f Japan’ s
Schmiegelow and Schmiegelow 1990, 507.
The rationale behind this is that given a small economic interest in Africa, why would the
strategic(out o f cost and benefit calculation) Japan run the risk o f further exacerbating(given its trade
friction with the U.S.) the relation with the U.S., the champion of the orthodoxy, by not cooperating
with the U.S.-led, for example, application of market-oriented structural adjustment policies? Stein, in
his interviews with a number o f Japanese officials in different ministries, confirms this. At a time when
Japan began to challenge the orthodoxy in the 1980s, Stein reports that there was apparently some
concern about antagonizing the U.S. that so strongly supported the market based adjustment packages
that were very much seen as a product of the economics profession o f the U.S. See Stein 1998,40-42.
Moreover, as evident in Yoshida doctrine discussed above, Japan has since 1945 put Japan-US relations
on the highest priority o f Japanese diplomacy sometimes at the peril o f relations with other states and
areas. Even among other areas or states, Japanese relations with Africa have historically been at the
bottom of priorities(as one barometer, it was pointed out that no Japanese prime minister has ever
visited an African country). The reverse of this is to expect Japan’s intensive attempt at guarding
Asia(where it has enormous economic stake) against the U.S.-led market penetration. It presupposes
that relatively closed Asian market(with protective walls, for example, to defend infant industries),
which is the byproduct o f implementing the state-led Japanese alternative economic development model
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tangible and immediate economic gains from influencing the institutionalization o f
policies and prescriptions o f such a Japan-dependent development institution as the
Asian Development Bank(ADB). The institutionalization o f Japanese alternative
development ideas at the bank would he the best justifying means through which the
mercantilistic-cum-strategic Japan expresses its material interests.
The empirical results do not support this version of state-centered approach
that associates Japanese foreign economic policy with relentlessly pursuing global
market shares and natural resources(the so-called “economic animal”). First, when
Japan challenged the neoclassical economic orthodoxy, there was no clear pattern of
strategic consensus among the state bureaucracy, the LDP, and big business. The state-
led economic development alternative was promoted mainly by the MOF (international
bureau) officials and intellectuals.^^ In contrast, the MITI, whose main institutional
focus is to represent Japanese business interests by bringing economic benefits to
Japanese firms, even opposed the self-selling(let alone challenging) of the Japanese
model on the grounds that it would further increase friction between Japan and the
U.S. For example, Makoto Kuroda, the MITTs best known hard-line negotiator to the
U.S., commented regarding those attempts at challenging the neoclassical economic
orthodoxy on the postwar Japanese model; “We must not provide a dangerous basis
for the argument that says Japan conducts itself by a different set of rules and must be
would benefit Japan most but other competing industrial countries least.(the Japan-dominated closed
Asian market would even drive them out eventually-see note 20) above). As will be discussed below,
however, this line o f reasoning is not empirically sustainable.
“ One o f the best examples o f these promotion efforts is Overseas Economic Cooperation Fund(OECF)
report(1991), one o f Japan’s aid implementing agencies, that severely criticize the World Bank’s
market-oriented development programs in developing countries. MOF is known to have stronger
influence over OECF. See Hirata 1998; Olmo 1998. For the journalistic discussion on Japan’s posture
on development ideas. International Herald Tribune, March 9, 1992.
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treated differently... For some time I have repeatedly stated that we should avoid
expressions such as ‘Japanese-style p r a c t i c e s A s discussed above, internationally
competitive Japanese big business was either indifferent to or opposed to the possible
protective walls that the Japanese development alternative would bring to inside and
outside Japan. It was thus clear that the Japanese challenge to the neoclassical
economic orthodoxy(orchestrated by the MOF and intellectuals) often faced
uncooperative business as well as intragovemmental elites, let alone a pattern of
strategic consensus among elites in the so-called iron triangle.
As for the AMF proposal, the MOF faced a continuum of support and
opposition within the Japanese governm ent.The MOFA(Ministry of Foreign
Affairs) responded negatively to the proposal, paying careful attention to the negative
reaction from the U.S. The MITI remained neutral.^^ There was some support from
political leadership as evident in Prime Minister Hashimoto’s voice for a more
vigorous Japanese foreign policy toward Asia.^^ However, this alliance alone does not
explain why Japan intentionally excluded the U.S. from the AMF.
67
Bungei Shunju April 1992, 176-193, quoted in Johnson 1993, 59.
As will be discussed in chapter 4, there exists a faction even within the international bureau at the
MOF, namely pro-Asia and pro-IMF. They differed on many points as to how to deal with the AMF.
Interview with a MOF official, Tokyo, July 19, 2002.
^ Interview with a MOF official, Tokyo, July 19, 2002. The MITI has no jurisdiction over foreign
assistance so that it did not want to take sides with either the MOF or the IVtOFA.
^ Sudo 2002, 109-112. This was more or less a reflection o f a general tendency that there has since the
late 1980s been a growing cadre of younger Japanese politicians who felt that Japan should be more
consciously proud o f its accomplishment and more critical o f the social and economic conditions
currently found in the U.S.. They were in line with some o f younger bureaucrats who pointed out that
the older generation had a bit of an “inferiority complex” toward the U.S. and therefore did not want
directly challenge the U.S. in international politics. Both groups grew weary of the U.S. accusations
concerning Japanese trade practices and openly criticized the U.S. commercial policies. See Stein 1998,
40-47; Wade 1996.
Although the AMF continued to work in the direction o f excluding the U.S. from the beginning, the
exclusion was decided just right before Japan proposed the AMF on September 21,1997 in Hong Kong.
See Sakakibara 2000: 185-188, chapter 4.
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Neither does some explanation in connection with Japanese domestic
politics, which completely turned around the alliance noted above. In this view, the
MOF’s idea of establishing the AMF is closely tied with the domestic political
disputes over administrative reform.^® The issue o f separation between budget and
finance was one of the most contentious ones. A large number of politicians who were
expressing concerns about the existence of the too big and too powerful MOF were
demanding that matters under the jurisdiction of the MOF be divided. More
specifically, the jurisdiction in dealing with financial matters should be transferred to
the newly established independent agency. The MOF had a strong feeling of crisis
concerning this being realized. Thus, the AMF(for the management of the Asian
financial crisis) gave a golden opportunity to justify the MOF’s arguments that
jurisdiction in dealing with both budget and finance should be assumed to the MOF.
This might be, but this domestic dispute gives no reason to exclude the U.S. More
importantly, Japan’s exclusion of the U.S. was decided even confronting the U.S.
pressure to give up the AMF proposal.^^
Second, the empirical results do not hold good for the issue of the uneven
geographical distribution of Japanese intensity at challenging the orthodoxy. Based on
interviews in Japan’s aid agencies and analysis of a data set on ODA to each Afi-ican
countries from 1959 to 1994(using a series of multiple regression), Stein, for example,
argues that while Japanese economic interest, as represented by investment in Africa
has been far less clear in its relationship to the pattern of Japanese overall bilateral aid
to Africa, the imposition of the neoclassical economic orthodoxy based structural
Kikuchi2001,164-166.
69
Sakakibara 2000, 186.
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adjustment packages on African countries has had a significant impact in shifting
Japan’s bilateral aid pattern to Africa/^ Particularly after 1986, Japan began to openly
criticize the adjustment package and to refocus its bilateral aid on
infrastructure/production assistance, which was closely linked to Japan’s commitment
to the state-led economic development alternative/^ Therefore, no clear correlation
can be found between the size of Japanese economic interest and the uneven
geographical distribution of the intensity of Japanese challenge to the orthodoxy.
Third, the empirical results do not show a pattern of Japan’s tangible and
immediate economic gains from influencing the institutionalization of policies and
prescriptions of the ADB.’^ Japan has made significant efforts at keeping the U.S.-led
neoclassical economic orthodoxy from penetrating through the policies and
prescriptions of the ADB while further promoting its development alternative at the
bank.’^ At the same time, Japan has been providing more while gaining less in the
ADB. In other words, as Japan has become more powerful in the ADB(by contributing
more money to the institution), it has become less concerned about its tangible and
immediate economic gains from the bank.’" *
™ Stein 1998.
On this point, Yanagihara, a leading Japanese development economist, makes a useful distinction
between the Japanese alternative and the neoclassical economic orthodoxy. While dubbing the
neoclassical economic orthodoxy as the “Framework” approach emphasizing, for economic
development, establishing the institutions and mechanisms for the appropriate functions o f the market,
he labels the Japanese alternative as the “Ingredient” approach stressing that economic development is
achieved throu^ increasing real output(production). See Yanagihara 1998.
Wade(1996: 14, note 22) suggests that one way to nail down Japan’s reason for challenging the
neoclassical economic orthodoxy at the World Bank is to compare what it wants for the World Bank
and what it does in the ADB.
Yasutomo 1995, especially chapter 2 on the ADB.
Wan 1995.
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In sum, although there is much that is convincing about the state-centered
approach for Japanese foreign economic policy making in the context of a historically
developed particular state-society relationship in Japan, this approach suffers from
some o f the same problems as IR rational choice theories, namely state as unitary actor
assumption’^ and universalistic notion of interest. Rational choice theories focus on
individual policy makers(equivalent of state as unitary actor in IR), arguing that policy
makers(states) are rational and will choose policies that maximize their goals. Rational
choice theorists are, however, silent on how actors themselves construe and define
their goals, a priori assuming that interests are universal in the function of materially
determined utility.’®
By and large, rational choice theories can help one understand why, in the
context of the anarchic international system(if one defines it as such), certain
alternatives that are directly threatening to the survival of states are excluded(a
complete civilian power alternative without military force whatsoever in case of
Japanese defense system, for example); but less clear is whether these theories can
help one specify what kinds of policies will be actually adopted, let alone the content
of policies that will be adopted. Why do policy makers adopt one type of policy over
another? For example, why did Japan propose to create the AMF despite the fact that
In general, this approach is less strict than conventional rational choice theories by relaxing and
allowing for a pattern of interactions among the bureaucrats, the LDP politicians, and big business.
Nonetheless, as the popular “Japan, Inc.” stereotype reckons, this approach tends to too much prioritize
the high hands o f the state bureaucrats on policy-making while ignoring the importance o f issue
areasffor example, the domestic power configuration of international finance areas can be different fi-om
that of trade; security issues in general can have different domestic constituency than economic issues).
As a result, it can be said that this approach broadly lies under state as unitary actor assumption.
For a related line of argument, see Kratochwil(1982) suggesting that the “national interest” is a
construct emerging out o f contingent historical, social, and rational processes that can vary considerably
across different states at different points in time.
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most of Japanese financial as well as industrial sectors that were highly exposed to
the Asian economies in trouble themselves’’ supported the solutions through the IMF
and argued against establishing the AMF? The state as unitary actor assumption
underestimates the complex and indeterminate nature of a political leadership
interacting with inside and outside of political environments of Japan.
Systemic Approach
As reflective on the dominance of the two neo systemic rational choice
theories in IR, this systemic approach has attracted most attention from experts on
Japanese foreign policy making. This approach, compared to the other approaches
discussed above, most forcefully takes the state as unitary actor stance and expresses
foreign policy making in terms of the rational “action and reaction” of the state
interacting with the fixed strategic environment called “anarchy”. Following up these
lines of thought, the two conceptions of Japan, namely “reactive state(a variant of
neorealsm)” and “supporter state(a variant of neoliberalism),” have played a
predominant role in characterizing Japan’s postwar foreign policy at the systemic
level.More recently, deriving from the economic statecraft literature, Japan as a
In other words, they were the most vulnerable to the Asian financial crisis. Facing the Asian crisis,
Japan as a nation-state was not so much impending as these private sectors that could go bankrupt any
minute depending on how the crisis was unfolding.
Generally speaking, the analyses of Japanese foreign policy at this systemic levelfincluding both
“reactive state” and “supporter state” conceptions) tend to provide less proactive definition o f the
Japanese state than the state centered approach discussed above. On the continuum, on the one hand,
Japan is a reactive state susceptible to outside pressurefmainly the U.S.). On the other hand, Japan is a
mercantile trading state with an unflinching pursuit of economic gain in the world market. These are
poles apart. In the middle, the notion o f a “supporter”, not a challenger, stands. Important to note here is
that all these characters o f Japan work at the different levels, which entails different levels o f analysis
and make virtually impossible to directly compare and contrast them against each other. As mentioned
above, for example, reactive as well as supporter theses on the Japanese foreign policy making are
mainly discussed at the systemic level while a mercantile trading state thesis, which comes along with
the theory o f Grand Strategy, mainly requires the state centered analysis. To complicate the business
further, a society level approach discussed earlier has added another layer in understanding the Japanese
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“normal proactive” state has increasingly become a significant part of systemic
level understanding of Japanese foreign economic policy.
First, with respect to the notion of Japan as a reactive state,although the
reactive state approach does not ignore domestic factors,*® it adopts the core tenet o f
Waltz’s version of systemic theory, namely neorealism. In neorealism’s tenet, the
international system is anarchic without an overarching government. This generates
the anarchic action-reaction world of states attempting to maximize their own power at
the expense of others. Waltz asserts that each state arrives at policies and decides on
actions according to its own internal processes, but its decisions are shaped hy the very
presence of other states as well as by interactions with them.** Most important is
therefore the distribution of power in the international system as a whole, and the
place of a given state in that distribution.*^
foreign policy making. This Japanese case clearly appears to reflect the classical debates on the level of
analysis; to which level does one have to pay more attention to best explain and understand the
Japanese foreign economic policies? See Hollis and Smith(1990) for the excellent summary of this
debate in International Relations.
™ According to Calder(1988, 520), the essential characteristics of the reactive state are: 1) the state fails
to undertake major independent foreign economic policy initiatives when it has the power and national
incentives to do so; and 2) it responds to outside pressures for change, albeit erratically,
unsystematically and often incompletely.
* ° Ever since Calder articulated the reactive nature of Japanese foreign policy in his
seminal 1988 article, there have been ongoing debates on the sources of the Japanese
reaetiveness. In general, two sources have been identified as most affective in the
reactive Japan: the extemal(mostly the U.S.) pressure dubbed as gaiatsu and Japan’s
immobile, highly fragmented domestic political process that lacks strong leadership.
Since this section’s focus is on the discussion of Japanese foreign economic policy at
the systemic level, the first source, outside pressure argument, will be a main subject
below. For the discussion of external sources of Japan’s reactiveness, see Islam
1991;lPyle 1992; Blake 1993; Linconln 1993. For the discussion of internal
fragmentation, see Heilman 1969,1972; Calder 1988.
* * Waltz 1979, 65.
Mearsheimer 1990, 1995.
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One significant implication from this tenet is that in this world there are two
types of states: laterally strong and weak determined by the distribution of power in
the anarchic international system. A weak state’s foreign policy tends to conform to
the preferences o f a strong sta te.T h ere is a causal relationship between power and
compliant or subservient behavior.^'* Therefore, given Japan’s asymmetric market and
security interdependence on the U.S., Japan is a weak state while the U.S. is a strong
state powerfully influencing Japan’s foreign policy. As the neorealist version of
“coercive” hegemonic hypothesis”* ^ maintains, for the less powerful state, there is no
choice but to acquiesce to the demands of the hegemonic power, out of fear of
punishment(for example, the U.S. closes its markets to Japanese exports if Japan does
not respond). In the end, Japan becomes a reactive state vis-à-vis the hegemon, the
U.S.
The notion of Japan as a “supporter” state derives directly from the theories of
interdependence or transnational relations. They suggest that growing economic
interdependence, defined as “situations characterized by reciprocal effects among
countries or among actors in different countries” has a deep impact on economic
policymaking.*® Proponents of Japan as a supporter state therefore claim that “Japan
Hirschman(1969,13-40) and Waltz(1979, 152-160) causally links a weak state’s accommodating the
will of a strong state to the asymmetric market and security relationship between the two states.
Yasutomo 1995, 50.
" Keohane(1984, 32-34) suggests four prerequisites for hegemon in the world political economy:
access to crucial raw materials, control over major sources o f capital, a large market for imports, and
comparative advantages in high value added goods. As opposed to this “coercive hegemon” version,
such a liberal scholar as Kindleberger puts forward the “benevolent hegemon” hypothesis, maintaining
that the hegemonic state, without employing coercive measures to fiy open others’ markets, will
unilaterally open its markets with the expectation that other states will reciprocate and open their
markets. For the discussion o f the hegemonic hypotheses, see Kindleberger 1973; Krasner 1976; Gilpin
1981, especially chapter 3; Snidal 1985; Ikenberry and Kupchan 1990. For the recent reassessment of
Krasner’s work, see Keohane 1997.
Keohane and Nye 1977, 7.
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engages in ‘the politics of interdependence’, which means that actors make strategic
use of interdependence with enough self-restraint not to jeopardize the system of
interdependence itself.”* ^ Japan, faced with a barrage of pressures from the U.S. and
other industrial countries, accommodates the needs of other governments to the extent
that the accommodation serves Japan’s national interests.*^ Japan supports, not
challenges, the postwar US-led international system(including regimes) because it is
advantageous to Japan.
The third approach, Japan as a “normal proactive” state, claims in an attempt to
explain Japan’s past reactivism and increasing proactivism that Japan used to be
reactive under the shadow of the U.S., but that it is now taking more active foreign
policy initiatives. Based on the economic statecraft literature that stress the
evolutionary positive correlation between power/plenty and proactivity of a state’s
foreign economic policy,*® proponents of this view argue that Japan has pursued
independent, active policies since the 1970s, spurred by various factors including the
U.S. defeat in the Vietnam War, Japan’s impressive economic development, and the
declining economic power of the U .S.® ® Japanese foreign economic policy has
followed a progressive transition from the reactive to the proactive.
Then, how would these systemic explanations help one to understand the
Japanese challenge to the orthodoxy? The reactive model, which was originally
conceived by Calder with the question of “why, despite its enhanced national capacity.
Inoguchi 1990, 419.
* * Wan 1995. For security issues, Pharr 1993,235-237.
Viner 1948; Krasner 1976; Baldwin 1985; Moran 1996.
Vogel 1986. Some argue that the transition o f Japanese diplomacy(from passive, reactive to active)
began with the return o f Okinawa in 1972. See Buckley 1992; Fukushima 1999
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Japan has been more deferential to American pressure than have most middle-range
powers such as major European countries,”^ * has the most serious limitation for
explaining the Japanese challenge, one of the most proactive foreign economic
policies in the postwar Japan. On the contrary, this dissertation wonders why, despite
the fact that all modem developed states in this century undertook the state-led
economic development at least in the beginning of their industrialization, Japan has
been since the mid 1980s the only developed state that seriously challenged the
neoclassical economic orthodoxy based on different ideas about economic
development. While the reactive model asks about the peculiar reactive nature of
Japanese foreign economic policy, this dissertation asks about the strong proaetivity of
Japan.
In contrast, both the supporter and the normal proactive model open the
possibility for the Japanese challenge. First, the supporter model essentially argues
that Japan supports, not challenges, the U.S.-led international system because it is
beneficial to Japan. Therefore, Japan could decide to challenge the U.S.-led
international system(or international regime) if the system worked against Japanese
national interest. For this model to convincingly address the question o f the Japanese
challenge, one has to show a pattern o f Japanese economic loss under the U.S.-led
world market economy when Japan started to challenge the orthodoxy.
The empirical evidence does not support the above implication. Japan’s
economic power in the world market has significantly and incessantly increased
throughout the entire 1980s. For example, with output equivalent to only one-
91
Calder 1988, 520.
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twentieth of the U.S. Gross National Product in 1945, and surpassing its prewar
level of industrial production only as recently as 1959, Japan’s wealth was equal to
one-half of the U.S. GNP by the 1980s.^^ The marvel of Japan’s economic power
could be also signified by its extensive capital exports to the U .S.(which effectively
financed half of the U.S. government’s annual budget deficit), its global position as
the largest aid donor(since 1989), and the fact that the top ten international banks and
the largest stock exchange were Japanese by the end of the 1980s. In short, no
evidence whatsoever indicates Japanese economic loss under the U.S.-led international
system, and Japan as the most internationally competitive nation-state was still
arguably the largest beneficiary of the liberal world market when it began to challenge
the orthodoxy.
As for the AMF proposal, this supporter model is not much helpful in
explaining Japan’s change of posture from “cooperation” to “conflict” with the U.S.-
led IMF bailout operation in the management of the Thailand financial crisis. There
was no apparent evidence between the two policies(cooperation and conflict) for any
shift in the distribution of Japanese material incentives. Given the high exposure of the
Japanese financial as well as manufacturing sectors in the troubled economies, it
seemed clearly in the interests of the Japanese government to set up such a fund to
help them out. However, by the time Japan proposed the AMF, the so-called Asian
financial crisis, which engulfed almost the entire region later on(by the so-called
“contagion effect”), remained an unlikely possibility. As will be discussed in greater
detail in chapter 4, the MOF’s focus was thus rather on having a regional monetary
92
Krasner and Okimoto 1989, 117.
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fund able to respond the Thai crisis quickly without much concern about saving
Japan’s investment. The greater concern was that the undue intervention of the IMF-
led universal approach(under the U.S. influence) could exacerbate the situation. For
example, in September 1997, Japan offered Thailand a soft-Ioan package of $900
million. It was the second largest amount in the history of yen loans to Thailand. In
contrast to the IMF loans, the Japanese offer did not come with any reformist strings
attached while making the Thailand government fully responsible for using such a
fu n d .^ ^
Second, the evolutionary normal proactive model seems to best fît the Japanese
challenge, given its focus on growing Japanese proactivism while at the same time
recognizing the existence of reactivism in Japanese foreign economic policy.
Attributing the shifting pattern of Japanese re/proactivism to bilateral relations(or
bilateral power configurations) with the U.S., this model can explain the Japanese
challenge that came in only in the mid to latel980s, despite the early success of the
state-led development. The Japanese challenge to the neoclassical economic
orthodoxy by criticizing structural adjustment model was nothing more than a
byproduct of the increasingly acrimonious negotiations between the U.S. and Japan
over the trade deficit.^"^ Growing weary of U.S. accusations concerning Japanese
practices, Japan, for example, issued a white paper openly criticizing American
commercial policies. Subsequently, among other things, Japan refused to commit itself
^Sudo 2002,110.
Stein 1998,41. Wade( 1996) suggests a possibility o f this line of reasoning for the Japanese
challengeCjust in passing). See also Campbell(1992, chapter 8) for how Japanese economic power as a
great national security threat to the U.S. was articulated throughout the 1980s.
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any longer to import targets in semiconductors and automobiles/^ arguing that
Japan “has rolled back formal tariff barriers and quotas farther than any other
countries, including the U.S.”^ ®
Then, why was it not until the mid 1980s, given the fact that the Japanese
tension with the U.S. over trade practices(including non-tariff barriers in the Japanese
market) was not peculiar to the mid 1980s or early 1990s-it was a source of official
concern at least since the 1970s. As this model finds Japanese re/proactivism in
bilateral power relations with the U.S., the Japanese challenge in the mid 1980 was
made possible only in the context of U.S. hegemonic decline and the rise of Japan.
Japanese interests behind this ideational challenge would be, by pointing out the
shortcomings of the market based neoclassical orthodoxy, to get in the short run more
bargaining power in trade negotiations with the U.S. and to preserve in the long run
the existing economic practices(such as tariff and non-tariff barriers) currently found
in Japan. In short, the Japanese challenge was nothing but an indirect but strategic way
of materializing Japanese economic interests.
For this model to convincingly address the question o f the Japanese challenge
along with this line, one has to show that the most critical proponents o f the state-led
Japanese alternative must have been those who were insisting upon making the
mercantile Japan remain intact, since they believed the mercantile regime featuring
power concentration and bureaucratic intervention for unflinching pursuit o f relative
gains in the world market was, is, and will be working marvelously for Japan. Any
See Uriu(2000) for the impact of the revisionists on the U.S. trade policies toward Japan. Based on
the notion that Japan is different, the revisionists in the Clinton administration pressured Japan to set the
numerical import target to improve the U.S. trade deficit vis-à-vis Japan.
^ Krasner and Okimoto 1989, 129.
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serious changes in the Japanese mercantile regime would hurt Japanese national
interests.
The empirical results do not confirm the above implication. The bureaucrats
and intellectuals who argued most enthusiastically for the state-led alternative as a
more useful way of undertaking rapid economic development for developing countries
were those who most critically evaluated the current practice of Japanese
politicoeconomic regime(featuring power concentration-iron triangle-bureaucratic
intervention) and proposed the dissolution of the regime, which had worked so
marvelously during the rapid industrialization periods(the so-called “high growth era”
from the 1953 to 1973). What proponents of the state-led alternative basically claimed
were that the state-led alternative could not be an ideal economic practice that all
societies should ultimately realize. It is a transitional political economic practice(or
system) for the purpose of rapid industrialization.®^ Therefore, once the purpose is
achieved(industrialization), it must he dismantled-just like the booster rockets must he
detached at a certain altitude in a Space Shuttle launch.®^ In this line of argument,
Japan should have accomplished the dissolution of the state-led politico-economic
regime toward a freer and more open system a long time ago. Japan, measured hy per
capita income, had already caught up with the Western industrial economies by the
For example, Watanabe, a prominent Japanese economist for the state-led alternative, declares that
the adoption o f a state-led development strategy is unavoidable for any country wishing to industrialize
rapidly. See Watanabe 1998,201-204.
Ohno eds. 1998,32-34. Based on the experiences of Japan as well as the NIEs, they also claim that
the dissolution o f the state-led industrialization regime is far from automatic. The successful dissolution
must be supported by appropriate regime shifts. For example, they argue that domestic and international
pressure for a more liberal system must be matched by appropriate government actions at the critical
moment: private forces alone are not enough. Necessary policies include deregulation, decentralization,
promotion of competition, enforcement of anti-monopoly laws, downsizing of the government, external
market opening, transparency o f political and administrative processes, and political liberalization
toward full democracy.
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early 1970s. They diagnosed the current hardships of Japanese economy to be
derived from “institutional fatigue” resulting from Japan’s failure at dismantling the
once-marvelously successful-developmental regime. In order to ensure further
economic development, they argue, Japan should initiate bold reforms toward a freer
and more open system.^^ After all, Sakakibara, who led the AMF proposal, was the
one who substantially liberalized the Japanese financial market in the 1980s against
the insular view favored by Japan’s financial elites.The argument that the Japanese
challenge was “hooks” through which proponents of the state-led alternative express
their material interests therefore cannot be valid.
In sum, each model at the systemic level can help one understand the peculiar
nature of Japanese foreign economic policy in relations with the U.S. In particular, the
third model, “a proactive normal state,” is useful in that it helps one understand that
much of Japanese foreign economic policy since the rise of Japan involves making
policy postures to further and more aggressively express what Japan wants
independently of the U.S. than ever before. Yet the proactive model cannot provide a
satisfactory explanation of the decision to challenge the neoclassical economic
orthodoxy, because it is, like the rational state-centered approach discussed above,
unable to deal with the question of the state’s preferences. If international politics is all
about “survival,” and the logic of survival in turn reproduces “like units” with
preferences largely fixed by the material capability the units can dispose of in the
^ See, for example, Sakakibara and Tahara(1999, 151-159), one o f the most outspoken proponents of
the state-led alternative, for his comments and diagnosis on the staggering Japanese economy. See also
Murakami(1996, chapter 8), an intellectual godfather o f all those following proponents of the state-led
alternative, who essentially argues that “developmentalism” is suitable for latecomers while classical
economic liberalism is appropriate for mature industrialized coimtries.
Sakakibara and Tahara 1999, 133-150.
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anarchie international system, why, despite their original contribution to the state-
led industrialization and similar international position as middle-range powers, such
major European countries as France and Germany, have been more receptive or
deferential to the spread o f the U.S.-led neoclassical orthodoxy than Japan has been.
Systemic theories alone are not adequate in explaining variation in preferences across
the units. Wendt, for example, identifies the four categories of national interests
even at this systemic level, namely “physical survival,” “autonomy,” “economic well
being,” and finally “collective self-esteem.”* ® ^ Which interest of Japan is more salient
than the others and under what conditions? More importantly, what structures
preferences? Many different types of policy activities can plausibly be construed as a
preference structured by the desire to survive in the anarchic world. But how does one
explain why one survival strategy is adopted instead of another? In the case of the
Japanese challenge(in particular the AMF proposal), how does one explain why Japan
chose policies that appeared to be irrational in the sense that it exacerbated the
bilateral relationship with the U.S. with no immediate material gains. The Japanese
challenge was much more than those required for survival.
So far this chapter has explored each of these alternative explanations not to
dismiss them but rather to point out some of their weaknesses in trying to answer the
two specific questions posed in this dissertation: what made it possible for Japan to
challenge the neoclassical economic orthodoxy? And why did Japan propose to create
the AMF excluding intentionally the U.S.? Each alterative explanation, which has
frequently been used to explain the process of foreign economic policy making in
Gourevitch 1986.
Wendt 1999, 236.
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Japan, explains policy outcomes on the basis of plausibly inferred interests of the
relevant key actors without asking on what basis the key actors themselves define their
interests. As a result, they do little to determine within a set of equally plausible
strategies for furthering the interests of the relevant key actors why one policy is
chosen instead of others, let alone specifying the content of interests themselves.
Then, can some less rational actor framework, which stresses human beings
who act and react on the basis of options that their interpretations of the world make
available to them, help us illuminate a mechanism through which an actor’s preference
is structured? Below I briefly discuss the rationalist account of the role of ideas. After
briefly addressing the bias and shortcoming of these accounts, the remaining part of
this chapter introduces an alternative analytical framework seeking to capture how
having an identity leads to interests, and, in turn, action.
In rationalist explanations of ideas, Goldstein and Keohane present a
ft-amework for analyzing the impact of ideas on policy outcomes. They argue that
ideas are assumed to influence behavior through one of three causal pathwaysFirst,
ideas may serve as road maps. Out of the universe of possible actions, decision
makers select those that best fit their normative and analytic understandings.
Principled beliefs help define actors’ goals; causal beliefs strongly influence the
choice of means to achieve these ends.^°^ Different choices under apparently similar
circumstances can, thus, be explained by differences in the ideas or beliefs systems of
What is interesting about all theories reviewed above is that they all rely either explicitly and
implicitly on the concept o f “identities,” such as “strong or weak state” and “reactive, supportive, and
proactive state,” which are inductively found.
Goldstein and Keohane 1993, 8-24.
According to Goldstein and Keohane(1993,15), individuals are taught to believe in the cause-effect
relationships posited by causal ideas. For example, the cause-effect relationships posited by liberal trade
ideas are persuasive to many people because they were taught classical economics in schools.
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actors. Second, widely shared ideas may facilitate cooperation in the absence of a
unique equilibrium, serving as focal points that help define acceptable solutions to
collective action problems. Third, the impact of ideas is often mediated and
enhanced by institutional rules and norms that are created under the influence of
widely shared beliefs. Once ideas have become embodied in institutional frameworks,
they constrain public policy as long as they are not undermined by new scientific
discoveries or normative changes.*®’
Then, what are the problems with the above three causal pathways through
which ideas may influence policy outcomes? There are two important shortcomings in
them, biased by their material precepts. First, as in the case of alternative explanations
discussed earlier, all these causal pathways fully poised in a policy-making/problem
solving mode fail to deal with the question of preference formation. By saying little
about the impact of ideas on state identities and corresponding interests,*®^ Goldstein
and Keohane tend to reduce the role of ideas strictly to a tool used for a process of
elimination/selection to better execute the already given interests. The utility of ideas
is on resolving particular policy problems. For example, the fate of institutionalized
ideas(the third category) depends very much on the sunk costs embedded in
institutions. As Ruggie aptly puts it, “the heavy lifting in the Goldstein-Keohane
scheme ends up being done by principled and causal beliefs functioning as focal points
* ® ^ See the opposite view provided by Krasner(1991) who essentially argues that
national power determines a focal point along the pareto frontier, which is not
necessarily the same as a fimctionally optimal point.
See Sikkink(1991) for the impact of institutionalized ideas on the developmentalism of Argentina
and Brazil.
‘®*Hall 1993,51.
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in multiple equilibria situations.”’® ^ The ideational frameworks provided by
Goldstein and Keohane can therefore tell much about how actors with plausibly
inferred interests go about their business with ideas, but not about actors
themselves(actors’ identities) that are the basis o f interests. By arguing that interests
are defined on the basis of a set of preferences that are shaped by ideas that best
embody interests, Goldstein and Keohane's interest-based ideas framework tends to
provide a circular reasoning.” ® The question of what structures actors’ preference still
remains to be answered.
Second, the utilitarian framework viewing ideas merely as a means to better
effect a given interest undermines the impact of human subjectivity on agentic
behavior. As will be discussed below, what matters is not so much about objective
conditions as how actors understand them. Between objective conditions and human
volitions lies interpretation.’” Before choices can be made, circumstances must be
assessed and interests identified. Interpretation that shapes the perception of reality
and informs actors about the meaning and significance attached to the particular
situation in which they find themselves is, in turn, largely a function of the self-
conception or identity that actors hold at a given time and place(constituted by
cognitive as well as material structures; which one is an empirical question). The
silence on the role of ideas in constituting actors’ identities therefore contributes to
presenting a political world in which actors are treated as objects rather than subjects.
The silence denies negotiated and redefined intersubjective frameworks of meaning
‘“ Ruggie 1998, 18.
““ Woods 1995, 171.
Ill
Adler and Hass 1992, 367.
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anchored in social action. Except in circumstances that require little interpretation
on the part of the relevant key actors-because the environment is placid, because
shared knowledge prevails, or because coercion determines outcomes- political actors
make a choice as much based on the meanings they attach to it as on bare facts that
materialism attributes to interest. Simply put, physical objects cannot will things to
happen; within limits(intemational and domestic constraints and opportimities), human
agency can.**^ Interpretive frameworks enable one to trace the process of how certain
meanings emerge around policies, ideas, and identities. To the question of what made
possible for Japan to challenge the neoclassical economic orthodoxy, for example, the
emergence of such successful Asian state-led developing states as NlEs in the 1980s
provided the proponents of state-led alternative within Japan with a new meaning that
the Japanese postwar domestic social, political, and economic order could have a
international validity for . As will be discussed in the next chapter, the new meaning
around the ideas of state-led alternative later became social forces that empowered
those Japanese bureaucrats and intellectuals who had long emphatically identified the
postwar Japanese economic development as “state-led,” relying on the application of
precepts and methods of the state-led catch-up late industrialization. The impact of
ideas on policy outcomes is not limited to instrumental dimensions. It includes an
interpretive function that creates meaning for social action.
In sum, the limitations of the rational account of the role of ideas on actors
behavior result in leaving the fundamental assumption of interests unquestioned and
unchanged. Regarding the understanding of the interrelationship of ideas and interests.
112
Ruggie 1998, 90.
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most researches in this vein in fact follow the rationalist path of assuming material
interests as given and employ ideas as “intervening variables” between interests and
political behavior.**^ This position is exemplified in Hall’s assertion that new ideas
enter a terrain already defined by a prevailing set o f political ideas(which he refers to
as the political discourse of a nation).*''* What makes new ideas persuasive is the way
they relate to both political priorities at that time and to a prevailing set of ideas in a
given political system."^ This observation necessitates developing an alternative
framework that analytically unpacks the formation of actors’ preferences.
. An Identity and Intention Framework
Constructivism and Anarchy
As noted above, one of the most common criticisms of rationalist approaches
to social science is their exogenous treatment of interests as if a researcher could
assign them from the choices actors make. Critics of rationalist approaches thus claim
that this exogenous treatment of interests leads to backward induction from the choice
to the interest, resulting in the so-called “the fallacy of imputed preference.”"® In
International Relations, both neorealism and neoliberalism take on a homogenizing
assumption that states have the same a priori interests called self-interest. The
assumption is rationally justified by pointing out the implications of anarchy in
international relations. The structural condition of anarchy here defined as “no
overarching authority in world politics that imposes limits on the pursuit of sovereign
For example, Odell 1982; Hall 1989; Sikkink 1991,1993; Keohane and Goldstein eds. 1993; For the
causal effects of ideas, see Woods 1995; Yee 1996, 1997. For the general discussion of the contrasting
view o f neoliberal and constructivist ideas, see Ruggie 1998, Introduction. For the epistemic
community, Haas 1992.
"‘ *Hall 1989, 383-384.
‘"W oods 1995, 175.
Ruggie 1998b, 880.
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interests” is so eonstraining that the logie of survival determines behavior of actors.
This way of ontological rendering of anarchy makes all units in international politics
have only one meaningful identity, that of self-interested states. What this
ultimately does for theorizing international relations is that there is not much room for
agency. The implications of anarchy are constant across all relationships and issue
areas of international politics, thus allowing for only a particular set of interests or
preferences with respect to choices of action before actors. In Axelrod and Keohane's
words, anarchy “remains a constant.”* * * Self-interest, which is thus a structurally
determined behavior of actors, manifests in the form of self-help. “Self-help is
necessarily the principle of action in an anarchic order.”* * ^
States, explained by neorealism, are destined to strive for(and should be
striving for) relative power and relative gain in order to guard their security and
economic autonomy(or independence) whenever possible.*^** States, explained by
neoliberalism, are also self-regarding units in the pursuit of exogenously given
economic incentives. They can be less concerned with self-help only when economic
relations among states are mutually beneficial or satisfying.*^* Even in a reformulated
form that is designed to deal with the formations or origins of states’ preference,
states, according to neoliberalism, are still locked in the configuration of exogenously
given economic interests. The state is not a unitary actor anymore in the reformulated
version. Individuals and firms are the key actors. But they are assumed to follow
Waltz 1979.
Axelrod and Keohane 1993, 8.
Axelrod and Keohane 1993, 113.
Krasner 1976; Gilpin 1981; Grieco 1990; Gowa 1994; Mearsheimer 1995. See also Baldwin(1993).
121
Keohane 1984; Axelrod and Keohane 1985; Oye 1985.
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economic incentives. State preferences are just the aggregation of societal
preferences mediated by domestic institutions.*^^ Given the fixed identities and
interests of key actors, states in the reformulated neoliberalism merely enact in the end
stable preferences like its predecessor under the condition of anarchy, though one of
its proponents has argued persuasively that the propositions one can derive from
anarchy are almost entirely indeterminate.*^^
Taken together, the rationalist treatment of anarchy works in the direction that
there is no ill effect on treating the identity and interests of actors as exogenously
given. * ^ '* The condition of anarchy keeps reproducing such a fixed actor’s identity as
an egoistic utility-maximizer, and a particular set of interests or preferences are
assumed to go along with such an identity. Problematizing the identities and interests
of states as a way to better theorize their choice of action is not worthy of effort in a
field called international relations in which “political action is most regularly
necessitous.”* ^ ^ Nothing much is to be lost by analytically assuming the actors(for
example, states) to be subordinate to anarchy without “possibilities of doing
otherwise.”* ^ ^
Moravcsik 1997; Milner 1988, 1997.
Milner 1991
Mercer(1995), using social identity theory developed to explain the experimental findings from the
minimal-group paradigm, supports the neorealist assumption that states are a priori self-regarding or
self-help, thus leaving constructivist arguments in disarray. But he himself makes a distinction between
out-group and in-group competition: “intergroup competition often will take the form o f a preference
for relative gains when dealing with out-groups and absolute gains when dealing with members o f the
in-group(1995,251).” It is hard to combine these two conclusions in congruence because the latter
observation seems more in line with constructivists focus on the process that determines identities and
interests o f actors in interaction. After all(as will be discussed later), his SIT-based research design,
which predicts conflict with out-groups regardless of the content of the identity(thus only with the
consideration o f membership), is not appropriate for testing a constructivist notion of meaning based
identity choice.
Wight 1995,25.
Giddens 1984,213-226.
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In contrast, a constructivist approach to international relations advanced in
this dissertation attempts to endogenize actors’ interests by treating an actor’s identity
as a variable. It empirically considers how specific identities of specific states shape
the conditions that make one particular conception of national interest prevail over
others. It explores “what happens before the neo-utilitarian model purportedly kicks
in.” '"'
This way of problematizing identities and interests of actors is premised on not
presuming anarchy in a way described above with a single eternal constituting
meaning for international relations.*^* Simply put, constructivism does not follow that
the purely material implications of anarchy permeate through all relationships and
issue areas of international politics. Whether anarchy as such organizes international
politics depends largely on dynamic intersubjective interpretations of the nature of
repeated interactions among political actors in a given issue area.*^® A continuum of
anarchies is at its most basic possible.Constructivists thus view international
structure to be a social structure made up of socially knowledgeable and discursively
competent actors who are nevertheless subject to constraints that are in part material,
in part ideational: “the manner in which the material world shapes and is shaped by
'""Ruggie 1998b, 19.
Alker objects to the use o f anarchy in International Relations on the two grounds. When anarchy is
meant by a “confused,” “disordered,” “lawless,” “unregulated” state of affairs, it is not historically
correct. When anarchy is meant by a state of affairs “without rule, authority or government,” its causal
argument incorrectly denies the possibilities o f order, law, and regulation inherent in pluricentric or
polyarchic sociopolitical systems. See Alker 1996, 355-360.
Wendt 1992,405-406.
Bull 1977; Wendt 1999, 246-312.
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human actions and interactions depends on dynamic normative and epistemic
interpretations of the material world.”* ^ ^
Constructivists treatment of international structure leads to bringing actors
back in the making o f international relations. Regardless o f the level at which they sit,
the human actors cannot be compared with the notion of billiard balls in physics. The
actor is a being capable of being caused to act by the beliefs, desires, and other
psychological states that give him/her reason to act. In other words, the actor is an
embodied unit and as such, a possessor of causal powers that he/she may choose to
employ to intervene(or not) into the ongoing sequence of event in the world.
What is the nature of the logical connection between action and power?. ..To
be able to “act otherwise” means being able to intervene in the world, or to
refrain from such intervention, with the effect of influencing a specific process
or state of affairs. This presumes that to be an agent means to be able to
deploy(chronically, in the flow of daily life) a range of causal powers,
including that of influencing those deployed by others. Action depends upon
the capability of the individual to “make a difference” to a pre-existing state of
affairs or course of events. An agent ceases to be such if he or she loses the
capability to “make a difference,” that is, to exercise some sort of power.
However, human consciousness with possibilities of doing otherwise always
stands in mutually conditioning relationships with social structures, whose ontological
status are endowed with possibilities of becoming otherwise(other than anarchy), but
not of being(anarchy). Thus, in constructivism’s account of structure and agency,
states are expected to have (1) a far wider array of potential choices of action before
them than is assumed by realism, and (2) these choices will be constrained by social
structures that are mutually created by states and structures via social practices.
Adler 1997, 322.
"'Giddens 1984,14.
Hopf 1998, 177.
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The not taking for granted of anarchy enables constructivism not just to have
more agency. On the basis of the notion that any foreign policy is the outcome of an
international process viewed as “a chain o f temporarily related and spatially
interdependent intersections o f decisions made by two or more actors in the global
system, which pertain to a particular set o f issues, over a relatively long period o f
timef^^^ constructivists’ characterization of international structure as social also opens
up a space for the importance of the relational sensitivities of actors in interaction.
States act differently toward enemies than they do toward friends because enemies are
threatening and friends are not.’^ ^ The U.S. military power has a different meaning for
Canada than for Cuba, despite their similar structural position, just as British missiles
have a different significance for the U.S. than they do for Chinese missies.
Taken together, despite a variety(or variants) of constructivism,common to
all varieties are two basic principles.
1. What people do, publictly and privately, is intentional, that is, directed to
something beyond itself, and normatively constrained, that is, subject to
such assessment as correct/incorrect, proper/improper and so on
Maoz 1990,2, italic original.
Such a neorealist as Snyder shares this view as saying, “if system struture(anarchy) only shapes and
shoves, relationship pattems(alliance or not) give a more decided push” in terms o f how resources and
cmabilities are aggregated in the system. See Snyder 1997,22.
' in International Relations, several ways are suggested for the classification of variants
constructivism. For example, Onuf has strong and weak constructivism(2001) as is the case for
Hasenclever, Mayer, and Rittberger(1998, 136). Ruggie has neo-classical, postmodernist, and naturalist
constructivism( 1998, 880-882). Hopf(1998) makes a distinction between conventional and critical
constructivism. Checkle(1997) divides it between thin and thick constructivism.
Harre and Langenhove 1999,2.
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2. What people are, to themselves and to others, is a product of a lifetime
of interpersonal interactions superimposed over a very general
ethologieal endowment.
In other words, constructivism works on the basis o f the fundamental principle that
“people act towards objects, including other actors, on the hasis of meanings that the
object have for them.”* ^ ^ Material facts themselves are indeterminate: norms, cultures,
and identities give meaning to material facts so that actors can interpret and react to
them.*^^ With respect to choices of action in relation to a particular set of preferences,
choices are enabled and constrained by the webs of understanding of the practices,
identities, and interests of other actors that prevail in particular socio-historical issue
contexts. A key to addressing social action(with respect to rank-ordering of
preferences) under constructivism is thus to explicate the intersubjectively constituted
identities and interests of states and the intersubjective meanings out of which they are
produced.
Interests are assumed to go along with identities. An actor “chooses from
among available representations of the Self who one will be, and thus what interests
one intends to pursue.. At the issue is to infer implied or associated interests from
“available” identities(these are potentially the sites for the domestic politics-alternative
identities can compete for relevance) and then to see if they are in fact present at the
moment of choiee.*"** Given multiple identities with which an actor is associated, a
Wendt 1992, 396-397.
Abdelal 2001,38.
Wendt 1999, 329.
As opposed to the view on identity as reasoned choice, some communitarian approaches tend to
claim that identity comes before reasoning for choice. A definitive communal identity is a matter of
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choice is a function of the salienee the actor attaches to a certain identity over others
in a given eontext. Changes in identities result in the corresponding changes in
interests. In this way, identities are the basis of interests. Interests are endogenized
rather than exogenously given.
However, this parsimonious Wendtian mapping of the identity-interest nexus
has been charged that it still remains theoretically underdeveloped on the issue of
addressing the causal mechanisms behind identities, interests(preference ordering),
and eonceptions about ends-means relationships. Its empirieal applications do not
establish more than a correlative relationship between an identity and an outeome.*''^ It
does not thus provide a theoretical basis for understanding why one identity rather
than another becomes institutionalized and chosen.Simply put, at most basic, is
such foreign policy decision based on a chosen identity? Do state offieiaIs(or decision
makers) talk about identities, if not interests(any kinds), at the moment of choice?*"^^ If
not, is it not another type of “scholastie fallaey?” How does having an identity
causally lead to action?
self-realization, not o f choice. For example, Sandel(1998,150) claims that “community describes just
what they have as fellow citizens but also what they are, not a relationship they choose but an
attachment they discover, not merely an attribute but a constituent of their identity.” Also see
Crowley(1987) for a similar line of argument. As will be discussed below, however, it is hard to
imagine that one can really have no substantial choice between available identities even in a given
context. There is always the possibility that one is constantly making choices. “Discovery” or
“Detecting” thesis runs the risk of providing too deterministic view o f social action.
Bennett 1999, 5-12.
Kowert and Legro 1996, 469.
Florini 1996, 363-89.
This reminds me of the day I defended my dissertation proposal. One o f the examinees said carefully
but nonetheless adamantly that it would be hard for him to imagine that state officials would be asking
each other o f what identities, but not interests, were at stake at the moment o f deliberation of foreign
policy. Additionally, he wondered if there exist a linguistically corresponding term o f identity in both
Korean and Japanese.
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In what follows, the rest of this chapter aims to develop an identity-
intention(or reason) conceptual framework to address the questions above. As noted at
the outset, a answer lies in marrying a constructivist notion of social causation that
takes prim ary reasons as causes to the notion that national interests emerge out o f the
representations(or out of situation descriptions and problem descriptions) through
which state officials and others make sense of the world around them. Following
Davidson, a primary reason is defined as follows:
Rationalization is a primary reason why an agent performed the action A under
the description d only if i? [rationalization] consists of a pro attitude of the
agent towards actions with a certain propertv, and a belief of the agent that A,
under the description d, has that property.
Here identities, which presuppose social relations, affect the way actors
understand the external world in general and provide each state in interaction with a
meaningful understanding of other states in particular, including its nature, motives,
interests, probable actions, attitudes, and role in any given political context. The
material or social incentives for a particular action will take on different meanings
according to one’s identity. Thus, the functioning of identities affects the valuation of
incentives. In this way, identities become the basis of reasoning about an actor wants.
Primary Reason as Cause and Logical Structure
Constructivism’s commitment to human consciousness in the making of
international politics turns interpretation into an intrinsic part of a scientific enterprise
that seeks to explain the social construction of reality. Interpretationism is the view
that if an actor is interpretable, then they are an intentional actor. This position
Davidson 2001, 5.
Davidson 1993; Dennett 1987,1991.
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requires finding out what the actors on the international stage think they are
doing.*'** This in turn necessitates an account of social action in terms of the actor’s
reasoning processes. Constructivism explains why an actor acts the way he/she does by
taking the perspective of the actor’s own reconstruction of the process of reasoning.
“To give an interpretation of an action.. .involves giving a description of the cultural
context and state of mind of the agent in a way that makes his or her action intelligible
to us.”* '* ^ Then, primary reasons should be taken as causes in order for them to provide
an analysis of the “because.”* ^ * * Can reasons, which are mental entities, be causes? The
answer depends in part on what is included in the term “cause” and in part which
explanatory forms are regarded as legitimate for causal analysis.*^*
In the world of the “nomological-deductive(N-D) model of explanation,” * ^ ^
reasons cannot be causes. To give the reasons-explanation of action is to show the
action’s rationale from the actor’s point of view, from the beliefs and objectives with
which the actor started. But the N-D model aims to show how a statement reporting
the occurrence of action being explained may be deduced from a statement describing
the cause of the action together with a generalization backed by causal laws. The N-D
model statistically establishes causality by subsuming the explanandum under a
covering-law or lawlike generalization. Reasons cannot be treated neither deductively
nor nomologically in the N-D model. It is because preferences are not given prior to
Hollis 1996,305.
Little 1991,70.
Davidson 2001, 11.
See, for example, Elman and ElmanA(2001,20-27) for different understandings o f causation
between historians and social scientists. Historians put an emphasis on uncovering purposive and
intentional behaviors o f actors while social scientists try to find a covering(or conditioning) law behind
such movements of actors.
‘^^Hempel 1966.
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practical reasoning. In other words, preferences are typically the product of practical
reasoning. The schema of the N-D model explanation would he:
A was in a situation of type C
A was a rational agent
In a situation of type C, a rational agent will do x
Therefore, A did x .* ^ "*
This schema presupposes “rationality(objective rationality)” defined in terms of
utility-optimization(or maximization). As noted ahove(the fallacy of imputed
preference), there are at least two strong objections to this schema. First, there is no
ultimate criterion of rationality that uniquely singles out one course of action as “the
thing to do.” Second, there is no reason to believe that all historical actors are rational,
in any of the several senses of “rational” that its proponents have explored. Human
actors do not always reason according to the rules of probability and decision theory
posited by the rationalist account.
Searle 2001, 247-257. Searle gives two feathers for the fact that there is in the philosophical
literature no plausible account of a deductive logical structure o f practical reason. He says(2001, 255),
“The first feature we might label ‘the necessity o f inconsistency’. Any rational being in real life is
bound to have inconsistent desires and other sorts of motivators. The second we might label ‘the
nondetachability o f desire’. Sets o f beliefs and desires as ‘premises’ do not necessarily commit the
agent to having a corresponding desire as ‘conclusion’ even in cases where the prepositional contents of
the premises entail the prepositional content of the conclusion.” Similarly, see Alker (1996, 399-414)
for the relationship between practical reason and scientific explanation.
Donagan 1966, 155.
This includes Simon(1979)’s satisfying account of choice(a kind of second-level maximizing). The
question is simply how mueh is good enough for satisfying? Similarly, see Chong(2000, 3) who defines
instrumental rational action as those that secure “private ends.” He stipulates that individuals choose
more attractive alternatives “instead of being driven by internal values, identities, and dispositions.” But
this only begs the question o f the origins o f a person’s knowledge of relative attractiveness.
Tversky and Kalmeman 1982. Also see Bloor’s interest theory relying on a notion of personal
motivation(1991). Bloor basically argues that an appeal to personal motivation to explain behavior
invokes intentions and a more elaborate psychological characterization o f agency than rational choice
provides.
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In contrast, primary reasons can be causes in the intentionality
scheme(subjective rationality), which is identified as another micro foundation on
which action restsIn the social world, deterministic laws are improbable. It is thus
argued that causal explanations themselves are not to be analyzed in terms of the N-D
model. Reason made up of desire and belief(or attitude) is a cause only if it is in fact
the one that causes the action being explained. Given the reliance on the actor’s
processes of reasoning as the data for causal claim, the reason-based intentional
scheme tends to take in the form of what Ruggie calls “the narrative explanatory
protocols.” Causality(causation) in the narrative explanatory form is established
through a process of successive interrogative reasoning between explanans and
explanandum. The issue is to empirically make a genuine distinction between an
actor’s “real” reasons(defined as primary reasons noted above) and merely
justificatory ones.*^®
The reason-based intentional schema, however, works on three assumptions.*®*
First, feasible set of alternatives is structurally given to an actor. Second, an actor has
a subjective belief in the causal relationship of means-ends in a given situation. Third,
an actor subjectively rank-orders the outcomes of choices. Based on these
assumptions, the schema works as follows(here A is action, C is cognition or beliefs,
and D is desire): first, under C, A is the best way to satisfy D; second, C and D cause
Elster 1983,79.
Davidson 2001, 10. This is in line with scientific realists notion of causal claim. According to
scientific realist explanations in the social sciences, causal claims refer to the causal powers of social
agents that are conferred onto those agents by the social structures and relations that constitute them.
Ruggie 1998b, 880. See also Suganami(1999, 378-381) for the idea o f “narrative intelligibilitying,"
'“ Davis 1979, 83-105.
161
Elster 1986, 1-33.
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A; C and D cause A for(not with) reasons. Thus, reasons are causes for A. The
schema of the intentional explanation would be as follows:
A was resolved to achieve the end E at all costs
A judged his situation to be C
A judged that E could only be achieved in C if he did x
Therefore, A did x * ® ^
This does not presuppose that either A’s resolution or his judgments are “rational.” A
is just doing its best to achieve its subjective goal with means that is made available to
him/her. In this way, this intentional schema can substantially reduce the fallacy of
imputed preference.
Along with this intentional scheme, constructivism embraces a notion of social
causation that takes primary reasons as causes.Doing something for reasons means
applying an understanding of “what is called for” in a given set of circumstances.
However, the current status of the intentional schema right above does not offer a
way(mechanism) to discern “what is called for” in a given situation. There still lacks a
theoretical basis for understanding an actor’s reasoning process of what to want
among feasible set of subjective altematives(preference is still given). In other words,
in the tradition of the Classical Model of practical reasoning,*®'* the intentional schema
noted above is mainly concerned with a matter of deliberating about means to achieve
given ends. Identities as the basis for interpreting unfolding events fill in the vacuum.
Identities, Actions, and Situation Description
‘“ Donagan 1966, 155.
Adler 1997,329.
‘® ' * See, for example, Walton 1990; Audi 1993.
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How does having an identity lead to action? There are at least three different
ways in which identity can affect action(or behavior). They are as follows'®^:
The first is indirect, in some ways, and is the most acceptable for a wide range
of methods and research programs. Here identity allows actors to interpret the external
world(thus there is an implied theory of interpretation). Identity affects the way actors
understand the world, and thus the material or social incentives for particular action
will take on different values according to one’s identity. Thus, action still flows from
material or social incentives, but identity affects the valuation of incentives. One such
example is found in the work on national identities and governments’ interpretations
of economic interdependence.*^^ Basic identification of another government as friend
or enemy affects how economic interdependence is valorized. Historical memory and
the prevailing construction of national identity affect how one government interprets
the social purposes underlying the acts of another.
The second corresponds to social identity theory’s theory of action. Here the
central causal process in behavior derives from in-group differentiation, not the roles
or identity traits per se that are attributed to in-groups and out-groups. Here action is in
some sense a reaction to, and conditioned by the existence of, those who are different.
Some relationships(with the group that is socially recognized as similar) will be more
cooperative than others(with the group that is socially recognized as different) even if
the same issue is at stake(for example, territory, power, and status). Similarly, social
identity theory based arguments predict conflict with out-groups regardless of the
This part of the discussion relies heavily on Stets and Burke(1998) and Abdelal, Herrera, Johnson,
and Martin(2001).
'“ Abdelal 2001.
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content of the identity. This type of theory predicts belligerence, and conflict with
the other. Examples are found in accounting for the creation of “insecurity
communities” where realpolitik practice prevails(that is, where foreign policies among
states stress danger and the competitiveness of the external world, and where violent
threats and actions are considered legitimate). These can be explained as emanating
from identity construction, rather than structural anarchy or human nature. The basis
of such a hypothesis is that the process of in-group identity creation by necessity
requires, or leads to, the devaluation of out-groups. Thus, the creation of in-group
identity tends to produce conflictual behavior with out-groups.
The third corresponds roughly to what is frequently referred to as “role
theory.” The central causal process in behavior is the performance of roles. The
behaviors of actors(or attempts to act) are more or less consistent with actors’ role
expectations flowing from their identities. Identity provides socially appropriate roles
that actors perform, and that are “taken for granted.” In this conceptualization, the
reasons to act in a particular way are found in the decision to perform a role, not in the
decision to choose between optimizing paths to some preferred outcome. This is the
“the logics of appropriateness” claim. Examples are numerous in recent IR
literature.*^*
Of particular importance is the first one that provides a reason-based potential
link between identity and social action. Just briefly, the SIT-based in-group and out
group identity action theory, which presupposes “ascribed” as opposed to “acquired”
identity, does not allow for identity choice. In this theory, actors are essentially
See, for example, Hutchinson and Smith 1996; Davies 1997.
Finnermore(1996); Katzenstein 1996; Sikkink 1998.
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assigned to groups and are assumed to internalize their group membership. There is
no choice of identity and thus no exploration of individual differences in the
willingness to adopt such experimentally ascribed identities.*^® This is particularly
problematic considering that every actor associates him/herself with multiple
identities. Salience, one of the key forces behind identity shifts according to this
theory, is a feature of the situation, not the individual.*^® This theory thus remains a
deeply deterministic, structural view of the identity-action nexus that omits individual
choice.
For the role-identity theory, the caveat is that if identity traits provide norms of
appropriate behavior, there might be a number of reasons for actors to follow norms,
not all of which involve logics of appropriateness.*’* There are at least three other
logics by which identity norms might be followed: 1) mimicking, where an actor,
under conditions of uncertainty, ascertains that it is at least safe to copy what others do
until a “better” mode of behavior appears; 2) social incentives, where an actor values
the status markers that a social audience bestows on norm conforming behavior; 3)
material incentives, where conformity maximizes an actor’s reputation for cooperation
and/or material rewards. Thus to make this logic of appropriateness claim, one has to
show that other reasons for conforming to the norms of an identity were not just ruled
out but basically not present in the decision process. This is a question in the empirical
realm.*” However, to the extent that it is true that actors’ role expectations are enacted
Perreault and Bourhis 1999.
™ Huddy2001, 138.
Feason (1999) in Abdelal, Herrera, Johnston, Martin 2001.
* ” Another possible empirical caveat can be observed. As Bourdieu has argued, there is a possibility
that one frequently mistakes “the active presence of past experiences,” which accounts for the observed
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and projected from their conceptions of identities, and that all identity-related social
practices are not reducible to norms, the role-identity theory potentially too narrowly
conceptualizes the socially possible. After all, given that an actor has multiple
identities, the situational understanding that determines the salience o f one identity
over others precedes the role enactments. As such, roles and norms are potentially
subsumable under a theory of identity that is fundamental to the process of defining
and interpreting situations on the part of actors in interaction, in which interests
develop. An actor’s situation description always precedes what he/she should do. The
way in which an actor interprets the political situation is the first step for determining
policy objectives and choosing among policy options.
According to the theoretical account of identity in the first one, to the extent
that individuals’ cognitions are socially constructed, the self and the other mutually
need their identities to understand each other and act upon such an understanding.*^^
Here identities, which are relational social constructs resulting from social interaction,
work like simplifiers or categorizers that help people simplify complexity as symbolic
interactionists have long argued. People seek to discover the identity of the other and
their ovra identity through him/her in order to understand and predict their own and
others’ behavior.*^"* The basic thrust of this argument is that a human being is capable
of processing only a limited amount of incoming information and that the incoming
information is perceived in a mode that is resonant with already set patterns of
continuities and regularities in social life, for the operation of “formal rules and explicit norms.”
Bourdieu 1990, 54.
Operario and Fiske 1997, 41.
Mead 1934. Stryker and Stratham 1985, 321-323. In a similar vein, Bloom (1990,23) claims that
people seek identity in order to achieve psychological security.
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comprehension, expectation, and perception. In this bounded rationality fashion, a
human being has to rely on various cognitive economizing devices to be able to
process the sheer volume of information they receive.*’^ Identities, as one kind of
cognitive shortcuts and heuristics, help make sense o f external realities, which in turn
informs people of how to respond to them. For example, identities categorize people
according to features that an individual believes are diagnostic in terms of making the
other’s actions intelligible and one’s own actions vis-à-vis them intelligible to
oneself.*^®
The experimental psychology literature has demonstrated the role of identities
in perceiving external world. Identities operate like other cognitive devices, such as
scripts, schemas, and heuristics: “What one understands oneself to be, whether a man
or a worker, helps determine what information he/she apprehends and how he/she uses
it.”* ^ ^ In other words, one’s identity acts like “an axis of interpretation, implying that
one will find in the external world what is relevant to that identity.”'^^ In this vein,
Moscovici provides a rather comprehensive account of how identities operate
cognitively. Identities “conventionalize” the objects, persons, and events we
encounter. In other words, identities simplify and homogenize by making the
unfamiliar familiar, and in terms of the identity of the self. These objects, persons, and
events are “categorized,” because individuals have a need to understand. Once we
assign an identity to someone else, he/she become a member of a class assumed to
Simon 1982; Kahneman, Slovic, and Tversky 1982. See also March and Olsen for a theoretical
discussion o f sensemaking in organizational studies! 1989, 39-52).
Hopf 2002, 5.
5.
Markus, Smith, and Moreland(1985, 1494-1512) in Hopf(2002, 5). See Tajfei 1981. See also
Huddy(2001, 131-134) for a compact review for this categorization aspect of identity.
Moscovici 1984, 7-8 in Hopf(2002, 6).
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have a particular set of interests associated with the assigned identity: “Otherwise
incomprehensible or meaningless behavior becomes meaningful actions with assumed
intentions and motives assigned according to the identity classification scheme in
As such, reality develops through social interaction in which “conceptions of
self and interest tend to mirror the practices of significant others over time.”'* *
Individuals’ processing goals are determined in a social context “by the nature of the
relationship between self and the other social categories evident in that context.”'*^
Since stable identities and expectations about each other(self and other, for example)
are developed through repeated interactive processes, social cognitive and social
identity processes function together to produce contextually meaningful and relevant
judgment and behavior.'*^
The above nicely sits with the constructivist theoretical account of identity-
action being discussed so far in this chapter. As noted above, constructivism holds on
the one hand that “between international structures and human volitions lies
interpretation.” Before choices can be made, circumstances must be assessed and
interests identified.'*'* Genuine choices would be impossible on the part of decision
makers without at least implicit theory of interpretation. In other words, in order for
the state to act, it must have some understanding of its surroundings and some
Moscovici 1984, 31-37 in Hopf(2002, 6).
Wendt 1999, 327.
Locke and Walker 1997, 178.
Abrams 1997,221. See also Tajfel’s original discussion o f social identity(1969). Tajfei argues that
the self-concept derive meaning from the categorization of self and other within larger social units or
groups, and social comparisons within and between groups motivate people’s attitudes, appraisals, and
judgement.
Adler and Haas 1992, 367.
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specification of its goals. After all, actors “act in terms of their interpretation of, and
intentions towards, their external conditions, rather than being governed by them.”* * ^
Human beings are deliberate symbolic actors who act on the basis of their
understandings and wants.
On the other hand, national interests emerge out of situation descriptions
through which state officials and others make sense of the world around them. Once a
situation is defined in a certain way over others, the interests of the state are already
entailed within the situation description in which the identities of and relations among
the relevant actors or objects are established.^*^ The situation deseriptions created by
state officials make clear both to those officials themselves and to others “who and
what ‘we’ are, who and what ‘our enemies’ are, in what ways ‘we’ are threatened by
them, and how ‘we’ might best deal with those threats.”^ * * Identity guides individual
interpretation of reality and helps state officials to make sense of the political
situation. Thus, on the basis of a specific situation description, the state(state officials)
chooses the most appropriate course of action.
As such, the most appropriate course of action in the form of national interest
is always in conditioning relationships with how the cognitive dimension of identity
shapes the way an actor describes and defines a situation he/she faces. Given that any
foreign policy emerges out of the interactions between different states, and the
understandings(and misunderstandings) that underlay the “moves” they made in
response to one another’s actions, the key to this linkage lies at one state’s giving
Fay 1975, 85.
Little 1991,69.
‘* ’ Weldes 1996, 282.
'" /W .. 283.
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meaning to another’s action. To give meaning is to make sense of the situation in
light of who did what and eventually why. I will show below with the cognitive
dimension of identity how “who” rather than just “what” becomes the basis of the
situational description.
Identities, which presuppose social relations, affect the way actors understand
the external world in general and provide each state in interaction with a meaningful
understanding of other states in particular, including its nature, motives, interests,
probable actions, attitudes, and role in any given political context. The material or
social incentives for particular action will take on different meanings according to
one’s identity. The function of identities affects the valuation of incentives, thus
leading to the most appropriate course of action on the part of an actor involving a
particular time, place, and issue. In this way, identities become the basis of reasoning
about what to want. If this account is in fact right, the schema of the intentional
explanation should be modified as follow.
A judged his situation to be C
A was resolved to achieve the end E in the context o f C
A judged that E could be only be achieved in C if he did x
Therefore, A did x
Whether or not the identity-action theory in fact works in this way is an
empirical question. The question of why Japan proposed to create the AMF excluding
the U.S. is particularly tested under the identity-action schema as discussed right
below. The focus is on social interactions between the U.S. and Japan as processes of
signaling, interpreting, and responding in which the structures of identity and interest
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have been created, recreated, enacted, and projected. The structures of identity and
interest constituting Japan’s road to the AMF proposal are necessarily rooted in
collective meanings already produced by the previous interactions between the U.S.
and Japan in the ADB and the World Bank.
Based on the identity-intention framework developed above, the social
interaction processes between the U.S.-led IMF and Japan in the Thai bailout
operation are broken down into four major sequences. First, the U.S.-led IMF, acting
on its definition of the situation(the evolving nature of the Thai crisis including the
causes of the crisis), engages in an act that signals to Japan(the MOF officials) both
which action the U.S.-led IMF is planning to take in the interaction and which
corresponding action it envisages for Japan. In the second sequence, Japan interprets
the meaning of the U.S.-led IMF action in relation to its own perception of the
situation(the evolving nature of the Thai crisis including the causes of the crisis). In
the third sequence, Japan, on the basis of its interpretation, which may involve the
previously established collective meaning structures associated with the identities of
the U.S. and Japan as two leaders of different modes of economic development, now
engages in an action of its ovm(Japan’s AMF proposal that excluded the U.S. from
membership). This constitutes a signal to the U.S.-led IMF in the same way in which
the U.S.-led IMF action(the demolition of the Asian model) signaled Japan. Finally, in
the fourth sequence, the U.S.-led IMF responds with opposition to the establishment
of the AMF).
Above is the basic interactive structure that sketches the evolution of Japan’s
AMF proposal. However, since the question of the role of identity in influencing
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actors’ definition of interests is not only a question of shared or collective identity,
but also just as much a question of opposed and contested identities that are the basis
of different conceptions of Japanese national interests, I will also take account of the
domestic political contention leading up to the AMF proposal. Taking identities as a
variable in influencing actors’ definition of interests as discussed above therefore
requires a systematic exploration of intellectual evolution within the Japanese policy
elite and the political process. In the final analysis, the adoption of a policy over
others is the result of the decision of top policy makers, who respond to what they
perceive as the constraints and opportunities in the international and domestic
economic situation.
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CH APTER 3. THE DISCURSIVE CO NSTRUCTIO N OF
DEVELO PM ENT IDENTITY: W H AT M ADE IT POSSIBLE FOR
JAPAN TO CH ALLENG E THE NEO CLASSICAL ECONOM IC
ORTHODOXY?
Despite the claims o f liberals that laissez-faire a natural, organic
development, there was nothing natural about laissez-faire; free markets could
never have come into being merely by allowing things to take their course.
Laissez-faire capitalism was enforced by the state, which resulted in an
enormous increase in its administrative and bureaucratic functions. ‘
The seeming victory o f the state-as-referee conception has given American
social science, in particular, an ethnocentrism and an ideological quality that
seems to have erased all Western memory o f the state from Plato’ s Republic to
Hobbes ’ Leviathan.^
It should be stressed that the economic doctrines (economic liberalism)
preached by the powerful are intended for others, so they can be more
efficiently robbed and exploited. No wealthy developed society accepts these
conditions for itself, unless they happen to confer temporary advantage; and
their history reveals that sharp departure from these doctrines was a
prerequisite for development.^
Introduction
What made it possible for Japan to challenge the neoclassical economic
orthodoxy? The Japanese challenge was forged in the mid-late 1980s combining
Japanese domestic politics in a political-intellectual milieu interacting with an
international environment witnessing the emergence of an economically successful
Asia and the intensification of the debt crisis in Latin America. Its challenge was
clearly manifested in the form of pushing the World Bank to publish The East Asian
Miracle(1993). After all, Japan has since the mid 1980s remained the only developed
' Polanyi 1944, 139-140.
^ Johnson 1993, 63.
^ Chomsky 1992, 2.
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country that directly questioned the universal validity of the so-ealled “Washington
Consensus.”
Of eourse, a simple answer to the question above can be found that the
Japanese, with a different method(the state-led rather than market), enormously
succeeded in their own eeonomie development in the postwar era, proud of themselves,
thus wanted to be a ehampion of the “unorthodox” eeonomie development paradigm.
This might be true. However, what Japan did by ehallenging the neoclassical
economic orthodoxy was to claim the international validity for the so-ealled
“Japanese” or “Asian” development model. But the international validity does not
follow from “tmiqueness” or “idiosynerasy.” In other words, the “idiosyncrasy” does
not give the Japanese proponents of the state-led eeonomie development the rationale
suffieient enough to challenge the neoelassieal eeonomie orthodoxy.
The task of this ehapter is thus to induetively uneover the meaning structures
that the Japanese themselves have historically attached to the Japanese eeonomie
development identities(for example, class-led, or state-led, or market-oriented ), which
in turn enabled specific types of political action(the challenges to the neoelassieal
economic orthodoxy; see ehapter 4) to be eoneeivable, plausible, and even eompelling.
Sinee identities themselves are embedded in discourses, the question of the Japanese
challenge requires three eentral empirieal tasks. First, it is necessary to investigate and
speeify the range of eeonomie development discourses within Japan. Three major
development diseourses are identified: Marxist; Eeonomie Liberalism; and
Developmentalist thread. I use Murakami’s definition of developmentalism throughout
this chapter as following:
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Developmentalism is an economic system that takes a system of private
property rights and a market economy(in other words, capitalism) as its basic
framework, but that makes its main objective the achievement of
industrialization(or a continuous growth in per capita product), and, insofar as
it is useful in achieving this objective, approves government intervention in the
market from a long-term perspective. Developmentalism is a political-
economic system established with the state(or a similar polity) as its units.^
Each development discourse, operating within historical experience, interprets
differently the role of the state in Japan’s economic development. The diverging
development identities of Japan are therefore threaded through discourses.
Second and more importantly, the analysis explores what has been a prime
concern among all the three discourses that shaped the ways in which they interpreted
and developed the Japanese development identities. This chapter will demonstrate
below that it is the question of locating the Japanese development experiences(or the
Japanese miracle) in the context of their views on the role of the state in the
developmental history of the West(or Western advanced countries). At the heart of
their argumentation schemes is what is “normal” for the role of the state in successful
economic development in the world economy(but mostly the Western economies) and
how the Japanese success could be contextualized in this “normalcy” scheme. Each
discourse reads the world(mostly Western) history of economic development in a
different way. It is because the discourses themselves are at least partially built on
their worldviews in general and theories of state in particular. Each discourse’s
conceptualization of what is “normal” therefore varies; what is “normal” for Marxism
is different from what is “normal” for economic liberalism, which is also different
Murakami 1996, trans. Yamamura, 145-146. Murakami added the qualification o f “intervention from
a long-term perspective” in order to make it clear that the use of short-term policy to counter the
business cycle-at the heart of Keynesian policy-does not alone qualify as developmentalism.
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from Developmentalism. As will be shown below, what is interesting for this
chapter is the fact that Marxism is the only thread that categorizes the Japanese
development experiences as both “normal” and “abnormal” within its(Marxist)
scheme of “normalcy.” The other two threads put Japan’s experiences to their own
“normalcy” schematic ontology.
Third, the analysis examines how the rise of East Asian economies empowered
the so-called “the developmentalist” thread, thus transforming Japan’s silence to
“voice.” Despite the fact that the Japanese developmentalists began dispensing advice
in Asia as early as thel960s/ the Japanese challenge came only in the mid-1980s. The
dominant neoclassical orthodoxy(supported by the Western material hegemonic
position) remained strong and continued to suppress the developmentalist’s
“normalcy” claim. It was difficult for the Japanese developmentalists to fully develop
a positive sense of their “normalcy” argument both domestically and abroad. Against
this backdrop, the rise of Asian economies in the 1980s provided them with an
intellectual authenticity on their normalcy claim essentially arguing that the state-led
industrialization is a prerequisite for economic development particularly for late
comers: any country wishing to industrialize rapidly must adopt a state-led economic
development strategy in one way or another. In this regard, the question of how the
Japanese development experiences can be located in each “normalcy” scheme is not
only about exploring fundamental forms of Japanese development identities in the
^ See, for example, Okita 1983; Hatch and Yamamura 1996, 130-145. As will be discussed below,
Okita was a leadmg expert on Japan’s economic relationship with other Asian countries who first
explored in earnest the lessons o f Japan’s industrialization for developing countries. Okita can be
arguably called as the intellectual father of Japan’s “specialist network.” See Korhonen(1994,102-104)
for the emergence of the developmentalist thread.
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world economy. It is essentially related to bringing out the frameworks of meanings
attached to the Japanese development identities that made possible the Japanese
challenge to the neoclassical economic orthodoxy in the first place.^
That said, this chapter begins from Marxism through Economic Liberalism to
Developmentalism. The last section illuminates how the rise of Asia has empowered
and reinforced the developmentalist conception of “normalcy.”
Marxism and Japanese Development
Origins o f Debate
Radical thinkers in Japan were drawn to Marxism^ by its claim to be scientific
and by its radical critique of Western capitalist society. In thel880s, the growth of
zaibatsu promoted a capitalist economy and the promotion of capitalism was
inevitably accompanied by social problems. Workers’ and peasants’ disputes occurred
in various parts of the country. It was against such a background that Marxist ideas
were introduced and appealed to radical intellectuals.^
However, it was not long before the Japanese Marxists realized that in order to
work toward a socialist revolution, it was necessary to understand how Japan would fit
into the Marxian scheme of economic and social development. Marx, after all, had
envisaged the transition to socialism as occurring only after a long period of capitalist
development and decay, whereas the Japanese Marxists were confronting a capitalist
system whose origin was relatively recent.
® In a similar vein, Dessler(1989, 454) states that “policy not only relies upon physical capability, but it
also requires a framework of meaning.”
’ See Akaha(2000,123-140) for an excellent explication of the history o f Japanese Marxism.
* Kawakami 1965.
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It was not until the mid 1920s that the Japanese Marxists began to critically
apply the Marxist paradigm to uncover and interpret the universal aspects and the
peculiarities of Japan’s economic development since the Tokugawa era.^ There
emerged two factions within Japanese Marxism, namely the Koza-ha(Japan
Commimist faction) and the Rono-ha(Labor-Farmer faction)T Central to the entire
debate was the nature of the Japanese state. Both the Koza-ha(JCP) and the Rono-ha
agreed that the most notable particularity of Japan’s industrialization lay in the fact
that the state played a key role, which was in apparent contradiction to the Marxian
axiom that it was the economic base that determines the superstructure. Thus, the
character of the Japanese state -whether it was to be viewed as essentially feudal or
bourgeois-would determine if the revolutionary transition to socialism in Japan
required one or two steps. The Koza-ha led by Noro Eitaro and Yamada Moritaro
interpreted the heavy involvement of the state in the Japanese industrialization as the
indication of “feudal remnants” in the political superstructure." In other words, the
semi-feudal ties between landlords and peasants were not dissolved, but rather
incorporated into the Japanese capitalist system. Japanese industrial entrepreneurs and
large landlords did not emerge as an independent political force as they had done in
Europe, but instead remained dependent on the support of the imperial bureaucracy
’ Hoston 1994,221. See Ando(1998, 78-96) for the review o f the dabates on Japanese capitalism
between the Koza-ha and the Rono-ha.
The controversy over the interpretation of Japanese economic development resulted from the
Comintern’s 1927 theses claiming that Japan lagged far enough behind Russia’s own “backwardness”
in February 1917 to require a two-stage(first bourgeois and then proletarian) revolution to achieve
socialism. In December 1927, a group of Marxists who refuted the Comintern’s theses left the Japanese
Communist Party(JCP) that willingly accepted the theses and established the so-called Rono-ha(Labor-
Farmer faction). The Rono-ha’s efforts to refute the Comintern’s theses gave rise to the first Marxist
debate on Japanese capitalism(M/70« shihon-shugi ronso). See Hoston 1986,48-54. The Rono-ha later
turned into the Japan Socialist Party(JSP).
" Hoston 1994,224.
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97
and military.*^ The bourgeois revolution begun by the Meiji Restoration bad not yet
been completed by Japan’s weak bourgeoisie. Instead of bourgeois democracy, a state
power that was semi-feudal in character remained intact.
From the Koza-ha perspective, the problem o f applying Marxist analysis to
Japanese capitalism(or industrialization) thus could be solved by suggesting the
existence of various differing models of capitalist development. A late-industrializer
such as Japan cannot but be deviant from the “normal” model of capitalist
development depicted by Marx in bis analysis of western European capitalism.*"*
In contrast, the Rono-ba led by Yamakawa, Tsucbiya, and Sakisaka asserted
that the Meiji Restoration bad been a complete bourgeois-democratic revolution as
evidenced by the existence of the Diet, competitive political parties, cabinet rule, and
constitutional government.*^ Although these theorists, like those in the Koza-ba,
recognized the impossibility of applying European models precisely to Japanese
development, they argued that the Koza-ba exaggerated the differences and
underestimated the similarities between Japanese capitalism and capitalism in Europe
and America. For example, Tsucbiya attacked the Koza-ba’s notion of “remnants of
feudalism(or semi-feudalism)” as being meaningless. As such, be argued that it would
" Noro 1983, 115-132.
This perspective was most clearly expressed in the so-called “ 1932 Thesis” drawn up by the Koza-ha
in consultation with the Comintern. The Theses stated that while the ultimate objective was the
establishment o f a dictatorship of the proletariat, the way forward must first be cleared by a bourgeois
revolution that would abolish the institution o f emperor and redistribute the wealth o f the land-owning
class. See Morris-Morris-Suzuki 1989, 82.
Yamada 1934, 67-73; Noro 1983,253-262.
While the Koza-ha theorists took the imperial institution as the representation of the remnants of
semi-feudal structure in Japan(thus bourgeois-democracy had not arrived yet), the Rono-ha Marxists
defined the emperor as a “bourgeois monarchy” or a “mere appendage of a state apparatus based on a
highly capitalistic industrial sphere.” See Hoston 1994, 224-225.
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98
be groundless to project the Japan of the 1930s to resemble the feudal Japan of the
seventeenth or eighteenth century/^
The Rono-ha’s emphasis on the similarity resulted from its different
interpretation o f the pre-Meiji origins o f Japanese capitalism. According to Tsucbiya
and Hattori, commercial exchange relation were already originating in the late
Tokugawa age, and manufacturers in Marx’ sense of the word had reached a relatively
advanced level of development in Tokugawa Japan.In a similar vein, Sakisaka also
suggested the gradual transformation of the peasantry into a modem proletariat since
the late Tokugawa era.*^ All these boil down to the claim that the way in which Japan
proceeded toward Western industrialization in the late nineteenth century was not so
deviant(as the Koza-ha argued) from the “normal” model of industrialization(or
capitalist development) represented by Britain. In other words, because of the
“bourgeois monarchy” character of the Japanese state and the pre-Meiji Japanese
capitalism that laid the foundation for Japan ‘s rapid adoption of Western industrial
techniques in the late nineteenth century, the fact that the Japanese state led the
industrialization of Japan could not particularize the Japanese experience.*^
Marxism and Japan’ s High Economic Growth Miracle
In 1956, just one decade after the military defeat, the White paper on the
Economy declared: “We are no longer in the postwar.” By 1955, Japan had recovered
to the highest level of the prewar era. The Japanese economy thereafter enjoyed an
average annual real growth rate of around 10 percent for some 20 years, an
Tsucbiya 1937, 80.
‘’ Hattori 1955; Tsucbiya 1977, 158-160.
Sakisaka 1958.
See Hoston 1994,402-420.
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99
exceptionally high sustained rate. This period(1956-1973) is often called the era of
high economic growth. This high growth raised serious questions for Japanese Marxist
theorists who continued to anticipate the collapse of the Japanese economy in the
postwar era: how to explain the very emergence o f high economic growth in Japan and
how to understand why the mechanism of rapid growth existed in Japan and nowhere
else.^° In what follows, three interpretations within Marxism are discussed. All three
interpretations are built upon the debate of the Koza-ha and the Rono-ha noted above,
and continue to be about whether or not the Japanese experience is normal.
The first interpretation, which succeeded the Koza-ha,^* was offered on the
basis of the concept of “State Monopoly Capitalism(SMC)” first conceived by Lenin.
Following Lenin’s prediction of an era of “general crisis(in addition to the crises of
world wars and the Great Depression),” Inoue and Usami in 1951 argued that under
intense pressure, monopoly capitalism became unable to sustain itself without
transforming itself into SMC. Thus SMC reveals “the last aspect” of capitalism, and
implies “high commanding position” for the establishment of socialism.^^ This crisis
version of the SMC theory treated the fact of high economic growth as an “exception”
to the basic tendency to crisis/stagnation of twentieth century capitalism. The
See Akama 2000, 123-140, “Marxism Economics.”
The SMC interpretation followed the Koza-ha by taking up the definition o f the prewar Japanese
capitalism as a “militarist and semi-feudalistie imperialism.” See Masamura(1965) for the summary of
SMC theory in Japan.
^ The SMC schema o f history is as follow: general crisis—SMC—collapse o f capitalism—socialism.
This schema was based on the two observations by the Japanese SMC theories; the first was that
capitalism in the 1930s and the 1940s was in a crisis seemingly equivalent to its final crisis; the second
was the growing role o f the state in the advanced capitalist countries during and after the war. However,
when SMC was first introduced in Japan in the late 1950s, it was criticized by more orthodox Marxist
who denied the existence of a distinct state monopoly stage o f capitalism, and argued that the growth of
state intervention was merely a transient reaction to the crises of war and economic recession. See
Morris-Morris-Suzuki 1989, 121-125.
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100
continued high economic growth in Japan forced it to be replaced with the two
modified versions called “the socialization theory of SMC” and “the crisis theory of
SMC.”
The socialization theory o f SMC explained SMC not in terms o f the general
crisis of capitalism, but the “socialization of productive relations.” That is, as the
“soeialization of produetive forces” develops in a capitalist system, the productive
relations also must necessarily become socialized. This socialization is expressed in
the formation of joint-stoek companies and monopoly corporations, and SMC
constitutes the ultimate development. Thus, SMC is not a product of the crisis of
capitalism, but a product of a certain degree of capitalist development.^^ In this view,
SMC-driven Japanese high economic growth was transitorily “normal” but destined to
be brought to an end(or crisis) sooner or later.
Ouchi, who succeeded the Rono-ha via Uno,^"^ advanced the crisis theory of
SMC. According to Ouchi, the essence of SMC lies in “control of the economy by the
state through fiscal policies based on a managed currency system. The ultimate
objective of the state under SMC consists in escaping from crises, and the principal
method for doing so is reducing real wages through inflationary measures. The reason
for high economic growth in Japan, according to this version of SMC, was explained
exclusively by the “backwardness(meaning “an abundant existence of low-wage
Ikumi 1958.
In the vein o f the Rono-ha, Uno identified three stages o f capitalist development(mercantilist, liberal,
and imperialist) and placed the Japanese capitalist development since the Meiji Restoration in line with
such a schema. He thus predicted the emergence of socialism in the postwar Japan based on the notion
that Japan had gone through all the three stages in the prewar era. Ouchi incorporated Uno’s stage
theory into his version o f SMC. See Uno 1946, 1962; Morris-Morris-Suzuki 1989, 122-123 for the
theoretical relationship between Uno and Ouchi.
Ouchi 1970.
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101
labor”)” of the Japanese economy and the “postwar faetor(new possibilities for the
expansion of investment and the domestic market owing to the end of the war).”
However, “backwardness” and the “postwar factor” of Japanese economy were only
temporary phenomena that would disappear before long, and thus high economic
growth based upon these particular conditions was nothing but “abnormal.”^ ®
Despite all these efforts to revise and restructure SMC to confront the fact of
high economic growth, the continued high growth(for example high growth without
“backwardness” and “the postwar factor”) made Marxists themselves abandon the
concept of SMC to account for the postwar Japanese economic development. Marxists
realized that the true roots of SMC failures consisted in the very concept of SMC,
which is inseparable from a historical scheme of “more and more contradictions and
final collapse of capitalism.” The sustainable high growth of 1960s capitalism cannot
be well grasped by the concept of SMC. For this reason, before long Marxist declared
that they would cease using the term SMC.
The second interpretation came from the so-called “civil society iheory{shimin
shakai-ron).”^^ Operating within the context of the Koza-ha's adherence to the prewar
analysis that Japan required a two-stage revolution, the civil society theorists posited
that economic growth would stand in mutually conditioning relationship with
economic democratization based on the creation of liberated and equal individuals.
Capitalism or high growth without civil society was just an unlikely possibility. Thus,
the fact that Japan achieved such exceptional economic growth during the 1960s and
Ouchi 1962.
The notion o f civil society is defined as “a society in which men free themselves of feudal or
premodem communities in order to become independent individuals and enjoy liberty and equality
legally and morally.” See Yamada, quoted in Hoston 1994, 443.
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102
1970s posed a big theoretical challenge to civil society theorists, precisely because
the undemocratic(premodem or feudal) elements of Japan’s polity appeared to them to
survive unchanged.
After the war, as a result o f the American Occupation, civil society did achieve
considerable development. But, ironically, it was the continuing weakness of the
elements of civil society in Japan that permitted the exceptionally rapid growth of the
Japanese economy in the 1960s. Uchida, the foimder of this theory,^* metaphorically
characterized Japan as “capitalism without civil society.” Here lay the difference
between the Japanese development and the West European experience, Uchida argued.
“In Europe, God created the rights of man and afterward, man created the rights of the
state. Conversely in Japan, God first created the rights of the state, and then the state
created human rights.”^^ This meant that “something premodem that underlies the
Japanese economy or society does not work in the direction to prevent Japan from
developing, but to realize excessively high growth or to create the supermodem
without the modem.”^ ® In the Japanese way of economic development, only the power
of capital and the state manifested themselves, while human rights and civil society
^ Uchida was heavily influenced by the so-called “Otsuka historiography” from which he took the
conceptions o f “modernized human type” and “mediocrity o f fortune,” which he elaborated into a
concept o f “civil society.” See Yamada 1998,161. The heart o f “Otsuka historiography” is that Otsuka,,
by criticizing the accepted theory o f the historical school that had located the driving forces of
capitalism in the development of commerce, proposes a new theory that located them in the formation
of “mediocrity o f fortune(intermediate producers’ stratum” and its later polarization). According to
Otsuka(1951), while the path from above, or the progression from commercial(early capital) capital to
industrial capital, was seen primarily in Prussia, the path from below, or the progression from yeoman
capital(intermediate producer’s stratum) to industrial capital, was evident in Britain and America. The
path from above could not be truly revolutionary in the birth o f capitalism. On the contrary, it was the
path from below that constituted a pure and civilized capitalism that was sustained by a modernized
human type and modem productive forces. See also Kang(1999, 78-85) for the role o f Otsuka
historiography in creating “orientalism” in Asia.
^ Uchida 1967,119 cited Kawakami 1911.
^ “Uchida 1981, 11.
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remained immature/' This is just the reason why Japan has developed so rapidly.
103
For the civil society theorists, Japan’s high growth through the weakness of civil
society was nothing but “paradoxical” or “abnormal.”^ ^
The third interpretation eame from Makoto Ito within the vein o f
Wallersteinian world system analysis.^^ Ito points out four major factors or conditions
for the sustained economic growth of the postwar capitalist world: the economic
hegemony of the U.S. and its dollar expenditures, a long wave of technological
innovation, relatively cheap primary products(especially crude oil) from Third World
countries, and lastly the availability of relatively cheap-wage workers. He argues that
these four conditions simultaneously and greatly helped create capital accumulation in
the advanced countries throughout the considerable period of the postwar, which in
turn led the continuous process of high economic growth in virtually all advanced
countries.^''
In Ito’s view, the phenomenon of Japan’s miracle was just one of those
examples. For the path of the miracle, Japan’s higher economic growth compared to
the other advanced countries had more to do with its more “backwardness” rather than
“the legacy of the state control of the economy.” Those who explained Japan’s miracle
in the framework of “national economy(i.e., the Japanese developmentalists discussed
In this sense, the civil society theorists argue that the Japanese model of economic development
should not be a model to be followed by, say, other Asian countries. High economic growth may
resolve unemployment and material poverty. However, precisely because high growth in Japan was not
really by strengthening human rights and civil society, but by suppressing them, the Japanese way of
economic development goes together with a new discrimination and poverty.
Building upon Uchida’s observation, Hirata depicted the Japanese capitalism with weak civil society
as “cooperative capitalism.” He argues that this model o f capitalism maintains “precapitalist social
relations integrated within capitalism itself’ to assure the development o f capitalism in the face of the
pressures o f world capitalism. See Hirata, quoted in Hoston 1994,443.
Ito 1990.
^Ubid., 45.
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104
below)” were just “carving out bureaucratic monopoly space.”^ ^ Following Uno’s
general crisis theory noted above, Ito, conversely, predicted that any erosion of the
four factors would be a great challenge to the entire world. Japan would be no
exception.^^
I have so far discussed the three major interpretations on the Japanese
economic development stemming from Marxist traditions(the Koza-ha as well as the
Rono-ha traditions) and showed the dynamics of “normal/abnormal” claims under
Marxian theoretical perspective(see Table 3-1 for the summary). Marxian political
economy had great influence in the field of economics until at least the 1960s. The
reasons for its strong influence were: 1) its demonstration of high analytical power
through the Japanese capitalism debate in the 1930s; 2) the high prestige it accrued as
a science that confronted directly and bravely poverty and war; 3) the great distance
between the realities of Japanese society and the theoretical world of the US
Ibid., 4-5.
Babafanother contemporary follower of Uno), in his “companyism”, more radically overturned
almost all the debates and viewpoints of postwar Marxian economics; turning from the state to the
companyfcritique o f SMC theory), from crisis theory to growth theoryfcritique o f general crisis theory),
and from a theoretical approach to Japanese capitalism emphasizing its particularities and backwardness
to Japanese capitalism emphasizing its imiversalities and advanced character. Employing
“companyism” as an effort to devote more attention to comparative institutional analysis moving
beyond the traditional tussle over capitalist or socialist system. Baba focuses rather on elucidating the
secrets of Japanese success in the 1970s and 1980s than on high economic growth era. Baba enumerates
as characteristics of Japanese companies; the weakness o f stockholders’ control, the small income gaps
between various classes and ranks in a company, the active participation o f employees in their jobs, and
the strong consciousness of employees o f being members of their companies. Baba terms company-
centered consciousness “companyism.” For the success of Japanese economic growth. Baba argues that
companyism was formed in the high-growth era and strongly led the Japanese economy in the period
after the oil shock, giving rise to the strong performance o f the postwar Japanese economy. Building on
Uno’s definition of the stage of finance capital. Baba proposes in it a development from managerial
capitalism a la America(the immediate postwar period) to companyism a la Japanese(the post-oil shock
period). Companyism is not only an extreme form o f finance capital, but also the participation of
workers in management means that it is the most advanced capitalism, and a form going beyond
managerial capitalism. Finally he finds in companyism “ a penetration o f socialism into production
centers” or “a creeping socialism.” In brief. Baba provides the historical context o f companyism,
acknowledging its efficiency, universality, and advanced character, and furthermore finds in it
“socialist” elements. See Baba 1991, 1997.
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105
neoclassical economics. However, the influence of Marxist or Marxian economists
who constituted the majority of economists in Japan from 1945 until the late 1960s
severely decreased throughout the high economic growth era. The continued rapid
industrial grow th from the m id -1 9 5 0 s onw ards su stain ed faith in the ab ility o f
capitalism to generate economic prosperity. In contrast, Marxian political economy
failed to adjust to the conditions of the postwar, despite various efforts to revise and
restructure it to accoimt for the high economic growth. For example, the traditional
theories of general crisis and SMC completely lost their validity and were abandoned
by almost all the Marxian economists themselves, let alone the general public.
Marxian political economy found itself marginalized within the economic world. This
meant naturally that Marxian economists had gradually begun to lose the ability to
participate in planning economic policies at the government level.In this way,
Marxian political economy, which entirely lost traek of actual political concerns in
some cases, became an abstract discourse of criticism against capitalism in general.^*
Japan’s prolonged high economic growth made Marxism the first losing side in the
politics of economic discourse in Japan
” lkeo 1996.
Interview with Ohno, July 17 ,2002, Tokyo, Japan. See Ikeda(2002,1-14) for the review of the
recent Marxist scholarship in Japan.
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Table 3.1. Marxism, Japan’s High Growth, and Normalcy.
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Variants General Historical
Scheme
Main Factors of
Japan’s High
Growth
Normal/Abnormal
SMC(State
Monopoly
Capitalism)
General Crisis—
* SMC—Collapse
of Capitalism—
Socialism
Low-wage labor
manipulated by the
State.
Postwar factors
Transitorily
“Normal” but
destined to
collapse sooner or
later.
Civil Society
Theory
Feudalism—
* Capitalism—
Socialism
Repressing
workers’ rights and
civil society
“Abnormal”
World System
Analysis
Feudalism—
* Capitalism—
Socialism
Postwar
factors(U.S
hegemony, Tech.
innovation, Cheap
raw materials and
labors)
“Normal.” Japan
just did it better
than others.
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107
Economie Liberalism and Japanese Development
Origins o f Debate
As the first Western economic theory imported to Japan, economic liberalism
played a pivotal role in the earliest stage o f modernization o f Japan. No other political
economy existed outside economic liberalism, and Adam Smith’s The Wealth o f
Nations was regarded as “the first great work on political economy.”^ ® From the outset,
the application of laissez-faire to international trade, which was inseparably connected
to the question of the role of the state(or the state intervention in the economy), was
the most important topic of economic debate among Japanese economic liberals.
Following the fundamental theme of laissez-faire, economic liberalism in Japan first
fought against the remnants of feudalism as evident in the dispute over the land
reform .*^® Then, it found itself confronting the protectionist policies of the government
and the views of those who supported it.
Revealing the influence of the laissez-faire views of Western economists,
Japanese economic liberals argued against state interference with trade."^* As early as
1867, Fukuzawa, believing that the nation’s future depended on the rise of a business
Fukuzawa 1867. See Kumagai(1998,23-43) for Fukuzawa’s economic thought. See also
Mizuta(1988,3-33) for the history of Japan’s reception o f the Western economic thoughts.
It was Kanda(186I) who first refiited those in opposition to the land reform on the theoretical grounds
of economic liberalism. Those who were opposed to the land reform argued that the old system of land
tax based on the traditional system o f ownership should not be altered, because once the free buying
and selling of land was introduced, inequality of property ownership would automatically be increased.
In contrast, Kanda’s proposition was to permit the freedom o f buying and selling land and to replace tax
in kind by a tax in cash by means of land bills to be issued by the proprietors according to the value of
each piece of land. By so doing, high land prices would be lowered and low ones raised, so that an
equilibrium would be eventually reached. See Morris-Morris-Suzuki(89,45-58) for the relationship
between economic ideas and the Meiji political and economic reforms.
Economic liberalism made some early successes in influencing the government policies. For example,
the decision made by the government in 1880-1881 for the transfer o f government-owned enterprise to
private firms and the ordinance issued by the Ministry o f Agriculture and Trade in 1881, which
promoted freedom of economic activities for the people, clearly represented the influence o f economic
liberalism. See Norman 1941, 125-126.
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108
middle class, argued, “it would be a great mistake to believe that the government
may do anything in order to enrich the nation.”'* ^ Kato praised the benefit of free trade
just as unreservedly as did Fukuzawa saying that “as there are nice things in the
Western countries that are not available in Japan and there are commodities in Japan
that are attractive to the Westerners, it is useful and enriching for both sides to trade
freely.”" ^ ^ Against the claim that free trade caused an outflow of gold,'*'^ Tsuda
countered that “imports and exports are reciprocal. Sometimes the former may exceed
the latter, but sometimes the balance swings the other way around. Just like heat and
cold or ebb and flow, they fluctuate and thereby towards equilibrium.. .thus such a
theory is mistaken. Most Western political economists with hardly any exception,
agree that protective duties do not benefit but harm a nation.”'* ^ In the preface that he
wrote for Hayashi’s translation of Bastiaf s Sophismes économiques, Nakamura
argued that the outflow of gold was not so much by the import of foreign goods as by
the much heavier government expenditure in sending students abroad, in employing
foreigners, and in purchasing weapons, warships, and the like.'^® In a similar vein,
Kanda, acknowledging the fears of the scholars and officials who believed that Japan’s
import surplus was gradually depleting the country of its precious reserve of metals,
‘ *^Mizutal988, 14.
Fukuzawa 1867; Kato 1869, quoted in Sugiyama 1994,5.
' * ' * This claim reflected on a growing protectionist sentiment in Japan, whose origin was traced back to
the unequal treaties negotiated with the Western powers in the 1850s. There were many in Japan(even
within economic liberals) who detested the unequal treaties, believing that the treaties had been
imposed on Japan in a moment o f political weakness, and that the treaties deprived Japan of the
opportunity to protect its own nascent industries from the onslaught o f foreign manufactured imports.
Tsuda(1874,72) in Morris-Morris-Suzuki 1989, 51-53. Apart from the belief in economic liberalism,
another reason for Tsuda to oppose the tariff protection was that he had no confidence in the ability of
Japan to catch up the West. Thus to Tsuda, it was futile to attempt to foster the nation’s economic
growth through tariff protection. See Braisted 1976,56-59.
‘ ‘^Nakmina 1878.
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109
argued that the main cause of this problem was not the existence of free trade but
the fact that the Meiji government had attempted to fill its empty treasuries by printing
large amounts of unconvertible paper money. The paper notes were not only
unacceptable as a means o f international payment; they also provoked domestic
inflation, making it more difficult for Japan to sell its products overseas.'*^
What was more fundamental for Japanese economic liberals’ opposition to the
state intervention in the economy was, however, their universalist approach to the
interpretation of Western economic development. They based their interpretations of
the subsequent processes of Western industrialization on the principles of private
property and market competition. As opposed to the interpretations of the
developmentalist that will be discussed below, Japanese economic liberals understood
that Britain represented the “normal” model of capitalist industrialization, and that all
the other subsequent Western industrializations more or less patterned after Britain.
For them, in order for Japan to truly modernize itself in a progressive fashion, Japan
should follow the “normal” model."^*
In sum, like its competitors(Marxism and Developmentalism), the early stage
of economic liberalism in Japan was understood as a means to assist the nation in its
pursuit of true “civilization and enlightenment.” As early as 1886, however, there
emerged an urge within Japanese economic liberals to discriminate between theory
Braisted 1976, 324-327.
This universalist approach to Western economies and politics were particularly evident in the
thoughts and writings o f the members of the so-called MeirokushatMeiyi Six Society) who had the
extreme laissez-faire views of European industrialization. See Sugiyama 1994, 20-21.
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and actual policy/^ The essential character of the urge was that while following
the laissez-faire principle on the one hand, the state should provide incentives to assist
the development of such important industries as railways, telegraphs, gas, water
supply, and iron mining relating to national/military security.^® Since then, it was not
until the late 1960s and 1970s that economic liberalism(this time in the form of
neoclassical and Keynesian theories or the synthesis of the theories) acquired a new
position of influence both in academic and in administrative spheres. It was partly
related to the demise of Marxian theories and partly to the emergence of a new
generation of Japanese economists'^ who absorbed the ideas and concepts of
neoclassical economic theories.
Economy Liberalism and Japan’ s High Economic Growth Miracle
In the face of the longevity of high economic growth in Japan, Japanese
market-oriented economists intensively discussed the relationship between trade and
development and the characteristics of the Japanese economy using their comparative
observations of economic and political policy practices around the world(but mostly in
comparison to the other advanced states). The earliest writings of the market-oriented
Amano(1886) first theoretically expounded such a view. He said, “the science o f political economy
does not tell more than what and why. It never tells what should or should not be done. What concerns
the science is the facts and the law that underlies them.” See Sugiyama(1994, 20-26) for an exclusive
focus on Amano’s theoretical ideas.
Fukuzawa(1881) in Sugihara 1980, 59-64.
See Komiya(1986,22-24) for the alteration of generations among policy oriented economist in Japan.
According to Komiya, the “older(or first)” generation played a leading role in policy making during the
postwar economic rehabilitation, while the “new(or second)” generation had been brought up with
neoclassical economics, which was systematized and institutionalized in postwar America. See also
Noguchi(2000, 255-280) for the debate between the two generations on Japan’s external liberalization
and industrial strueture policy.
During the interwar period, Nakayama and Tanaka were the two famous scholars in the tradition of
economic liberalism. Their focuses were rather on theoretically improving on the existing
neoclassical(Nakayama) and Keynesian(Tanaka) theories than on engaging the debates on the nature of
Japanese capitalism/industrialization. See Morris-Morris-Suzuki 1989,91-94.
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I l l
approach on the interpretation of Japanese high economic growth were
considerably empirical and practical in nature without relying on a coherent theory or
thought in their ongoing arguments. The interpretations in characteristic neo-classical
fashion began to emerge in the late 1960s. The earliest interpretations did not engage
in comparative analysis while focusing solely on understanding Japan’s experience.
They were concerned about economic stability and growth of Japan, though paying
some attention to the possibility of transferring Japan’s experience to other developing
coimtries. Thus, whether Japan was an exception or normal was largely outside their
consideration. In contrast, the later neoclassical-oriented interpretations made attempts
to squarely put Japan’s high growth experience in the accepted wisdom of the day.
The first of market-oriented interpretations came from the so-called
“Shimomura thesis.” Relying on his observation and calculation of trends in the
Japanese economy rather than abstract model-building,Shimomura asserted that in
the final analysis, the growth rate will more or less parallel the size of private fixed
investment as a percentage of GNP. Since Japan devoted a particularly large share of
its wealth to private fixed investment, it thus followed that Japan made a prolonged
Shimomura 1958. When Shimomura was first putting forward the thesis, it was a time that many
other economists were suspicious of the sustainability of high economic growth in Japan. Shimomura
argued that Japan’s high growth was not a temporary and fortuitous phenomenon, but could be
sustained over a long period of time. The fact that Japan’s growth rate did conform to his expectations
naturally enhanced his reputation in Japan. Perhaps more importantly, Shimomura’s ideas provided
essential theoretical underpinnings for the Ikeda cabinet’s famous double income plan. See Okita 1959.
According to Shimomura himself, he derived his approach to modem economics less from
neoclassical economics than from the British Keynesianism. See Saito and Shimomura 1984. In the
Keynesian line, Shimomura argued that it was necessary for the government to pursue stimulatory
economic policies in order to ensure that demand was sufficient to convert “private fixed investment”
into growth. His growth-oriented policy prescriptions sparked such heated debate with other economists
both in academia and in the bureaucracy. Two things came up for the dispute. The first was that growth-
oriented policies, by encouraging demand to outstrip supply, would fuel inflation. The second was that
high growth would raise the level o f imports and so place intolerable pressures on Japan’s external
balance. See Morris-Morris-Suzuki(1989,138-140) for the theoretical debates between Shimomura and
his opponents.
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period of high economic growth/^ Given his focus on the sustainability of Japan’s
high economic growth on the basis of his inductive observations, Shimomura did not
attempt to put Japan’s experience into comparative analysis(whether it may be from
either theoretical or historical point o f view). Whether or not the private fixed
investment that led to Japan’s high economic growth had a “universal validity” across
other states’ economic development experiences was outside his consideration.
Under the influence of Kuznets’ empirical research program^^ that was guided
by empirical generalization based on the historical growth and transformation
experience of developed coimtries, Shinohara critiqued the simplistic assertion of
Shimomura and put emphasis on the role of low wages in explaining Japan’s high
economic growth along with technological adaptability.^^ Shinohara derived his low-
wage thesis from Japan’s dual industrial structure(niju kozo in Japanese first coined by
Arisawa at the University of Tokyo) on the basis of Kuznets’ hypothesis that the
process of economic development was likely to be accompanied by a substantial
increase in inequality, which would reverse itself only at a relatively advanced stage of
development.
For Shinohara, the industrial dualism in Japan meant the symbolic coexistence
of large, modem firms paying relatively high wages and small, imsophisticated
Shimomura 1962, 110.
See David(1997, 119-124) for an excellent compact review for Kuznets’ contribution to development
economics. The two common denominators underlying the successes o f all developed countries in the
Kuznets’ schema were that the growth of total product tended to accelerate as countries entered the
epoch of the so-called “modem economic growth(Kuznets’ cycles) and that all successfully developed
countries had “a system o f industrial production based on the application of science and
technology(Kuznets ’ inverted curve)” As will be discussed below, Shinohara heavily applied this
Kuznets’ finding to explaining Japan’s success.
Shinohara 1962.
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workplaces paying low wages/^ Large firms, having easier aceess to bank loans
and new technology, achieved high levels of efficiency and were able to pay relatively
high wages, which was just the opposite of small firm sectors. He argued that this
duality or dichotomy prevented the wage levels o f the more effieient large firms from
placing upward pressures on wages in their smaller, less productive counterparts. It
was thus this dual structure that had enabled the Japanese economy to combine
increasingly advanced industrial technology with comparatively cheap labor, and had
thus contributed to the growing competitiveness of Japan’s manufactured exports.^^
Shinohara’s explanation of Japan’s high economic growth was thus two-sided
on the “normalcy” claim. On the one hand, the low-wage based technological
adaptability and increasing export competitiveness imply that the Japanese experience
was not so much deviant from those of the other industrialized countries. On the other
hand, his treatment of the industrial dualism that made possible the low-wage
explanation in the first place as “peculiar” to Japan points to an idiosyncratic
characteristic of the Japanese experience.^® Given Shinohara’s assertion in reference to
Kuznets’ 20-year eycle(waves of growth each lasting approximately 20 years) that
In traditional Western economic thoughts, the dualism stands for the relationship between modem-
industrial(or urban) and traditional agriculturalfor rural) sectors. This difference was also pointed out by
Minami 1973, 8. Since this subject of dualism was first made by Lewis(1954), however, the modem
dualism debate has been replete with definitions and interpretations o f dualism. See David(1997, 102-
106) for the compact review o f the dualism literatures.
Shinohara 1962, 17-21. Shinohara, like some Marxist theorists noted above, also put forward the
theme of “post-war recovery” as an initial engine ushering in high economic growth era in Japan. Using
comparison with other countries that had suffered severe war demage, he demonstrated that the greater
the destruction, the faster was the rate of recovery. This inverse relationship helped to explain the
particularly high levels o f growth achieved by states such as Japan and West Germany in the immediate
postwar years, and the comparatively sluggish economic performance of countries like the U.S. and
Canada. Ibid., 7-10.
Some might argue that Shinohara's treatment o f the industrial dualism is in line with Hirschmans’
notion o f “unbalanced growth.” But there is no evidence at this point how much Shinohara was
influenced by Hirschman. In his 1962 book, he does not have any reference to Hirschman’s work 1958.
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since the late 1940s, the Japanese economy had entered the upswing of a new
Kuznets’ cycle, a cycle that might be expected to peak in the first half of the 1960s,^^
Shinohara’s overall assessment seems biased toward the “normalcy” claim under the
umbrella of economic liberalism.
It was Komiya who clearly articulated the “normalcy” claim under neoclassical
economy while highly skeptical of the positive effects of state intervention on high
economic growth in Japan. Based on neoclassical growth theory that emphasizes the
critical role of capital accumulation on the grounds that higher investment and saving
rates better allow a country to increase the capital it leaves to its future workers, thus
raising their productivity and income,®^ Komiya argued that the sources of Japan’s
high economic growth lay largely in factors beyond the control of government policy.
Komiya pointed to the unusually high level of savings in Japan as the most important
factor, which provided the capital for investment in the newly expanding industries of
the 1950s and 1960s.^'* Citing the so-called “threshold” thesis ultimately postulating
that once a country reaches a threshold point(in terms of capital accumulation made
possible by savings), income per capita can grow only as far as improvements in
* * Shinohara 1962, 76-109. Shinohara started the cycle from 1900 onward.
“ Komiya 1966. Komiya did not completely reject some positive roles that the Japanese government
played in bringing out the high growth. Nonetheless, he remained skeptical o f the claim attributing
Japan’s success to the policies o f the state. He even treated such a claim as a sort o f “propagating.”
Komiya has been also famous in Japan as a vigorous critic o f the Japanese government’s cautious
attitude toward the opening o f the economy to foreign investment.
“ Solow(1956) is regarded as a pioneer who has developed a “saving-investment” based neoclassical
growth theory. Neoclassical(even classical) economy postulates an automatic link between saving and
investment. In contrast, Keynesian economy postulates that capital accumulation is determined by
decisions to invest and not by decisions to save, thus negating the automatic link between saving and
investment. Keynesians negates it on the grounds that households save and business firms invest for
entirely different reasons.
Komiya empirically traced the origins o f the Japanese frugality to a variety of peculiarities inherent
in the Japanese social structure, among them the age-related pay system, the widespread payment o f
biennial bonuses to employees, and the underdeveloped state o f consumer credit.
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technology and then applying it to Japan’s high growth experiences, Komiya put
forward a theme of skepticism toward the benefits of government plarming and
intervention.^^
Neither was he eonvinced wholeheartedly by the positive effects of
government intervention on foreign trade and investment so powerfully christened by
the Japanese developmentalists(this will be discussed below). Komiya did not have a
problem with some positive assessment of the government indicative planning. For
example, the Japanese government had played a positive role in helping to speed the
dissemination of economic information and thus to assist rational decision-makings of
each economic player by bringing business people, officials, and others together to
discuss the state of the economy.^® However, he cast a serious doubt on the
effectiveness of such indicative planning and industrial policymaking systems. He
pointed out that economic policies(of the government) had frequently been ill-
coordinated and mutually contradictory. The famous “infant industry” protection
policies were the cases in point. Komiya argued that the infant protection policies had
frequently become a means of feather-bedding mature but inefficient industries, while
the areas of manufacturing that flourished were often the ones that had received little
encouragement or support from the government.®’ The Japanese miracle was thus “far
from being the outcome of the planning of a small elite. Japan’s high economic growth
Komiya defined industrial policy as “government policies taken in order to change allocation of
resources among industries or the level of some economic activity of the constituent firms of an
industry.” Komiya 1975; 1990, 289.
'^Komiya 1975, 221.
Ibid., 218-226. See also Friedman(1988) for a similar interpretation on the making o f Japanese
miracle. He studies the development o f the machine tool industry in Japan(he takes up the machine tool
industry as a representative case because the industry has been a part o f almost every major regulatory
effort in Japan since the 1930s) and attribures Japan’s success to private inititives resulting from the
dramatic expansion o f smaller producers throughout Japan’s economy.
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was achieved only as a result of the high rate of savings by the people, by their
will to work, and by the vigorous efforts of Japan’s entrepreneurs.”^ *
By putting the sourees of Japan’s success squarely within the neoelassical
growth economy, in Komiya’s view, Japan more or less operated the neoclassical
model more efficiently thanks largely to the incessant efforts of the private sector. The
mode of the Japanese success was thus just as “normal” as the other coimtries that had
completed the successful economic development. As recently as 1990, Komiya
critiqued that those responsible for industrial planning and policy in the Japanese
government had a tendency to exaggerate the importanee of the role of the
state(therefore their roles as well) in bringing out Japan’s miraele.^^ He pointed out
that the effects of economic planning and industrial policy had remained very limited
throughout the entire period of high growth era, and added that this has been
particularly true since the mid-1960s, with the gradual deregulation of trade, licensing
of foreign-owned patents, and inward foreign investment.’® Regarding the Income
Doubling Plan that was known to have had an enormous impact on Japan’s growth in
the early 1960s:
What was important was not so much the contents of the national plans as the
politieal will to promote industrial growth. Even without national plans, if the
government would have made clear its willingness to promote growth, and
fiscal, monetary, and industrial policy measure for that purpose, almost the
same effect would have been obtained. The situation would then have been
similar to West Germany in postwar years.’’
Komiya 1975b., 5-6. See Calder(1993) for a similar observation as opposed to Johnson 1982.
Komiya 1990.
’" /W ., 267-316.
” Ibid., 286.
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As such, Komiya forcefully claimed, “National Ineome Plans in postwar Japan,
including the Income Doubling Plan, were substantially little more than offieial
forecasting.”^ ^
Since Komiya’s publications, there has emerged a chain o f “normalcy” claims
on the interpretation of Japan’s miracle under the rubric of the neoclassical economy.
By using standard macro and growth tools and simple data processing, Ohkawa, like
Shinohara noted above, attributed Japan’s high economic growth to flexible, low-cost
labor supplies and to the technology gap between Japan and the West.’^ In addition,
Ohkawa tested his claim on Japan against Korea and Taiwan, the two most successful
industrialization cases in the postwar era and confirmed it.’" ^ Later, Ohkawa(with
Kohama) made it clear that “Japan’s experience is not a unique but a common process
of late-comer economic development.”^ ^ By “a common process of late-comer
economic development” he meant “the operation of the competitive market in the
domestie private economy” that would ensure technological progress indispensable for
industrialization.’^
Komiya 1975a., chapter 10.
Ohkawa and Rosovksy(1973) depicts Japan’s high economic growth as “a trend acceleration.”
Ohkawa, who was known to be a godfaher of the so-called “Histotsubashi School(quantitative-oriented
IDCJ tradition),” also used Kuznets’ cycle to describe the patterns of the Japanese economic growth.
For the summary o f their finding, see Ohkawa and Rosovksy 1997,203-238. See also Ohkawa and
Shinohara 1979.
Fei, Ohkawa, and Ranis 1985, 35-64.
Ohkawa and Kohama 1989, xiv.
Ohkawa and Kohama 1989, 3-47.
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Table 3.2. Economie Liberalism, Japan’s High Growth, and Normalcy.
Variants Normalcy under
Liberal Economics
Main Factors of
Japan’s High
Growth
Normal/Abnormal
Shimomura
Thesis(1962)
Successful Private
Fixed
Investment(initiated
by private sectors)
Shinohara(1962)
and Followers
Kuznets Income
Inequality
Hypothesis
Low-wage from
Japan’s Dual
Industrial Structure.
Technological
Adaptability.
“Normal” in Low-
wage thesis, but
“Abnormal” in
Dual Industrial
Structure
Komiya(1966-) and
Followers
Threshold Thesis High Savings(most
skeptical of the
effectiveness of
industrial policy).
“Normal”
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Minami, Ohkawa’s student, also explained Japan’s high growth in term of
the neoclassical economic theory of “the turning point.” Following his predecessors,
the Japanese turning point(meaning here “enough capital accumulation” for modem
industrialization) was realized by the industrial dual structure and the abundant low-
cost wage supplies(these two factors also led the technological innovation in Japan).^’
Comparing Japan’s experiences of industrialization with those of Britain(and other
developed and developing countries), he concluded that Japan was no more
“normal(or “not unique” in his term)” than any other country in comparison.’* He
maintained that
to a certain extent the government’s industrial policies did contribute to rapid
economic growth. But the real engine of this growth was the huge investment
in equipment and the active introduction of new technology by private
enterprises. Government policies encouraged this tendency but were no
substitute for it. In other words, high growth can be attributed to the private
sector’s dynamic response to the government policies.^®
In Komiya’s vein, Kosai and Ogino emphasized the role of the high rate of
savings in explaining the high growth era while firmly dismissing the role of the
government.*® Nakamura went further than anybody arguing that the government
started to play a certain role only after the initial high groAVth(through private
initiatives) had already begun. Moreover, its role was limited to the extent that rather
than leading the high growth, the government made an effort to sustain it and strove to
remove obstacles to it.*’ Shimada commenting on the revisionist writings of the U.S. a
la Johnson argued, “although their analysis is correct in some aspects, overall the
"Minami 1973,89-223.
Minami 1994a, 47-56, 321-324. The first edition o f the book came out in 1986.
’’ Minami 1994b, 27.
Kosai and Ogino 1984,120.
*' Nakamura 1981, 80. See also Nakamura 1985, 5-6, 74-75.
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revisionists’ viewpoint lacks balance and is inappropriate.. .Japan is well within
the confines of the neoclassical model.”* ^
Developmentalism and Japanese Development
Origins o f Debate
Japanese developmentalism(with character of protectionism) had emerged in
opposition to free trade economic liberalism.^^ This order was reversed in the
development of economic thought in the W est.*"* Carey and List figured prominently
in the shaping of the early Japanese developmentalists.*^ From the beginning, the
Japanese developmentalists attacked the theory of free trade on the grounds that free
trade was good enough in theory but not in practice. They based their attack as much
on their empirical observations on Japan’s trade and industry in relation to foreign
countries(such as Britain) as on their particular interpretations of the economic
development in the West.
It was Wakayama who was the first to express a protectionist view in popular
terms and yet in a theoretical way, and whose view was reminiscent of the pre-Meiji
Shimada 1991,5-8.
^ The idea o f the state-controlled economy, however, had already emerged in Japan during the 18*
century. Sato Nobuhiro and Honda Toshiaki were the prominent advocates o f the view that political
authorities should be directly involved in nation’s wealth-creating activity. I thank Berger for bringing
this point to my attention. See Morris-Morris-Suzuki( 1989, 34-40, 59-70) for the early Japanese vision
o f the state-controlled economy in the 18* century and the compact summary o f the emergence of
protectionism in Japan in the 19* century.
Biersteker 1993, 7-33. Economic liberalism came into being in reaction to mercantilism.
Under the influence of the German historical school, the Japanese counterpart established “the
Society for Social Policy(Shakai Seisaku Gakakai)” in 1896 modeled on the German Verein fur
Sozialpolitik. The Society consisted of the leading economists o f the late Meiji and early Taisho Japan
and placed it between economic liberalism and socialism. The members o f the Society continued to
increase their influence by reaching out toward the general audience by publications and interacting
with the government until 1927. See Pyle(1974,127-164) and Lehmbruth(2001,39-93) for the impact
of the German historical school on Japan.
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arguments against the opening of foreign trade.As early as 1871, only three
years after the Meiji Restoration, Wakayama wrote on protective duties. He asserted
that although it was claimed that free trade brought about the wealth and strength of a
nation, it was not practical to adopt the principle in such a country as Japan where the
majority of people were still poor, unfamiliar with manufacturing and commerce, and
too unenlightened to imderstand the public interest. He argued that Japanese trade and
industry were far too weak to compete with the economic might of the Western
powers, and thus protective tariffs were needed to control the influx of unnecessary
foreign products, to preserve Japanese prosperity, and finally to earn the respect of
foreign nations who constituted potential threats to Japan’s security.W akayam a
theoretically supported his argument by citing Carey for numerous historical examples
of the successful use of protectionist policies by foreign nations as such, “according to
Mr. Casey, it is not force but wealth that brings about victory over enemies.”* *
However, it was not until six years Iater(1877) that Wakayama firmly located
his argument on a historical point of view. In the translator’s introduction of Byles’
Sophisms o f Free Trade and Popular Political Economy Examined{\849),*^
Wakayama pointed out:
No country had ever achieved wealth without exercising protective methods;
look at France, Germany, Switzerland, Denmark, America or any other country.
When a baby is bom, is it not the duty of the parents to take care of it in every
possible way until it grows old enough to be independent of them?... it is as
Wakayama(1871) in Wakayama 1940, vol.2. Interestingly, Wakayama was at that time an official of
the Ministry of Finance. As will be discussed below(see also chapter 4 for the detailed discussion), the
MOP has since the 1980s been the intellectual power house o f exporting the Japanese model of
economic development abroad, let alone its role in drafting the AMP proposal.
Wakayama 1940, 734-735.
" Wakayama quoted in Greenfeld 2001, 328.
Byles’ book was written in reply to Basiat’s extremely liberal view in Sophismes économiques. See
note 46 above.
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clearly as day that an economic policy suitable to one country is not
necessarily so to another, and accordingly, that it is absurd to believe that there
is one general rule that applies in any country.’®
Wakayama’s argument subsequently offered a common basis for other
developmentalists(or protectionists). Sugi argued for “infant industry”^ ^ while Ushiba,
in his reply to the liberal Tsuda(see above), tried to contradict economic liberalism.
Ushiba wrote:
Even the free trader Mr. Mill once said that the recent rise in the price of land
and product in America was a result of the rapid growth in industry there. This
is enough to prove the effectiveness of the protective system, since the country
has been trying to protect its own industry by means of customs.. .So this is
clearly a free trader contradicting himself.’^
In this vein, Nishimura, noting that Americans were inferior to Europeans so that they
put heavy customs on their imports in order to protect their own industry, went further
so as to argue that even Britain, before Adam Smith, had done the same. He said,
“when they(Britain) started free trade, they had already excelled other nations in
manufacture and commerce.”^ ^ Oshima, List’s translator, critiqued that the ultimate
implication of the theory of free trade is that “agricultural nations must remain
agricultural, and industrial nations must remain industrial.”^ '* Government intervention
in industry and commerce was thus essential if any country (Japan) was to alter the
pattern of the world economy and claim its place as a modem industrialized nation.
’® Wakayama(1877) in Wakayama(1940,769-771). This line o f argument is clearly reflective upon the
proposition stressed by the German historical school as opposed to the British economic liberalism.
Sugi(1874) in Meiji Bunka ZgmA«(Collected Works of Meiji Culture, 1930), vol. 18, 172-175.
’^Ushiba(1875) m Meiji Bunka Zenshu, 1930, vol. 10, 307-309.
'H{sh\mma{\klS)m Meiji Banka Zenshu, 1930, vol. 18, 194-196.
Ohsima(1891) in Honjo, 1966, vol 2, 341. With the first translation o f List in 1889, the German
influence was growing more and more prevalent in all ways in place o f the British. A long discussion
over the possible constitution ended in the eventual victory o f the German school. The Imperial
Constitution, after the German model, was promulgated in 1889. The protectionist view was also
supported by the members of “the National Economics Association(/foMa Keizai Kai).” Around this
time, the table completely turned around as developmentalistsfor protectionists) were now seen to be on
the offensive while the liberals on the defensive.
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Perhaps more important than these developmentalist theoretical critiques of
economic liheralism was the fact that such a view was shared hy many of the Japanese
policy makers at that time, who had extensively traveled to Europe and the U.S. This
was particularly the case with Okubo, who was to implement as Minister o f Finance
the “Industry and Trade” policy that prepared the way for Japanese industrialization.
Okubo traveled to Europe and the U.S. from 1871 to 1873 along with many
government leading figures to learn the political and economic systems of the
advanced countries.^^ Upon his return to Japan, he urged the Japanese government to
adopt a forceful policy of encouraging domestic industries: “Generally speaking, the
strength and weakness of a country is dependent on the wealth or poverty of its people,
and the people’s wealth or poverty derives from the amount of available products. The
diligence of the people is a major factor in determining the amount of products
available, but in the final analysis, it can all be traced to the guidance and
encouragement given by the government and its officials.”^^ Okubo explicated his
argument in the following way: “Nothing is more urgent for the government than the
promotion of industry and trade. An unsatisfactory state is due partly to the
backwardness of the people, but more so to an insufficient effort by the government to
lead them. From the production of industrial commodities to the means of transport by
land and sea, the government should maintain the facilities already established and
initiate what has not yet established.”^’
^ Okubo, for example, met with Bismarck and von Moltke in Berlin and heard directly from them
about their experiences in founding the German Empire. See Sugihara 1988, 219.
Okubo(1874) quoted in Greenfeld 2001, 329.
Okubo quoted in Sugihara 1988, 220.
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However, it was not Germany but Britain that Okubo recommended to the
emperor as the model Japan should follow in his “Memorial.” Okubo turned to the
Navigation Acts in the British mercantile system and argued that the acts increased the
number o f British ships and trained the nation in the art o f navigation on the one hand,
while it barred foreign commodities from rushing into the country and protected the
domestic industry on the other. After this, the Navigation Acts were removed, and free
trade was permitted, which made possible the British present wealth and power.
Okubo concluded his “Memorial” that “following the British example, the government
should encourage and induce the docile nation of Japan to industriousness and
endurance in pursuit of trade and industry.
If all these earliest writings were in the final analysis about “what Japan should
do(except perhaps Okubo, because he himself formed the basis for the promotion of
industry based on his overseas experiences),” it was Fukuda who vyrote the first
serious study of Japanese economic development in a comparative perspective and the
first to literally use the term “normal” for the Japanese historical experience.^^
Conceptually influenced by Karl Bucher(Die Entstehung der Vokkswirtschaft), Fukuda
metaphorically divided the evolutionary processes of social and economic
development into the two categorizations, namely “normal” and “abnormal” paths. In
Sugihara 1988,221. See also Greenfeld(2001, 329-330) for a lengthy quote(not entire) of the
“Memorial.”
Fukuda, under Brentano’s guidance, a leading member o f the German social policy school, published
his work in 1900 under the title Gesellschaftliche und Wirtschaftliche Entwicklung in JapanfSocial and
Economic Development in Japan). For the discussion of the “normalcy” claim below, I rely on
Kang(1997, trans. Lee)’s interpretation of Fukuda. He was also a leading figure of “the Society of
Social Policy” noted above. Later in his life, however, Fukuda gradually became skeptical about the
future o f the German historical school in accordance with his growing interest in modem marginalist
economy and welfare economy. See Inoue and Yagi(1998,44-59) for a short intellectual biography on
Fukuda.
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Fukuda’s evolutionary scheme, any nation that had gone from “inward family
economy” through “city economy” to “national economy” belonged to the “normal”
path on which most of the Western countries huilt their societies and economiesHe
then applied this historical schema to the history o f Japanese social and economic
development and concluded that the Japanese experiences showed a striking parallel to
those of Western countries. For him, in particular, the state-led economic
development(since the Meiji Restoration) that made possible the emergence of the
“national economy” was a clear example of Japan’s normalcy. Asia stood on the
other end of the spectrum(thus “abnormal”) as he defined it as consisting of
agricultural social economies.Japan was “normal” in comparison with the West but
“unique(or abnormal)” in Asia.
If Fukuda was to make the “normalcy” claim deductively(from the West to
Japan), Akamatsu, Fukuda’s student, did it inductively in an inverse fashion. Based
on his empirical studies of the import, the domestic production, and the export of
Japan’s manufactured goods such as cotton yam, cotton cloth, spinning, weaving
machinery and general machinery industries over the period of 1870 to i940,
Akamatsu realized that the import curve usually increased until it reached some peak
and declined with the increase of domestic production at which time the export
Kang 1997, 94.
Ibid., 84.
Later in his life, however, Fukuda became a critic o f the prolonged state-led economic development
that suppressed the idea of full-blown individual rights. See Inoue and Yagi 1998, 64-65.
Kang 1997, 95.
Akatmatsu 1945, 1961, 1962. Akamatsu’s flying geese theory, which was resulted from his synthetic
approach to economics by combining Hegelian dialectics and American empirical studies, became
famous in Japan already during the 1930s, but Akamatsu continued to refine it until 1960s. Akamatsu
explained that the name(flying geese) referred to the three-time series curves(see below, note 106) and
said, “wile geese fly in orderly ranks forming an inverse V, just as airplanes fly in formation.” See
Akamatsu 1962, 9.
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increase.*®^ This finding enabled him to put forward a general principle of
economic development for late-developers coined as “the flying geese pattern
\heoxy{Ganko Keitai Ron) of industrial development” or “the catching-up product
cycle theory o f development.”* ® ^
With the help of the flying geese theory, Akamatsu basically attempted to
explain how an underdeveloped country could become developed relatively quickly.
In his flying geese schema, an underdeveloped country adopts suitable labor-intensive
industries from more developed countries. It then produces first for the home market,
but starts to export as soon as the industries have grown strong enough. Initially,
products are simple, crude and cheap, but gradually the level of quality is elevated.
This sort of procedure is repeated over and over again, finally leading to a rapid
process of national economic development. This three-stage development of import,
domestic production, and export was the flying geese pattern of development, and in
particular Akamatsu stressed the role of the state in facilitating the transition from the
import to the domestic production(the second stage).He said, “it was often
Akatmatsu drew three time-series curve denoting the import, the domestic production, and the export
of manufactured goods with time on the horizontal axis and the yen value on the vertical axis. He found
that many imports curves had a mountain-shape with one peak. What he ultimately argued was similar
to that suggested by Hecksher-Ohlin trade model with many goods focusing on shifting comparative
advantage overtime. See Korhonen 1994, 95-98.
The flying geese theory particularly refers to a situation where less advanced countries adopt the
industries o f more advanced countries pursuing them on the road o f economic development. At the
heart of this theory lie the levels o f “technological sophistication.” On the basis o f the levels of
technological sophistication, countries are divided into two subgroups, leading co\xn\XK5{senshinkoku)
and follower co\xn\x\Q5{kooshinkoku). There is also a middle category, namely newly rising
co\mt3i\Qs{shinkookokuy. these are countries that are developing more rapidly than others, and whose
relative position is moving upwards. The category o f leading countries referred to the advanced Euro-
American countries, and that of follower countries to the Asian countries. Japan moved as the first of
them to the position o f newly rising countries around the turn o f the century.
Yamazawa(1990, 69) rephrased it in a modem economic term.
Akamatsu(1962,23) applied the flying geese theory to the growth o f Asia’s clothing industry and
Japan’s transistor radio industry since 1945 and confirmed that “the wild-geese-flying development
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necessary for the state to apply protective measures, such as the use of tariff
policies and import restrictions, to make the expansion of local production large
enough to compete with foreign manufacturers.”* ® ^
As noted above, Akamatsu inductively developed his three-stage flying geese
theory on the history of Japan’s industrialization. He further believed that his findings
for Japan could be generalized into a theory for late-industrializers. In other words, he
believed that his “historical theory” should be able to depict the industrial
development of any less advanced coimtry that entered into extensive trade relations
with more advanced countries after the age of a closed self-sufficient economy. He
thus started to apply his theory to not only European late-industrializers(including the
U.S. after the independence) but also several Asian countries(such as China, Korea,
Hong Kong, and India) and confirmed his theory with some degree of differences.
In this sense, the process of Japan’s industrialization was inductively recovered
as “normal” in Akamatsu’s flying geese theory. In Akamatsu’ term, the only
difference in Japan’s policy(that made an earlier success) compared with those of
China and Korea was that Japan rapidly started an all-out effort of national economic
development. It follows that even though a long time is needed for any late-
industrializer to attain the level of technological sophistication of the leading countries
as a rule, it is possible for them to achieve development in the long run.**®
completed its course from import to domestic production, and, further, to export in the short period of
several years.”
Akamatsu 1945, 305. He took up the U.S. as an example that exercised such a practice after its
independence.
This optimistic view from Akamatsu reflects upon his absorbing o f Hegelian teleological philosophy.
See Korhonen 1994, 98-99. Akamatsu’s optimism can be compared with Fukuda’s pessimism on Asia
defined as “abnormal” noted above.
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The influence of Akamatsu’ theory on the modem Japanese
developmentalists has been so enormous that they embraced Akamatsu’s ideas as their
basic theoretical tools. It is clearly evident in the fact that the contemporary Japanese
developmentalists’ ideas o f economic development are almost identieal with
Akamatsu’s emphasis on the growth of real sectors(production-based), long-term
planning, stage-based trade policies, and national autonomy for successful
industrialization. Perhaps more importantly, Akamatsu’s theory was known to be
influential in the making of Japan’s own postwar industrial policy as well as Japan’s
postwar economic policies toward Asia.''*
Developmentalism and Japan’ s High Economic Growth
In postwar Japan, economic development became the priority target in Japan’s
public policy, and it was somewhat natural to believe that the government should do
something to secure imports(such natural resources as crude oil, coal, iron ore, bauxite,
and other mineral materials, which would supply the basis of an industrial economy)
in exchange for exports and then to raise the standard of living for the people. Toward
that purpose, the Ministry of International Trade and Industry(MITI) was established
in 1949 to promote exports to acquire foreign currency in order to pay for essential
imports in the short run. The Economic Stabilization Board, which had wielded
controlling power in reconstructing Japan’s war-torn economy, was replaced by the
Economic Council Board from July to August 1952. The agency was reorganized into
the Economic Planning Agency(EPA) in May 1955. The main task of the agency since
its establishment has been the drafting of long-term economic plans. Also in 1952, the
111
See, for example, Korhonen 1994,104-107; Hatcher and Yamamura 1996; Takatoshi Ito 1996.
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129
Economie Council and the Japanese Development Bank(JDB) were established by
the government. The Economic Council had been an auxiliary organ of the Economic
Council Board(later EPA) and was to conduct surveys and to deliberate on important
economic policies and plans in response to inquires by the Prime Minister. JDB was
designed to play crucial roles such as being the guarantor in borrowing funds from the
World Bank and foreign private banks for national projects and huge capital projects
by private companies. *
As such, the existence of the government’s industrial policies and central
planning for Japan’s economic development has not been in dispute. The question
was: to what extent was Japan’s high economic growth the result of conscious policy
decisions made by the government rather than private initiatives(claimed by economic
liberals as noted above)? Or was Japan just lucky in the fortuitously favorable postwar
economic circumstances(claimed by some Marxists as noted above)? In interpreting
the causes of Japan’s miracle, the Japanese developmentalists did not have much
problem with such explanations put forward by economic liberals as “private fixed
investment(Shimomura thesis),” “dual structure-led low wages(Shinohara) and “high
savings(Komiya).”'*^ What they disagreed on with economic liberals was that the
government more or less made possible such conditions in the first place, thus
emphasizing the facts that Japan’s postwar pattern of industrialization ran counter to
conventional notions of Ricardian static comparative advantage and was achieved with
See Ikeo 1996,2000,154-158.
See, for example, Okita(1975,33-58) for his enumeration o f the elements that led to high economic
growth: 1) technological catch-up; 2) high productivity and low consumption; 3) abundant supply of
labor; 4) dual structure o f the economy; 5) high savings. Nonetheless, he emphasized the important role
of the government. On the policy and planning side, the elements are: 1) the “economy first" principle of
the government; 2) production-oriented policies; 3) expansion of heavy industries; 4) export promotion;
5) use of the price mechanism and planning; 6) the financial system.
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strong government support and guidance, exercised primarily through the MITI,
the MOF, and the Bank of Japan(BOJ). Included in the instruments of government
intervention were, they argued, tariff protection, tax concessions, preferential
allocation o f loans and foreign currency to selected industries(by dividing the
industries between ''s\mnse{shinko sangyo)” and “sunset(5'/zayo sangyo)”), and the
famous “administrative g,\xidmce(gyosei shido)” Japan’s prolonged economic success
enabled them to reassert the “normalcy” claim in a way not much different from the
ways their predecessors noted above/
An early developmentalist interpretation of Japan’s high economic growth
came from Kojima, Akamatu’s student/*^ Kojima rejected Shinohara’s low-wage
explanation on the grounds that cheap labor had been a significant factor only for the
brief periods of Japan’s industrialization history. Instead, he, in the footsteps of
Akamatsu, attributed Japan’s success to Japan’s flying geese-based successful export
expansion in world market, which was typically found in late industrializing countries
well positioned to take advantage of the dynamic comparative advantage. While
Kojima focused his attention on applying the trade aspect of Akamatsus’ theory to
postwar Japan, Okita,"^ one of the most influential govemment-economists(AaMcAo
Given the total collapse of the Japanese economy in the early postwar era, the Japanese
developmentalists thought o f Japan’s postwar industrialization as a “fresh new start” from the scratch.
As will be discussed below, they showed a tendency to still base their normalcy claim in locating Japan
in the context o f the early industrialization processes of Western advanced countries.
Kojima 1958.
Okita started his career in joining the prewar Ministry of Communications and later became a
research and planning officer in the Greater East Asia Ministry during the Second World War where he
learned the possibilities and the limitations of economic planning. In 1955, Okita became the director of
the Research Division in the newly formed Economic Planning Agency(EPA). His main responsibility
was to plan for ways of expanding Japanese exports. He was one of the chief architects of the 1960
National Income Doubling Plan. Embracing Akamatsu’ flying geese theory of economic development,
he became famous for his missionary role during his travel in East and Southeast Asian countries(in the
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ekonomîsuto) in postwar Japan, clearly articulated the importance and efficacy of
the government’s role in analyzing the causes of Japan’s high economic growth.
Although he was not so much opposed to the analyses of Shimomura and
Shinohara(discussed above) as evident in his endorsement of such aspects as surplus
labor and the dual industrial structure, he pointed out the role of the government’s
economic planning and policy. His particular emphasis was on the role of the
government in combining a free market structure with indicative planning and
initiating the political and social reforms that accompanied Japan’s high economic
growth.**^ The dissolution of the zaibatsu, the improvement of wages and working
conditions, and above all the abandonment of large-scale military expenditures were,
he argued, the foundations on which Japan’s economic miracle was built.*** All of
these conditions would not have been put in place without the government’s long-term
planning for economic development. He said, “in Japan, the government has continued
to exercise strong leadership over the private sector of the economy since the
beginning of modernization”* * ^
Like Shimomura(also a govemment-economist noted above), Okita did not
fully put into a historical perspective the Japanese development experience in his
1960s and 1970s) in explaining the theory of the flying geese pattern o f economic development. See
Okita 1961, 1975.
He also did not forget to include a favorable international environment led by the U.S. See Okita
1975, 58-63.
Okita 1980, 93-147. Regarding his argument on military expenditure, Okita was known as the
intellectual father o f Japan’s “comprehensive security” concept, stressing economism and abhorring
military solutions in international affairs. The “comprehensive security” concept was officially
articulated in 1971 by the Ohira government.
Okita 1980, 246. Okita(1961, 98-128) critiqued the logic of the Keynesian government intervention
for allowing for the government’s intervention only in the cases of the immediate problems of deficient
or excessive demand. The govemments(particularly the governments o f developing countries) should
be allowed to design longer-term planning for economic development.
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earlier publications. Rather he focused his attention on exploring the lessons of
Japan’s industrialization for less developed Asian nations.*^® Nonetheless, he made
some effort to put it in a comparative perspective. In the chapter entitled “Comparison
of Two High-gro-wth Economies: Brazil and Japan,” Okita found some similarities
between the two countries from the institutional point of view, which would sit well
with his positive assessment of the role of the government noted above. To quote in
length:
These(similarities) include the mixed economy system of private and
governmental initiatives, the importance of the role of the government,
political stability, continuity in the government’s policy, a “growth-first”
orientation in economic policy, and so on...in Brazil the government leads the
process of economic development by various policy measures including state
ownership of basic industries such as iron and steel and petroleum. Since 1964
in Brazil, under the strong leadership of the technocrat government, continuity
of policies has been maintained. In Japan, the continuation of the Conservative
government for more than 20 years has contributed to the stability of policies.
Both governments have relatively efficient bureaucracies.'^’
In his later writings, Okita put forward the “normalcy” claim by calling Japan’s
postwar economic development as “catch-up capitalism” or “latecomer capitalism”
while at the same time claiming that the high rates of economic growth of the NIEs
and the ASEAN resulted from the state-led economic policies similarly exercised in
postwar Japan. He asserts, “late-comers to industrialization must lay particular stress
on the need for government intervention, not just to compensate for failures in the
market, but because their private sector economic agents are still immature and their
markets underdeveloped.”* ^ ^ As such, Okita did not shy away from attributing the
Okita 1980, 105-148. See also Okita( 1984, Editor’s Introduction). The entire volume of the latter
was about whether Japan’s path to modernity and industrialization was “unique” or not.
Okita 1980, 246-247.
Okita 1992, Forward.
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economic successes of the East and Southeast Asian countries to the “flying geese
pattern of economic development:”
With Japan as the lead goose.. .the nations of the region engineer successive
take-offs and are soon moving on their way to higher stages of development. It
is akin to a V-formation, and the relationship among the countries in the
formation is neither horizontal integration nor vertical integration as they are
commonly known. Rather it is a combination of both. And because the geese
that then go off later are able to benefit from the forerunners’ experiences to
shorten the time required to catch up they gradually transform the formation
from a V-formation to eventual horizontal integration.'^^
It was Murakamiwho interpreted Japan’s high growth experience in his
original explicated theory of “dynamic increasing returns” or “decreasing costs” and,
nonetheless, visibly(perhaps most visibly) located it in the historical context of the
state-led late industrialization.'^^ In brief, Murakami’s growth theory of “decreasing
costs” is based on his historical observation(what he calls “the undeniable fact”) that
Okita(1994) quoted in Woo-Cummings 1995,241.
Murakami 1988,1992,1996. Murakami’s posthumous book(1996, trans. Yamamura) is originally
from his 1992 910-page book(in two volumes) entitled “Han-koten no Seiji Keizai Ga^wfAnticlassical
Political Economics).” Most o f writings in the book were written in the 1980s. See
Yamamura(tranlators’ preface) for a short biography for Murakami. Apart from his academic
publications, Murakami was much involved in public service as well. For example, he was senior
research officer. Economic Research Institute, Economic Planning Agency o f Japan( 1967-1970); expert
member. Provisional Commission for Economic Reform(1973-1987); director, Japan Association of
Economics and Econometrics( 1975-1977); and chairman. Forum for Policy Innovation! 1976-1989).
Murakami is also famous for his analysis o f social values and their role in promoting or retarding
industrial growth. In his value analysis, Murakami understood that while the interaction of
“instrumental activism(a term borrowed from Parsons)” and “individualism” supported the
industrialization o f Europe and North America, the path taken by Japan was the integration of
“instrumental activism” and “collectivism.” In particular, he argued that the crucial deriving force
behind Japan’s industrialization was Japan’s traditional family value, the famous “/e” thesis. On this
basis, some scholars tend to categorize Murakami’s explanation of Japan’s high economic growth
within the “unique” thesis along with Morishima(1979) who stressed the collectivist ethos in Japan for
Japan’s economic success. As will be discussed below, however, for Murakami, such cultural variables
as values are more or less “intermediate” variables(but he did not depict it in this way). In the final
analysis, it was the state that was able to “direct society as a whole toward industrialization” and to
foster and utilize the sense o f group solidarity originally centered around the family(ie). The state was
able to harness such a value to the common cause of competing with the West. See Murakami 1975,
170-210; 1984, 330-370. Elsewhere, he also argued that another reason for the state to reshape and
recreate the “/e” was to alleviate the Japanese workers(most of whom immigrated to urban areas during
the high growth period)’ feelings of alienation from their hometown cultures. One example is found in
Japan’s company culture-I am still working on finding where I read this part. The reference will be
provided shortly.
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the costs of industrial production have been declining, historically since the
beginning of industrialization in Europe and ever more rapidly today as technological
progress continues at an accelerated pace. He argues that this is how industrial
economies have grown and real wages risen as a result. Technological progress
results in decreasing costs(the flip side is increasing returns) by lowering production
costs.In Murakami’s words, “believing that industrialization means a trend of
decreasing costs is a straightforward economic judgment based on what we observe.
An economic of industrialization has to be an economics of decreasing costs.”'^^
However, the technology-driven decreasing costs do not take place evenly
across all economies. Its presence is historically frequent in the rapid industrialization
process of late-comers while rare in mature industrialized economies. Again, in
Murakami’s words, “a tendency toward dynamic increasing retums(i.e., decreasing
costs) has been the rule rather than the exception in the process of (modem)
industrialization.”* ^ ^
Murakami’s emphasis on the role of the state in leading industrialization
derives directly from his decreasing costs argument. Because modem industry in late-
Murakami 1996, 144-182. Murakami acknowledges Marshall’s contribution to originating the
discussions o f the increasing return. But Murakami finds the so-called “Marshall’s problemfinability to
answer the question of ‘when costs are decreasing, why are markets not dominated by monopolists or
collusive oligopolists?) resulting from the homeostatic character of neoclassical economic theory. Thus,
Murakami’s “decreasing costs” argument, which is inexorably tied to technological progressfthus
endogenizing such a traditionally exogenous variable as technology), was his theoretical attempt to
remedy Marshall’s problem.
Murakami’s emphasis on technological progress as a leading factor for industrialization shows his
intellectual debt to Akamatsu. Murakami(1996, 122-124, 302-309) very much bases his proposal for
new international world order on the flying geese pattern o f economic development theory.
147.
Murakami(1992, reprinted in Ohno, 98, 181), italic added. This decreasing costs argument led
Murakami to argue that we need two economic systems, namely “developmentalism” and “economic
liberalism.” The former is suitable for late-comers while the latter is appropriate for mature advanced
economies.
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comers tends to exhibit dynamic increasing returns/decreasing costs, it is the
state’s industrial policy as “direct policy measures to preserve and promote the growth
potential of industries which are supposed to exhibit a tendency toward decreasing
costs.”* ^ * ^ Given the limitations o f technological as well as financial resources a
developing coimtry faces, the most crucial industrial policy is thus to select “targeting”
industries that are best able to adopt new technologies(thus enjoy the maximum
benefit of decreasing costs)/^* Without such a policy(industries left unattended by the
state), even the industries facing by decreasing costs would be imable to realize
adequately their latent potential for growth. As such, technology, incentive structures,
and finance constitute the three most important contents of industrial policy on top of
such traditional protective measures as trade protection, subsides, and price
regulation.
This is not just Murakami’s theoretical justification for state intervention.
Decreasing costs were crucial in Japan’s postwar economic growth, and it was the
successful Japanese industrial policy that helped industrial firms to realize the gains of
decreasing c o sts.A s noted above, however, the state-led decreasing costs in the
form of developmentalism would have a historical validity for the long history of
industrialization of all advanced countries of today. In Murakami’s view, even Britain,
" '/W ., 188.
This is a more specified form of the infant industry argument. See Murakami 1996, 151-154. See
also above the discussion o f sunset and sunrise industries.
189-190. See also Murakami 1996,183-189.
Murakami 1996, 189-204. A similar argument is found in Kanamori 1970, 225-258. Modifying
Shinohara’s low-wage thesis for Japan’s high growth, Kanamori argues that during the years of high
growth, Japanese wages had in fact been rising more rapidly than wages in most other industrialized
countries. But productivity in Japan had been rising still faster, thus resulting in declining wage
costs(wages divided by productivity). See also Hamada(1997,114-131) for critique o f Murakami’s
thesis.
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which is considered “the cradle of modernization,” was no exception. He said, “in
the European countries between sixteenth and eighteenth centuries, the phenomenon
frequently referred to as industrialization before the industrial revolution, or proto-
industrialization, made progress under absolute monarchy hand in hand with
mercantilism.”* ^ " ^ Britain was the first “developmental state” under absolute monarchy
that attempted to link nation-states and capitalism,let alone France, Germany, and
the U.S. To quote in length:
In catch-up industrialization, the model is the experience of England, the first
developer.. .Not only the late-developing nations of Western and Central
Europe but also other late developers such as Russia, Sweden, Turkey, and
Japan did their best to undergo the stages of mercantilism and protectionism in
compressed forms even though these were the stages that England underwent
over three centuries.. .Today, we call such an effort
“developmentalism”.. .Stated more generally, industrialization required
developmentalism. When one argues that industrialization can be achieved by
classieal liberalism, one is defining industrialization very narrowly to mean its
completed form that was seen in England.*^®
Murakami added, “the historical characteristics of industrialization were self-
evident. There was no room for doubt; Western civilization had created the history of
industrialization and by so doing had dominated the world. But the intellectual
orthodoxy of Europe and North America was unable to deal with the actual facts of
industrialization.”* ^ ^ He subsequently claims:
What causes developmentalism to be regarded as heretieal when seen from
other perspectives is its historical perspective(as opposed to ahistorical liberal
eonception of industrialization)... Japan, which did not fit well into this widely
aeeepted analysis(classical economic analysis), was explained as an
Murakami 1996, 133.
Murakami(1992) in Yamamura 1997,260-261.
Murakami(1992) in Yamamura 1997,268-269.
'" /W .,2 1 7 .
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exceptional case... Japan(including NIEs) was heretical when seen only
from the standpoint of classical economic liheralism.*^*
As such, Murakami accounted for Japan’s high growth experience in the industrial
policy-driven “decreasing costs” and by doing so firmly located the Japanese
experience in the historical context of the state-led late industrialization.
While sharing many ideas of industrialization(or industrial policy) with
Murakami, Takatoshi Ito^^^ elaborates further on Akamatsu’s flying geese theory(what
he calls “industrial sequencing”) and empirically elevates it to the historical truism of
successful economic development.*'*® Against some views(mostly cultural
explanations) defining Japan’s success as an “idiosyncratic” miracle(thus implying
Japan’s success could not be duplicated elsewhere), Takatoshi Ito finds that one
interesting common feature of all successful economic deveIopments(including NIEs)
is the industrial sequencing or the flying geese pattern. In other words, all successful
industrialized countries have upgraded their industries in an orderly fashion. First,
textile industry flourishes. Light industry follows. Usually, heavy industries, such as
steel, shipbuilding, transportation vehicle industries, and various chemical industries,
have to wait until the textile and light machinery industries find success in the world
market.
Given this historical pattern of successful economic development, Takatoshi
Ito, like Akamatsu, Okita, and Murakami noted above, argues that the biggest
challenge to developing countries is to decide which industry to promote. Japan’s
233.
139
Takatoshi Ito, a Harvard-trained economic professor at Hitotsusbashi University, also served the
government until recently( 1998-2000) as Director-general of International Financial Bureau at the MOF.
* ^ “ Takatoshi Ito 1993.
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postwar success precisely resulted from the govemment(MITI & MOF)’s
successful selections of industrial sequencing in the flying geese pattern. In his
words, “Japan has constantly upgraded its main engine from textile to light
manufacturing, to heavy manufacturing and to high-tech industries. The sequencing of
industries was important.”* " ^ ^ The NIEs followed roughly, but not exactly, the path that
Japan took some years ago(but the commonality was that each coimtry started with
light industries, and then moved to more sophisticated ones). However, the pattern, he
asserts, was “initiated by England, the first nation to achieve industrial revolution, and
was copied by late-industrial countries.”* " * ^ Takatoshi Ito’s answer to his own question,
“Japanese Economic Development: Idiosyncratic or Universal?(the title of his article)”
is “what appears unique in Japanese economic development, from the 1950s to the
1980s, in fact makes economic sense and is replicable by other developing countries
given the right initial conditions.”* '^ '^
Lastly, Ohno’s volume,which compiles key writings of officials and
scholars shaping Japan’s official development assistance(ODA), asserts that the
development of a market economy requires many conditions that do not automatically
arise by hands-off economic policy. These conditions must be built by conscious
Takatoshi Ito 1998,29-34. Reminiscent of Murakami noted above, Ito maintains that government
intervention is needed when it is difficult for the market to achieve an optimal allocation of resources if
technology has increasing returns to scale.
'"^/W .,31.
Ibid., 33. Unlike Murakami noted above, however, Takatoshi Ito does not explicitly say whether the
industrial sequencing of England was made through market mechanism or the government’s
intervention.
Ibid., IS. Ito understands it is hard to wisely select a right industrial sequencing. Nonetheless, he said,
“However, for a developing country that follows the 'flying geese’ pattern, it is easier to pick an
industry that is losing competitiveness in countries similar in factor endowments and economic
environment, just ahead o f this country(1996, 27).”
As evident in the pages o f the entire volume, Akamatsu and Murakami are the two major intellectual
sources o f this volume’s explieation o f development economics.
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efforts of the government. In short, the adoption of a state-led development
strategy is unavoidable for any country wishing to industrialize rapidly.
Incorporating European, American, Japanese, and now East Asian experiences of late-
industrialization, the volume does not shy away from firmly establishing the historical
“normalcy” of the state-led industrialization. Two quotes would suffice:
To initiate the industrialization process, the state must assume a principle role
in developing industrial vehicles able to mobilize resources, induce and
organize industrial development. The Credit Mobilier of France, the world’s
first investment bank, and German banks that provided long-term financing for
the industrial sector were the key institutional instruments of industrialization
in the European continent, which initially fell far behind England. In late
developer Russia, where the banking system was underdeveloped, the state
itself assumed the role of the primary agent, propelling industrialization
through fiscal policy. Similarly, in Meiji Japan the state played a leading role
in promoting industrialization...“state-led capitalism” was typically adopted in
latecomers as vehicles for industrialization.
The active role of government is particularly important in the early states of
development.. .This was already recognized clearly in the nineteenth century
when Japan began its transformation from a feudal samurai society to a
modem, industrialized one. Returning from the two-year official mission to
America and Europe, the Meiji government’s high official Toshimischi Okubo
wrote in his back-to-office report: “the strength of a country depends on the
prosperity of its people which, in turn, is based on the level of output. However,
no country has ever initiated the process of industrialization without official
guidance and promotion.
So far, 1 have illuminated the Japanese developmentalists conception of the state-led
economic development within the context of historical “normalcy.” As evident above,
they seem not to agree with every aspect(or specificity) of the exact causes of Japan’s
miracle, let alone their historical generalization of the causes of the successful late-
In particular, Watanabe’s chapter(1998,201-219) and Maekawa’s chapter 1998, 166-177. Both
chapters engage in comparative historical analysis.
Watanabe 1998,201-202.
'^*Ohno 1998,7.
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140
industrialization.*'*^ Nonetheless, what they all appreciate is the active role of the
government as an initiator of change in the early stage of development. In particular,
the common ground is their positive assessment of the state’s pursuit of long-term real
target(production-based) and o f technology-led stages o f development. As the
“normalcy” claim clearly indicates, the Japanese developmentalists historically backed
up their state-led thesis and later challenged the neoclassical economic orthodoxy,
which they think is ahistorical and valid only in deductively formed mathematics. In
the eyes of the Japanese developmentalists, the orthodoxy’s commitment to a
universal development philosophy is nothing but a practice hijacking the history of the
world economy. The state-led economic development, rather than just an alternative
possibility to industrialization, has been a normal(or universal) practice for all late-
industrializers.
There have recently emerged comparative institutionalist approaches as the explanations of the
successes o f Japan and East Asia. Taking up “coordination problem,” these literatures tend to find the
primary role o f govemment(that led the successes) not so much in directly intervening in resource
allocation as in fostering the development and interacting with private sectors. See, for example, Aoki,
Kim, and Okuno-Fujiwara 1997; Okazaki and Okuno-Fujiwara 1999. The main reason that I do not
review these literatures in detail here is that given their timing of publications(these literatures are still
emerging discourses), their role in forging the Japanese challenge is very ambiguous.
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Table 3.3. Developmentalism, Japan’s High Growth, and Normalcy
Variants Normalcy under
Developmentalism
Main Factors of
Japan’s High
Growth
Normal/
Abnormal
Okita(1975-) Industrial Policy
Competent Bureaucracy
Government’s
Long-term
Economic
Planning and
Policy.
Autonomy of
Bureaucracy.
“Normal”
Murakami(1975-) Technology-led
Decreasing Costs
initiated by the
government.
Successful
Selection of
Targeting
Industries that
maximized the
benefit of
decreasing costs
“Normal”
Kojima, Ito, and
Ohno
Flying Geese Pattern of
Economic
Development(Production
Cycle theory; Import—D.
Production—Export)
initiated by the
government.
Industrial
policies that
promoted the
successful
sequencing of
industries(from
textile through
light through
heavy through
high-tech
industries)
“Normal”
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Asia Empowered Developmentalism
As so far discussed, discourses, which embody the meanings of identities, are
arranged and positioned with respect to each other. In the realm of discursive politics
or identity politics, it is not wrong to assess discursive formation as if they are in
active(or potential) competition with each other. Discourses position themselves to
capture adherence and compete for relevance. As a result, a certain discourse rises
while others lose. Why does one form of discourse rise over others?
One of the most common answers to it lies in “materialism,” the argument that
discourse is never neutral and is always guarded by the powerful as a way to advance
their material interests. I have no doubt whatsoever that this may be true. However, as
much as it can be a foundation for a theory of the rise and fall of discourses, in some
other cases, discourses gain and lose power as a consequence of their interpretative
capabilities of unfolding events both domestically and abroad. The members of each
discourse offer understanding of those events, and these turn out to be more or less
convincing. The rise of Japanese Developmentalism in the 1980s would be one of
those examples.
The Japanese developmentalists first had to prevail over economic liberals
domestically before they could project their state-led economic development visions
internationally. The clash of the two camps was observed in the early 1990s when a
great deal of discussions occurred about what Japan, as the largest ODA(Official
Development Assistance) donor in the world, could contribute to economic
development of developing countries. Economic liberals insisted that Japan should
guide its ODA policy along the lines of Washington’s drive for privatization and free
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143
markets. This meant that Japan should drop its traditional ODA practice of
“request-based procedures,” which assumed that the recipient country would know its
own needs best, and place rigid conditions on its aid to developing countries.
In opposition to economic liberals, the Japanese development economists and
some policymakers within the confines of Developmentalism argued that Japan should
shape its ODA policy along the lines of lessons from Japan’s own development
experience.*^* In other words, Japan’s ODA policy should be directed to stressing the
role of the state in economic development. This meant that Japan should maintain its
request-based ODA policy. The request-based ODA policy, which is implemented
through a financial mechanism known as “two-step loans” that fuimel capital or aid to
private sectors through public agency, calls for the recipient government leadership in
initiating development strategy.
At this critical juncture, the successful economic development experiences of
Asian countries, which were deemed similar to Japan’s own experience, helped the
Japanese developmentalists articulate and advocate the so-called “the Asian
development model.” They emphasized the common features of the state-led
economic development strategy of the Asian region. At the same time, the Japanese
developmentalists did not forget to question the viability of a purely unregulated
market mechanism for sustainable economic development. In the end, the Japanese or
Asian development model, which had begun to coalesce into concrete policy
proposals(see below) by proponents of the state-led economic development during this
crucial period, became the basis for Japan’s ODA policy. Japan’s ODA policy
130
Yasutomo 1995,27.
Yasutomo 1995, 30.
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increasingly focused on the role of the state in economic development strategy,
and Japan has since then increasingly become the principal advocate of the Asian
development model in multilateral development banks and other international
forums.
In brief, the Japanese developmentalists were greatly empowered with the rise
of Asia and the failures of Latin America and Sub-Saharan Africa, which they
believed were the clear examples of failure of the neoclassical economic liberalism.
The rise of Asia has reinforced their conception of the historical “normalcy” that the
state-led economic development is a prerequisite particularly for late-
industrializers(see, for example. Table 3-4 below-flying geese pattern of Asian
industrialization elaborated by Ito).’^ ^ In particular, the rise of Asia played an
indispensable role in dispelling their small specter of doubt on the historical normalcy
of Japan. The doubt derived from the fact that up until the 1980s, Japan was the only
country among non-European countries that had succeeded in industrialization.
Yasutomo 1995, 30. See also chapter 4 for the detailed analysis of the influence of the Japanese
developmentalists in challenging the neoclassical economic orthodoxy in the ADB and the World Bank.
Of course, the Japanese developmentalists recognize the similarities and differences between Japan
and Asian followers. Also they see the differences between East Asia and Southeast Asia. For example,
Japan did not rely on foreign capital for its investment while most of Asian countries(particularly Korea
and Southeast Asian countries) borrowed sufficiently from abroad. Nonetheless, they interpret that
Japan’s Asian neighbors similarly patterned after Japan. In particular, the role of the state was
indisputable among themselves. In fact, all the three authors note above(Okita, Murakami, and Ito)
strongly endorse the role of the state. .See, for example, Hara(1993) for a careful analysis of the
differences and similarities. The third chapter o f my dissertation deals with it in detail.
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Table 3.4. Flying Geese Pattern (sequencing of star industries)
154
Japan Korea Taiwan Hong Kong Singapore
Textile 1900— 30 1960s Early 1950s Early 1960s
1950s 1970s (dominant) 1970s
Clothing, 1950s 1960s 1950s— 1960s
apparel
Toys, watches 1950s 1960s 1960s— 70s
footwear 1970s
Refining (promo)
early 1960s
Steel 1950s— 1960s (promo) late
1960s—
early 1970s
Chemicals 1960s— 1970s Late 1960s
Early 1970s
1970s
Shipbuilding 1960s— 1970s 1970s
Electronics 1970s Late 1970s
1980s
1980s 1970s
Automobile 1970s— 1980s 1980s
Computers, 1980s Late 1980s
semiconductors
Banking and Late 1970s 1980s
finance 1980s
Source: Japan, Korea, Taiwan: author(Ito, 1996)’s elaboration; Hong Kong,
Singapore: Young (1992); the table is reproduced from Takatoshi Ito (1994).
This table is adopted from Ito 1996.
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This partly explains the question of why it was not until the late 1980s(with the
arrival of the successful Asian state-led developments) that Japan began to somewhat
aggressively sell its development model. The rise of Asia, in other words,
empowered the Japanese developmentalists to domestically win over the remnants of
the culture-driven “uniqueness” views.
Perhaps more importantly, the developmentalist interpretations of Asia’s
success were not confined to the theoretical level. The Japanese export of its
development model to Asia began in the early 1960s(for example, to Korea and
Taiwan).For example, in the 1960s and 1970s, Japan advised Asian developing
countries to adopt the industrial sequence Japan followed in its rise to economic great
power status: solidification of the country’s agricultural basis, a shift to light and then
heavy industries, followed by a shift to tertiary industries.*^’ By the mid-1980s,
Japan(particularly the MITI and the MOF) had already been advising many Asian
economies on the development of export-oriented industries, let alone indirectly
influencing the industrial policies of Asian economies through education and technical
assistance.*^* They thus regarded the rise of Asia as their intellectual success as well.
As such, the rise of Asia played a pivotal role in giving the Japanese developmentalists
the rationale sufficient enough to challenge the neoclassical economic orthodoxy on
the basis of their(now more empowered) conception of the historical normalcy.
As such, the Japanese developmentalists made clear theoretical justifications for the
Yasutomo 1995,70-80.
156
See Okita 1975, 119-159; Johnson 1992, 21-26.
Yasutomo 1995, 94.
Since the 1960s, the MITI and the MOF have been inviting and training the young bureaucrats
across Asia with the issues of economic development.
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role of the state in economic development in the 1990s while attacking the
Washington Consensus. To conclude, the following is a reformulated, shortened
version of “Japanese view on economic development” in Ohno’s volume,which
compiles key writings o f officials and scholars shaping Japan’s official development
assistance(ODA).
Government as the initiator of change
The Japanese view is based on the belief that a market economy does not grow
automatically in developing countries even if the macroeconomy is stabilized, prices
and economic activities are liberalized, and state-owned enterprises are privatized.
More is required for the development of the market economy. What is additionally
needed is well-designed activism by the government in the production sphere. While
incompetent government will surely stunt growth potential, withdrawal of government
will not solve the problem either. The ability to formulate appropriate long-term
development strategy is the key to economic development-and there is no way around
it.
The fundamental difficulty of government in the developing world stems from
its dual role as the subject and object of reform.
Nonetheless, the first thing we must recall is that a market economy will not
automatically grow in developing or transition countries. In those countries, the
market mechanism is intentionally introduced by the government to raise productivity
and living standards. There are no internal dynamics within the existing social
structure that will generate the institutions and attitudes needed to support the market
159
The reformulated, short version is based on the volume’s 50-page-long overview. Ohno eds., 1998.
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economy. In other words, the market economy is a very demanding économie
system. Its proper operation requires a large number of conditions to be satisfied:
property rights, eontract system, economic freedom, firms and entrepreneurs, labor
and capital markets, transportation and communication, technical absorptive capacity,
and so on. Provision of these conditions is not automatic, and only those societies that
happen to be equipped with them-or those that deliberately adapt themselves to be
eompatible with the market mechanism-can successfully adopt it. In the latter ease,
government must take the initiative to marketize the economy or it will not be
marketized. Laissez-faire policy will not work. Hence, the role of government
becomes crucial; the initial impulse for marketization must come from
govemment(assisted by the international donor group). Active government is
absolutely necessary, because without it, the base society will not turn into a market
economy.
There is another reason why government action is essential. Marketization is a
process that must be undertaken with the nation-state as the implementing unit. It
requires the enforcement of laws, rules, and standards consistent with market
exchange; scarce resources must be mobilized into selected projects on a nation-wide
scale; geographically integrated markets with supporting infrastructure must be built;
personal and regional income inequality must be corrected by taxation, subsidies, and
public investment; and foreign diplomatic and economic relations must be managed
properly. The private sector, ethnic groups, and local governments are incapable of
handling these tasks. The central government, with concentrated political authority for
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mobilizing people and resources, is the only viable alternative at an early stage of
development.
As the initiator of change, the government must implement policies that create
the necessary institutions and attitudes for the market economy. Typically, this takes
the form of (1) setting long-term national goals(e.g., creating a certain number of new
jobs within five years, doubling income in ten years, building certain industry from
scratch, achieving industrialization by 2020, etc.,) and (2) designing comprehensive
and concrete annual steps toward these goals, identifying bottlenecks, appropriating
budgetary resources, and establishing implementing bodies. Working backwards from
long-term goals thus determines action required today. The process often materializes
in five-year plans and similar indicative official blueprints. These plans are not rigid
but remain quite flexible, allowing modifications as circumstances change. These
long-term visions and accompanying official guidance are deemed necessary for
underdeveloped countries in order to concentrate available resources in a few key
sectors that can bolster overall growth. Igniting economic growth requires such
resource concentration. The free market mechanism based purely on individual
economic incentives tends to dissipate limited human and non-human resources over
too many projects and sectors.
Japanese development economists believe that the “appropriate” development
strategy differs fundamentally from one country to another, and from one stage of
development to another. Thus we reject generalization at the level of individual policy
measures. The validity of import substitution, agricultural price support, industrial
policy, privatization-and thousands of other policies-cannot be ascertained in the
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abstract. They are good or bad depending on the particular situation of the country
in question. The path to the market is unique to each individual country. Hence, the
main task of the economist is to uncover the relevant unique characteristics of the
country and propose a set o f comprehensive and concrete policy measures suitable for
its initial conditions.
For this reason, the Japanese aid community is extremely ill at ease with the
universal policy orientation of the international financial institution, which can be
summarized as the simultaneous pursuit of maeroeconomic stability and “structural
adjustment”(liberalization and privatization). Although these institutions argue that all
adjustment programs are designed differently, the differenee only extends to the
intensity of individual measures in the preset menu of policies-tight budget, subsidy
cuts, monetary restraints, positive and internationally competitive real interest rates,
exchange rate devaluation, price and trade liberalization, higher public utility charges,
etc. The original menu does not change. This approach ignores the fact that each
country requires a different menu and the effectiveness of each policy is case-
dependent. Careful diagnosis is needed before treatment. The same medicine can cure
or kill depending on the condition of the patient.
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CH APTER 4. BINARIZATION OF DEVELO PM ENT IDENTIIES:
JA PA N AND THE EAST ASIA N M IRACLE
I wish to emphasize in this book that there is, at least, one legitimate model o f
capitalism that is different from the American or neo-classical economic
model... Although I called the Japanese system a non-capitalistic market
economy in this book, I would not mind renaming it Japanese capitalism, as
long as different versions o f capitalism are recognized as legitimate
alternatives that a country may choose or develop according to its own
historical and cultural evolution.^
Introduction
The present chapter and the next chapter together answer the question of why
Japan proposed to create the Asian Monetary Fund(hereafter the AMF) in the middle
of the Asian financial crisis while excluding the U.S. from the membership. Chapter 2
showed that the existing theoretical approaches on Japanese foreign policy, “interest
group,” “state-centered,” and “systemic analyses,” did not provide a reliable
explanation for the question above. Chapter 3, with a longitudinal text analysis of
domestic discursive meaning structures, uncovered the “normalcy” claim in which the
three economic discourses, Marxist, Neoclassical, and Developmentalist, respectively
located the Japanese development experience in the context of their views on the role
of the state in the developmental history of the world economy. It also illuminated how
the rise of the Asian economies in the 1980s had empowered and enabled the
Developmentalist thread to win over the other contending interpretations and to
become the basis of Japanese foreign economic policy. On the basis of these findings,
in this chapter, I attempt to account for Japan’s decision to propose the AMF based on
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152
an “identity-intention” conceptual framework introduced in the second part of chapter
2 .
To reiterate the framework in brief, national interests emerge out of “situation
or problem descriptions” through which state officials and others make sense of the
world around them. Once a situation is defined in a certain way over others, the
situational description informs state officials which actions are valuable, appropriate,
necessary, and compelling. Here identities, which are inherently relational and emerge
out of the repeated interactions among actors(states), are central to the situational
description in providing each actor(state) with a meaningful understanding of actions
of others, including its nature, motives, interests, probable actions, attitudes, and roles
in any given political context. Identities thus become the basis of reasoning what a
state wants in the name of national interests.
That said, what I attempt to do with the framework is to empirically
demonstrate how the Japanese state officials’(International Finance Bureau officials at
the Ministry of Finance; hereafter MOF officials) conception of Japan as the leader of
state-led industrialization provided the basis upon which Japan proposed the AMF
while intentionally excluding the U.S. from the membership. As will be discussed in
greater detail below, however, Japan’s road to the AMF was not straight. It was rather
twisted. At the beginning of the Thailand financial crisis, Japan refused to give
bilateral assistance to the Thai government. Japan insisted that the Thai government
negotiate with the IMF before turning to Japan. Japan seemed willing to play a
' Sakakibara 1993, v-vi, Preface to the English Edition.
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153
subordinate role supporting the IMF. Japan’s AMF proposal aimed at reversing the
course, questioning the authorities of the IMF. I attempt to account for this variation in
Japan’s actions below in terms of how MOF officials’ changed subjectivity (or self-
understanding) of Japan in relation to the U.S.-led IMF has led them to consider
proposing the AMF as the most appropriate action over the other range of possible
policy actions.
As noted in chapter 1 (Methodology Section), however, there are a number of
interrelated analytical steps that need to be completed before one can successfully
apply identity-based perspective to a specific empirical problem such as Japan’s AMF
proposal, necessary to avoid tautological reasoning and ensure falsifiable research.
First, one has to make a case that Japanese decision makers(the MOF officials) were
indeed part of the Developmentalist discursive structure that constituted Japan’s
developmental identity(“state-led industrializer”), and shared its associated social
meaning(“normal”). Locating MOF officials in the Developmentalist identity context
is indispensable to understanding their choice of a specific action, because the material
and social incentives for a particular action take on different meanings according to
these officials’ self-conception of Japan in a given situational context. In other words,
this process provides access to these officials’ own understanding of meanings and
significance which are attached to their own as well as others’ actions.
Second, if Japan’s decision to propose the AMF stands in an inner relationship
with previous events, one has to specify the previous events and trace the decision’s
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154
intrinsic relations to them. Sinee the identity-intention framework posits that a
particular interest depends on a particular construction of self-identity in relation to the
conceived identity of others, tracing the sequence of events that brought about the
AMF proposal necessarily involves inquiring into the proeesses by whieh the
definitions of self(Japan as leader of state-led industrialization) and other(the U.S as
leader of the orthodoxy) that MOF officials politically constructed have been produced
and reproduced in international politics. As MOF officials continued to confront the
U.S. in various international forums sueh as the World Bank, the Asian Development
Bank(ADB), the IMF, and the Asia- Pacific Economic Cooperation(APEC), they
internalized this binarization of self and other as a eonstitutive part of Japan and the
U.S.
Lastly, one has to probe if MOF officials’ internalized binarization of self and
other indeed operated in their reasoning processes of making the AMF decision as the
framework specifies. The focus is on tracing the detailed processes and timings of
Japan’s changed subjectivity of self in relation to the U.S.-led IMF in the management
of the Thailand finaneial crisis. In other words, in order to aeeount for the variation
noted above, the empirieal analysis is expected to explieate when and how such a
binarization set in and subsequently came to lead MOF ofheials to interpret the U.S.-
led IMF operation in Thailand in a certain way over others, thus leading them to
reason “the AMF proposal excluding the U.S.” as the most appropriate course of
action. As a way to capture such an identity-based reasoning process, three steps will
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be taken as follows: (1) whether MOF officials felt challenged by the U.S.-led IMF to
the so-called “Japanese(or Asian)” state-led development model; (2) If so, whether
MOF officials reassessed who Japan was in relation to the U.S.-led IMF once these
officials typified its operation as unduly undermining the validity of the state-led
development model; (3) If so, a degree of consistency should be observed between the
AMF proposal and the meanings or reasons that these officials attach to the decision to
propose the AMF, as reflected in Sakakibara(then the vice minister of MOF who was
known to be the architect of the AMF proposal)’s rationalization that “the AMF would
defend the ‘Asian model’(of economic development) as it would provide swift
emergency credits without (IMF-like) strict demands for reform.”^
That said, this chapter proceeds in the following manner: The first section will
locate the MOF officials in Developmentalist discursive structure. Emphasis will be
placed on the MOF officials’ construction of the so-called “Asian Model” in the 1980s
and 1990s by merging their interpretation of Japan’s economic development with the
lessons of the Asian experience. Special attention will be paid to Eisuke Sakakibara,
whose nickname, Mr. Yen, is reflective of his unorthodox approach to international
financial management and who muscled up the AMF proposal. This will be followed
by a section dealing with the processes by which these officials(and others in Japan)
have since the late 1980s internalized the binarization of Japan and the U.S as two
leaders of different models of economic development. The focus here is on Japan
pushing the World Bank to publish The East Asian Miracle in 1993. Not only did this
' Interview with Sakakibara, in Nordhaug(2000, p.5).
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156
event constitute a “formative moment” where Japan officially established itself as the
leader of the state-led industrialization, but also sowed the seeds of Japan’s AMF
proposal. Followed by these analyses, the next chapter, which will be divided into two
sections, will examine Japan’s AMF proposal. Section 1 will provide an “intrinsic”
narrative of Japan’s road to the AMF proposal associated with the intentional actions
of MOF officials. Section 2, then, will offer analysis of the findings on the basis of the
identity-intention framework.
Ministry of Finance, Developmentalism and Constructing the Asian Model
What would the MOF officials of the 1980s and the 1990s think of the role of
the state in the success of Japan’s economic development? The answer would be too
self-evident, because the MOF(it used to be called Okurasho in Japansese. Now it is
called Zaim usho\ often called the “ministry of ministries” as reflecting its status as
the most powerful and prestigious ministry at the apex of the Japanese bureaucracy,
itself has been an integrated part of Japan’s postwar interventionist economy with a
political, economic, and intellectual force.'^ As self-evident as it may be, the MOF
^ On induction into MOF, recruits are told that its earliest known incarnation dates from A.D. 678, when
the ancient imperial court comprised three main components; an inner shrine for the gods, an outer
shrine for the man-god(the emperor), and the treasure-store, or Okura. It is from this term that the MOF
takes its Japanese name, the Okurasho-literally great storehouse ministry. And so it is that in Japan, after
the deities o f heaven and earth comes that o f the MOF. As such, the MOF officials claim to work under
assumption that politicians represent special interests and the other ministries, which preside over
particular sectors of society, are tainted by their interest in the health o f their constituent industries. Only
MOF can claim to be servant to none but the nation. See Hartcher 1998, 3.
' * The MOF enjoys a unique position as a generator of ideas about economic development in Japan. The
MOF’s influence rests on: (1) its jurisdictional hold over Japan’s external financial and economic
development affairs including Japan’s policies for International Financial Institutions(IFIs) where
international financial and development issues are debated; (2) its ability to influence terms on which
Japan’s Official Development Assistance(ODA) policies, which are inseparable from Japan’s
development ideas, are implemented; (3) a research and policy-design budget far greater than that of any
development organization in Japan. As for (2), ODA loans are under the MOF’s jurisdiction while ODA
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157
officials have not shie away from claiming their own indispensable contributions to
making possible what they call “the world’s first economic miracle” or “an inspiration
and model for all the later ‘miracle’ economies of East Asia.” They normally point out
two particular contributions the MOF made for Japan’s miracle as summarized:
First is the doctrine of a balanced budget. Although Japan’s early postwar
stipulation of balanced budget was imposed by the U.S. to contain inflation, it
was embraced by the Okurasbo(MOF). Even when the politicians of the
Liberal Democratic Party managed to effectively end the policy in 1965, when
the Diet authorized the issue of government bonds to finance deficit financing,
the ministry remained powerfully attached to the doctrine of fiscal discipline.
By limiting government spending, the ministry was able to keep tax rates low
and give the private sector easier access to the national saving pool. Second is
the emphasis on exporting. The national system of industrial finance operated
by the Okurasbo-botb through the banks and through the Fiscal Investment and
Loan Program, or zaito system-funneled low-cost financing into Japan’s
industrial base and its export sector. The money channeled through these
systems was sued to build up the industrial infrastructure and to fund the
government-designated priority industries and sectors. This was a critical
element in Japan’s successful export drive.^
Setting aside the self-glorious part of such an interpretation as an act of self
validation, what is more conspicuous about it lies in the fact that the MOF officials’
general interpretation(as exemplified above) parallels that of the developmentalists in
their assessment of the role of the state in Japan’s miracle. As noted in chapter 3, the
Japanese developmentalists do not have much problem with such explanations put
forward by economic liberals as “private fixed investment,” “dual structure-led low
wages,” or “high savings.” What they disagree on with economic liberals is that the
government made possible such conditions in the first place, thus emphasizing the
grants are under that o f the Ministry of Foreign Affairs(MOFA). See Koppel and Orrfeds., 1993) for the
evolution of Japan’s ODA policies. See also Yasutomo(1995, 27-30) for debates on ODA or aid
philosophy in Japan.
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facts that Japan’s postwar pattern of industrialization ran counter to conventional
notions of Ricardian static comparative advantage and was achieved with strong
government support and guidance(for example, tariff protection, tax concessions,
preferential allocation of loans and foreign currency to selected industries), exercised
primarily through MITI, MOF, and the Bank of Japan(BOJ). In other words, staying in
between the almighty market mechanism and the completely planned economy, the
Japanese state wielded influence in leading Japan’s private sector development
through subsidizing and targeting credits to specific industries(the so-called “directed
credit” policies). The MOF indeed finds Japan’s success in its defiance of the U.S.
style capitalism.^ As such, it would be fair to say that not only have MOF officials(if
not all of them) been consciously or unconsciously embedded in developmenalism, but
also they have been the agents of embedding Japan into developmentalism.
From an institutional point of view, however, the source of the MOF officials’
embeddedness in developmentalsim does not just derive from the way in which they
implement and interpret Japan’s postwar economic development in a circular fashion.
Perhaps more fundamental than that is the historically institutionalized status of free-
market oriented neoclassical economics within the MOF, which makes such a
circularity possible in the first place. Historically, the MOF officials have never fully
acknowledged the self-organizing property of the impartial market providing for the
efficient allocation of goods and capital. Instead, they have viewed the market as being
held aloft by two pillars: “one is the pillar of routine daily investment activity, and the
Ubid.,231.
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other is the pillar of official support to keep the market behaving in an appropriate
manner.”^ Along this line, speaking in general terms, Sakakibara, a prominent MOF
economist and thinker, contrasts what he describes as the Anglo-Saxon approach of
allowing markets to fall and institutions to fail with the MOF attempts to keep all
participating players in operation: “It is a question of relative social costs, a question
of preserving order in the markets.”* In other words, the market itself has been
regarded as an entity to be nourished and developed in the Polanyian sense. Japan’s
prolonged economic success during the high growth era was believed to testifying to
the validity of their concept of market.
Such MOF officials’ traditional conception of the market has been responsible
for two particular institutional practices of the MOF. First, the MOF officials are
trained to view the so-called neoclassical economic principles as a set of ideas and
techniques to be used as one reference among many. The principles should not be
taken as paramount but as one set of considerations within a larger framework of
administrative and legal principles.^ The MOF wants its staffs to understand
economics but not to be possessed by it.
Second is manifested in the MOF’s hiring(and perhaps promoting) practices.
Maintaining its prewar tradition, the MOF employs a handful of neoclassical
® Ibid., 5.
’ Interview with Yuji Tsushima, a former MOF officials who became a legislator in the ruling Liberal
Democratic Party, The Wall Street Journal, March 19, 1993, italic added.
* Interview with Sakakibara, 1993, quoted in Hartcher 1998, 106.
® Up until 1990, the MOF has run the in-house training program for its young officials. The program
offered the young officials lectures, tutorials, and other works pertaining to economics. The MOF young
officials are now sent abroad for postgraduate studies for two full years-the favored subject being
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economists. The great bulk of men appointed to the top echelons of the MOF are
graduates of Tokyo University’s department of law, not economists. As such, Komiya
and Yamamoto, the two prominent neoclassieal economists, were able to write in 1979
that “there is not one professional economist employed by the Government of
Japan.”* ® In 1995, they said there was no need to review their earlier study-at least in
the case of the MOF.** Komiya who has taught many MOF officials believes that the
economic sophistication of the MOF is slowly improving, but thinks overall that these
bureaucrats “don’t have much faith in the market mechanism, and they like to
intervene in the market.*^ Likewise, Miyao Takahiko of Tsukuba University argues
that the ministry has “no belief in what might be called economic principles.*^ Taken
together, if the World Bank begins the art of paradigm maintenance(neoclassical
economy) with the choice of staff(about 80 percent of whom are the U.S. or British
trained neoclassical economists, and thus all but a few share the preconceptions of
mainstream the so-called Anglo-American economies),*'* the MOF does it by training
its staff to be aware of the undisciplined nature of the free market.
In this institutional context, the rise of the economically powerful Asian
developmental states in the 1980s played a pivotal role in preparing the MOF to
challenge the neoclassical economic orthodoxy in two important ways. First, it created
economics. The most favorite destinations are Prineeton University and Cambridge University. See
Hartcher 1998, 15-16.
Komiya and Yamamoto 1981, chapter 13.
" Interview with Komiya and Yamamoto, 1995, quoted in Hartcher 1998, 9.
Interview with Komiya, 1995, quoted in Harteher 1998, 17.
The Shokun, April 1994.
Wade 1996, 31. See also Bruno Frey et al 1984.
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a space for the MOF officials to strongly claim the international validity of the state-
led industrialization by merging their interpretation of Japan’s development with the
lessons of the Asian experiences. As the MOF officials contrasted the Asian
experiences(including the Japanese) with their observation of the track record of those
of Latin America, they came to question the effectiveness, universal application, and
rigidities of the orthodoxy model. The impressive accomplishments of state-led
economic development in Asia thus bolstered the MOF officials’ opinions that
their(Japan’s) experience is neither unique nor irrelevant beyond their own borders:*®
After seeing Asian countries’ experience-Korea, Taiwan, Malaysia, Thailand,
Indonesia-there was much stronger confidence in that model as viable and
applicable. The crux of that model is the ingenious combination of private and
public sector dynamism. Japan feels that Japanese success has something to do
with this mixture. When the US came up with its strong preference for private
sector initiative and its clear dislike for the public sector, conflict developed
between the two approaches.
Going beyond Japan’s uniqueness, the MOF officials started to represent the
state-led economic development in terms of the “Asian” modelas opposed to that of
the “Anglo-Saxon(or neoclassical)”* ^ economic development. As such, as a viable
Yasutomo 1995,75.
Ibid., p.79, italic added.
Interview with an MOF official, October 2,1992, quoted in Yasutomo 1995, 76.
The MOF officials do recognize that the levels and types o f state intervention are different across the
Asian countries. By the Asian model they mean the positive role o f the state in general term in Asia in
relation to the neoclassical economic orthodoxy’s distrust of the role o f the state in economic
development. See Pempel 1999. As for the main reason for the orthodoxy’s mistrust o f the state,
Chang(1999) explains that “in the neoclassical economic orthodoxy, it is fundamentally wrong to
believe that the objective o f the state, which is fundamentally determined by certain individuals with
self-seeking motives, will be commensurate with what is good for society.”
In development economics circle in Japan, the Anglo-Saxon approach has been normally summarized
as follows: “The orthodoxy, represented by the IMF, the World Bank, and USAID, espoused greater
roles for market mechanisms and the private sector and prescribed elimination o f subsides to inputs,
liberalization o f product markets, and abolition of the state-run distribution system.” See Yanagihara
1993.
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alternative to the orthodox development approach, the MOF officials focused on a
positive market-guiding role for the state, developed a cautious attitude about rapid
privatization, saw the utility of protectionism at early stages of development(thus
enabling “flying geese” model to work), and questioned the viability of a purely
unregulated financial market mechanism. As the MOF officials increased their doubts
about the universal applicability of the orthodox development approach, they did not
hide their considerable lack of confidence in the practitioners of the orthodox approach
in the World Bank. Taking issues with the World Bank economists’ preoccupation
with short-term results and universal application rather than consideration for a long
term time frame and differences in each country’s development stage and economic
situation, the MOF officials expressed their resentment as follows:
Something may be okay in theory but not in reality. Top management
understands this, but the problem are the economists who don’t understand
this. There are many American academics who are stupid about this.“
The United States and Britain speak in loud voice about market mechanism. This is the Anglo-
Saxon way, uttered by American Ph.D.s who talk with strong voices.. .U.S.-educated Ph.D.s
have no experience with government-led economics. Thus they favor laissez-faire.^'
In a similar fashion, the MOF-seconded Asian Development Bank(ADB) officials
asserted:
The United States emphasizes program lending. That’s not a bad direction, but
the question is, what kind of policy dialogue do they want? U.S. policy
dialogue is based on the belief in the market, liberalization, private sector. That
is, if only countries liberalize, everything will be all right. But developing
countries are in different stages, especially in Asia. Each has distinctive
characteristics. This should be the basis of policy dialogue.^^
^ Interview with an former MOF official, April 21, 1993, quoted in Yasutomo 1995, 77.
Interview with an MOF official, April 21, 1993, quoted in Yasutomo 1995, 78.
Interview with an MOF official, August 21, 1989, quoted in Yasutomo 1995, 93.
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It is not good to do what the United States does hy pressuring
DMCs(Developing Member Countries in the ADB) based on ideology. Asia is
not Latin America. There the United States acts as a consultant or doctor and
intervenes in a country’s management-and look what happened. Latin America
followed U.S. philosophy, and it has become the world’s baggage.^^
As such, the rise o f Asia has updated Japan’s model and coalesced into the Asian
model. It provided the basis upon which the MOF justified its challenge to the
orthodoxy.
Second, the rise of Asia has become a catalyst for or literally helped the so-
called “Asianists” to take up influential positions in International Financial
Bureau(IFB), which holds Jurisdiction over Japan’s external financial affairs in the
MOF. The emergence of the Asianist-based lineup on the international side of the
MOF took root in the MOF’s personnel policy changes in the 1970s, and the lineup
eventually contributed to the ministry’s 1990s reputation as “Asia-oriented.”^ '^
In the 1970s, the MOF revised its personnel policy programs to strengthen its
capacity to deal with international financial and especially development issues. At the
core of the revised personnel program were: 1) dispatching abroad the MOF officials
early in their careers for periods from a few months to two years for studying as noted
above; 2) seconding some of these officials as a regular rotation in their careers upon
their return to Japan from abroad to the International Financial Institutions(IFIs) such
as the IMF, the World Bank, and the InterAmerican Development Bank, and the Asian
Development Bank where the MOF felt the best training places for increasing these
Interview with an MOF official, August 11, 1989, quoted in Yasutomo 1995, 93.
^ ‘ ‘ Yasutomo 1995, 85.
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officials’ capacity to understand international financial and development issues?^ The
effect of this policy shift was the emergence of a cadre of more internationally minded
and experience officials who returned from the IFIs to take up influential positions in
the International Finance Bureau. They brought back to the MOF foreign language
skills, expertise in development issues, expanded personal contact abroad, knowledge
of foreign financial markets, familiarity with the cultures of various regions of world,
insights into the workings of international financial institutions and perhaps a greater
wariness of the U.S. and the Western approach to development and diplomacy. As
such, they were the resources the MOF could rely on when it began departing from the
traditional diplomacy of “silence, smile, and sleep” in the IFIs.^^
The impact of these personnel exchanges or rotations, however, was not
distributed equally across the IFIs. It was indeed greatly skewed to the ADB when ex-
ADB personnel returned to the MOF to assume positions pivotal for international
financial and developmental affairs. The ADB veterans have been conspicuous in the
vice ministry for international affairs post and in the International Finance Bureau.^’
For example, the MOF’s lineup in 1993 when The East Asian Miracle was published
in the World Bank would illustrate this point: Through the first half of 1993, Chino
Tadao held the vice ministership for international affairs, the top international post and
number three in the ministry only following the minister of finance and the
^^Yasutomo 1995, 143
^®Yasutomo 1995, 144
27
See Wan( 1995/1996, 516-517 and 521-522) for the personnel interconnectedness between the ADB
and the MOF.
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administrative vice minister,^* while Nakahira Kosuke directed the International
Finance Bureau?^ Nakahira then succeeded Chino in July 1993 as vice minister.
Among the ADB executive directors(director-kacho-level at the MOF), Kato
Takatoshi, executive director from 1985 to 1987, served as Nakahira’s IFB assistant
director general and succeeded Nakahira as IFB director-general; Mori Shoji, ADB
executive director from 1987 to 1990, served a stint as director of the IFB’s
Coordination Division before being sent to Washington as financial attaché: Yagi Ken,
ADB executive director from 1990 to 1992, served as director of IFB’s Development
Finance Division, which oversees bilateral O D A .^*^
As such, it was no coincidence that Japan embarked on propounding the Asian
development model and its direct challenge to the U.S. in the World Bank during a
time period when these ex-ADB officials(they were nicknamed “Asian Mafias”)
dominated the IFB and the vice ministership for international finance. These officials
were intimately familiar with the workings of the ADB, the development record of the
Asian economies with the first-hand observation of the Asian development processes,
and the proclivities of the U.S. on development issues. In this vein, it might not be
surprising that the knowledge and expertise gained through the experiences of the
The finance minister(Okura daijin), which is at the top o f the ministry’s hierarchy, is normally a
political appointee. The administrative vice minister(jimu jikan) occupies the highest career post in the
ministry. The post is responsible for the entire operations o f the ministry but concentrates on domestic
matters. The vice minister for international affairs(zaimukan), who normally comes from the ranks of the
director-generalship o f the International Finance Bureau, is the principle official in charge o f external
policy.
Both Chino and Nakahira had their first relationship with the ADB when they were sent by the MOF
to help the ADB charter drafting in 1964-1965. Yasutomo 1995, 83. Chino became president o f the
ADB in the middle o f the Asian crisis, replacing another Asianist president, Michio Sato.
Yasutomo 1995, 85.
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Asian development processes enabled such “Asianist” MOF officials such as Masaki
Shiratori and Isao Kubota to assert with confidence in the World Bank later that the
neoclassical approach was inferior to a now, well-tested Asian development model
The predominance of the Asianists on the international side of the MOF has
continued into the present while officials in favor of the neoclassical economic
orthodoxy have constituted a minority faction.^^ In this institutional context, Eisuke
Sakakibara, who virtually launched the AMF proposal excluding the U.S. from the
membership, was promoted to vice minister for international affairs in July 1997 from
his director-general post of the IFB. The promotion was granted by Prime Minister,
Ryutaro Hashimoto, who would also be classified as a pro-Asian politician in Japan’s
political circle^^ supporting the view that Japan must have an independent policy on
A s ia .^ " *
See Wade 1996, 8-9. For short bios for Shiratori and Kubota, see the same article’s f.n.7 and f.n.10.
Both Shiratori and Kubota seem to have gone through the typical career paths envisioned by the MOF’s
revised personnel policy program as noted above. Both graduated from Tokyo University Law Faculty.
While Shiratori studied economics at Columbia University! 1964-1966), Kubota did it at Oxford
University! 1967-1969). Later, Kubota became senior deputy director-General o f the International
Finance Bureau, the same job Shiratori had had before going to executive director to the World Bank.
Interviews with MOF officials, Tokyo, Japan, July 15 and July 21, 2002. This was also confirmed in
my other interviews with Japanese scholars and researchers who have been working closely with the
MOF for a long time. As will be discussed later, these two factions had an initial disagreement on how
to manage the Thai crisis and on the idea of the AMF. The rivalry seems to be one typical example of
the long tradition of the Japanese diplomatic polarity between Ajiaha!Asian faction) and
Eibeiha!Westem faction). See Berger 1996; Takeuchi 1998, 71-86; Kline 2002, 115-158. For the
historical evolution o f Asianism in Japan, see Koschmann 1997, 83-110.
^^Hashimoto has been a long-time member of the Asia-Pacific club. The MOF organizes and runs the
club to help Japan’s political and policy-making elite build relationships with finance ministers from
Asia-Pacific countries. See Hartcher 1998, 230.
Some analysts interpret that the outspoken anti-orthodox Sakakibara’s promotion to the powerful
position o f the vice finance minister for international affairs in July 1997 reflected Hashimoto’s desire
to craft a series o f more ambitious foreign economic policy initiatives. In fact, prior to the birth of the
AMF proposal, Hashimoto has spoken of the need for a more vigorous Japanese foreign policy toward
Asia during his visits to the number of Southeast Asian countries. See Altbach 1997, 8. As will be
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As his nickname, Mr. Yen, indicates, Sakakibara was one of the most
outspoken Japanese critics of the neoclassieal orthodox posture on international
finance and development in the 1990s.^^ A good example of Sakakibara’s uneasiness
about the universal preeept of the orthodoxy was when he launched an attack on
Noguchi, his former comrade in radieal left-wing activities in the heady days of
1960(students protests agaisnt the Ampo, the U.S.-Japan seeurity treaty) and a
professor of economies at Hitotsubashi University. In his response to Noguchi’s
claim^^ that Japan’s economic structure was a historical aberration(abnormal) even in
the history of Japan, a “1940 economic structure” based on the needs of World War II,
“a total war economy,” Sakakibara wrote:"., .the first action(Noguchi’s participation in
the radical student protests mentioned above) based on Marxism and the second on
neoclassical economy. The thinking pattern at work in both events was his belief that
there was a universal model to he found and “reform” to be aimed at, based on
comparing that model with Japan’s current eonditions.. .In other words, it is an
advocacy backed by the impatience that comes from immaturity, arrogant elitism, and
complex passions mixed with a kind of inferiority complex toward Europe and the
U.S.”^ ’
discussed below, Hashimoto’s support was instrumental for Sakakibara to win over domestic
disagreements over the issue o f launching the AMF proposal.
Sakakibara sarcastically called the neoclassical approach “market fundamentalism” and criticized the
IMF and the World Bank style structural reform conditionalities attached to their loans as “unrealistic.”
Given his emphasis on the role of the state in nourishing the undisciplined market, it would be no
coincidence that his most favorite Western economist is Polayni. See his presentation(the title is “The
End of Market Fundamentalism”) at the Foreign Correspondent’s Club, January 22, 1999, which is
downloadable from http://cei.haag.umkc.edu/institutional/Readings/Eisuke/fundamentalism.html.
Noguchi, 1940 nen taisei(the 1940 system), Tokyo: Tokyo Keizai Shimposha, 1995.
Shukan Toyo Keizai, July 8, 1995.
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As such, Sakakibara’s draconian criticism was firmly anchored in his
developmentalist interpretation of a positive market-guiding role that the Japanese as
well as the following Asian state played in their economic development respectively.
He specified the successful role of the Asian states in realizing the “flying geese
pattern of development headed by Japan, then followed by Singapore, Taiwan, Korea,
and Hong Kong, and then followed by the rest of Asia,”^ * which strikes the core of the
Japanese developmentalist discourse(see chapter 3). In this vein, he envisioned, like
Funabashi who characterized the disputes between the U.S. and Japan over models of
capitalism and economic development as the “new cold war,”^^ as early as 1990 that
while the end of the Cold War may have ended one chapter of ideological competition
between the two extremes, it opened a new era of more subtle competition,
competition between the U.S. and Japan."^®
At the same time, Sakakibara himself attempted to challenge the concept of
Japan as “abnormal” internationally: “In Japan, Fukuyama’s universalism/revisionism
Interview with Sakakibara, May 15, 2001, PBS, downloadable from http://www.
pbs.org/wgbh/commandingheghts/shared/minitextlo/int_eisukesakakibara.html. The contents of this 17-
page interview article are as follows: A Portrait o f Japan’s Current Dual System Economy; Japan, Inc.:
1970-1990; Japan in Recession: 1990-2002; The Clinton Administration’s Economic Policy Towards
Japan; The Asian Boom o f the 1990s(where the above quotation comes from); The Asian Economic
Crisis Unfolds; Global Consequences of the Asian Economic Crisis; Circumventing the “Iron Triangle”:
The Need for Structural Reform; The Prospects for Recovery: Act One Begins; Re-enter China and
India: How Japan and the U.S. Will Approach Changes in Asia; Is There a Financial Panic Ahead for
Japan?; The Globalization of Japan, Again.
Funabashi, “Japan and America: Global Partners,” Foreign Affairs 86(Spring 1992), 29.
Sakakibara, Beyond Capitalism: The Japanese Model of Market Economics, Preface to the English
Edition, 1993. The Japanese version of the book was published in 1990. The main argument of the book
is that Japan is a market economy but not a capitalist one-he refers to the Japanese model as a “non
capitalist market economy.” Although Japan’ economy is based on market principles, it does not put the
interests of the cigar-chewing capitalist at the center of the system. He claims that Japan’s basic doctrine
amounts to “anthropocentrism,” by which he means that the Japanese people are at the center o f the
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169
is dominant in the press, as well as in political and administrative circles.. .At this
point we thought it necessary to verify the truth about universalism/revisionism.”'* *
Sakakibara marshaled the resources of the MOF and assembled a panel of sixteen
experts-thirteen academics, two bureaucrats, and a private-sector economist-through
the ministry’s Institute of Fiscal and Monetary Policy'*^ and asked them to compare the
Japanese political, economic, and social system with those of the U.S. and Europe.
Setting aside cultural differences, the task for the group was specifically to “examine
whether or not Japan, in spite of such differences, is well equipped with modem
mechanisms institutionally.”'* ^ The result of the project was that Japan was not
abnormal lying in between the European and the American model; “What is important
is to case aside the reform view based on the outlier-Japan concept and then to
position Japan as a model or as a civilization in thinking about what direction it will
take.”'* '*
system. Following from this is the implication that the Japanese system is indeed superior to that of the
neoclassical or Anglo-Saxon system.
Shukan Toyo Keizai, July 8, 1995.
The MOF created the Institute o f Fiscal and Monetary Policy(IFMP) in 1985 to serve as both a
research institute and the MOF’s window to the outside world. Originally set up to conduct research and
policy studies and to train MOF officials, by the 1990s, IFMP had expanded its activities. It has hosted
visiting scholars from abroad, and it has increased the number o f foreign trainees, especially government
officials from finance ministries of developing countries. Training sessions involve briefings by the
MOF officials and outside experts on Japan’s economy and financial systems, and lectures and
discussions by visitors on their financial systems. As such, the Institute serves a dual role in the
internationalization o f the MOF; It gathers information on the outside world that can be o f use to
ministry officials, and, through its briefings to foreign officials, it educates an international audience
about Japan’s own development experience and political economy. See Yasutomo 1995, 145.
Shukan Toyo Keizai, July 8, 1995.
Chuo Koron, August 1995. See also Sakakibara(1993, 143-162), a chapter entitled “Genealogy of
Debates on the Japanese Economy” where Sakakibara traces the Japanese intellectuals’ representations
of the Japanese economic system from “backwardness” and “specificity” to “universality.”
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Furthermore, in addition to focusing his attention on the role of the state in
economic development, Sakakibara has explicitly linked his efforts to promote the
Asian model to the debate over structural adjustment policy. In a speech in
Washington, D.C., in September 1996, he argued that “the ‘Washington consensus’ on
the need for thorough and rapid deregulation, along with liberalization of capital
flows, drastic curtailment of the role of government in influencing credit allocation
and a shift from bank lending to equity-based financial systems, may not be
appropriate for developing countries following a different development paths.”'* ^ In
May 1997, an only two full months before the Thai crisis, Sakakibara made another
severe attack at an ADB-hosted private luncheon on the “Washington consensus” as
the “blind application of a universal model of capitalistic fundamentalism” by
Washington and by multinational bureaucracies that subscribed to the consensus. He
declared scandalizing many of his Western listeners:
Asia is resonating with overoptimistic Washington-generated market
expectations.. .Euphoric expectations have been generated by inflows of
foreign capital which are market-oriented and sensitive to short-term
changes. ..It might lead to the latter day of colonization of Asia via the
promotion of neoclassical economic paradigm s."*®
Did he prophesize the impending doom called the Asian crisis?"*^
Asia versus Anglo-Saxon: The East Asian Miracle, Before and After
Sakakibara, “Globalization and Diversity Inaugural Address,” Development Thinking and Practice
Conference, Washington, D C., September 3-5, 1996, quoted in Altbach 1997, 6.
Business Times(Singapore), January 2, 1998, italic added.
Sakakibara was also instrumental in inaugurating the Asian Development Bank Institute and
headquartering it in Tokyo, a think-tank for designing alternative models of economic development,
after his AMF proposal was not eventually failed by the U.S. and European oppositions. Interview with
an ADB Institute official, August 5, Tokyo, Japan.
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With the MOF’s embedded developmentalism in mind, this section illustrates
several of Japan’s key confrontations with the U.S. in the politics of economic
development at various international stages."^* The illustrations aim to offer the
processes through which Japanfor the MOF officials) established itself as the leader of
anti-paradigmatic state-led economic development in relation to the U.S., the opposite
polarity. It was in the Asian Development Bank in the mid-1980s that the clash
between the U.S. and Japan was first played out, thus setting up a milestone for the
emerging binarization of the two identities on both sides. The regionally bounded
clash was replayed at the World Bank, the world center controlling economic
development discourses, in the early 1990s. Japan’s decision to challenge at the World
Bank constituted what one calls a “formative moment” where Japan
intemationally(going beyond Asia) consolidated its identity as the leader of the state-
led economic development. Japan’s questioning of the universal validity of the
orthodoxy continued right up to the Thai crisis broke out in July 1997.
First Clash: Japan vj'. the U.S. at the Asian Development Bank
I do not deal with here the politics of economic development between the U.S and Japan on their
strictly bilateral disputes where the U.S. Treasury and the MOF officials fought each other in the yen-
dollar, structural and frameworks talks from the mid-1980s to the early 1990s. In these debates, the U.S.
demanded that Japan abide by a supposed universal rules-on transparency, market, and the small role of
the government. Japan counterattacked by questioning the claimed universal validity o f these rules.
Surely, Japan’s later challenge to the neoclassical economic orthodoxy can be related to Japan’s riposte
to the U.S. pressures on these bilateral disputes. As is discussed above and will be discussed below,
however, Japan’s challenges at various international stages have their own substance and logics, which
cannot be conceptually captured as a just mirror o f or the extension o f Japan’s bilateral disputes with the
U.S., in that the MOF officials) take pride in Japan’s economic development model and wish to promote
it for developing countries with the conception of Japan as the leader o f anti-paradigmatic development
model.
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With the inauguration of the Reagan administration in 1981, the U.S. geared up
a powerful drive for “the magic of the marketplace” for economic growth and
development.'*^ The positive role of the state in economic affairs was denied, and the
state should not be a player in the market but a referee providing the necessary
institutional framework within which individuals are free to pursue their own
economic activities.^® In support of the market thesis, the U.S. universalized the
effectiveness of the market mechanism as such that any “societies that have
experienced the greatest success in terms of economic growth relied on the magic of
the market,”^ * and claimed that the American experience in its early industrialization
had most vividly demonstrated it.^^
On such a construction of the universal model, the U.S. not only adopted the
liberalizing and deregulating economic policies for itself(Reaganomics or supply side
of economy), but also reasserted the centrality of the market in international
development.^^ The U.S. claimed that past government interventions in developing
countries had often had malignant effects and that aid applied within a distorted policy
framework was likely to be wasted. As such, the U.S. demanded that developing
Reagan, Address before the Annual Meeting of the IMF and World Bank, September 29, 1981, U.S.
Department o f State, Current Policy No. 322.
Reagan, Address before the Board o f Governors o f the IMF and World Bank, September 27, 1983,
Department o f State Bulletin, Vol. 83, #2080(November 1983), 6, quoted in Tickner 1990, 59.
Reagan, September 29, 1981, quoted in Tickner 1990, 59. Compare it to that o f the Japanese
developmentalist interpretation(“normalcy” debate, chapter 3). Interestingly enough, the Asian NICs
countries, such as Taiwan, Korea, Hong Kong, and Singapore, were also classified as examples of
economies that owed their success to free and open markets and minimal government regulation, which
is also in a diametrical opposition to that o f Japan.
Tickner 1990, 54.
Livingston argues that apart from the Reagan administration’s ideological conviction o f the magic of
the market, the U.S. drive for the centrality of the market in international development was one of those
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countries follow the three basic policies laid down by the universal model, which were
to become the basis of the so-ealled Washington consensus in 1990: encourage free
and open international markets by lowering tariff and other trade barriers, reduce
barriers to the flow of private eapital investment, encourage sound economic policies
that allow the market to operate and limit the role of the government in the economy.^'*
In short, economic development was attributed to free market forces, while
government intervention was blamed for underdevelopment and stagnation. As a
result, the U.S. changed its bilateral aid programs(USAID) toward projects that
emphasized the developments of private sectors in developing countries.
Simultaneously, the U.S. rubbed off on the IMF and the World Bank, the two most
powerful Bretton Woods institutions in the realm of international finance and
development. The IMF and the World Bank started to reflect the rise of liberalizing,
deregulating, and anti-Keynesian polieies in their lending practices. The World Bank,
which was created to eneourage eeonomic development, lost its earlier enthusiasm for
policies that meant major roles for the state-nationalization of industries, state
planning of the economy, or tariffs to protect emerging domestic industries. Instead,
the World Bank started to put a high priority on privatization of state enterprises and
private sector development in developing countries.
Along with the U.S. pushing the IMF and the World Bank to the far right of
economic theory, there substantially emerged the so-called “structural” conditionality
efforts the U.S. made for “restructuring” the international agenda away from North-South relations. See
Livingston 1992, 317-319.
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attached to these institutions’ loans to developing countries/^ Up until the end of the
1970s, the only substantial policy conditionality applied to developing countries in
search of assistance was that of the IMF, which was established to smooth world
commerce by reducing foreign exchange restrictions and helping out countries
experiencing temporary balance of payment problems. The World Bank had yet to
move far into “policy-related” lending and the same was true of, for example, other
regional MDBs(Multinational Development Banks).M oreover, the IMF
conditionality at that time was of quite limited scope, confined to a few
macroeconomic policy variables such as the exchange rate and domestic credit.
The U.S. insistence on “the magic of the market place” in the 1980s
transformed the entire picture. As for the IMF, the scope of the conditionality was
greatly extended. The previous principle of restricting it to a few macroeconomic
variables was abandoned in favor of a far more ambitious neoliberal agenda. The
Beryl Sprinkel, Cartagena, Colombia, March 30, 1982, Treasury News R703, quoted in Tickner 1990,
58.
The U.S and Britain also started to make substantial use o f conditionality in their bilateral aid
programs.
Included in regional MDBs are the Asian Development Bank, the African Development Bank, and the
Inter-American Development Bank. The European Bank for Reconstruction and Development came into
existence only in 1990. With its mandate driven by the fundamental objective of helping to transform
the centrally planned economies o f the former Soviet bloc into market-based economy, its lending
policies, prescriptions, and conditionalities are ever more reflective upon the neoclassical economic
orthodoxy than those of the World Bank. Contrary to a story told by Weber(1994) that the EBRD
strongly reflects distinctive European identity and goal, its explicit-ever-first political conditoinalities
among the MDBs attached lending and extreme private sector-oriented lending policies seem more in
line with the preferences of the U.S. and Britain than that of Europe in any sense, given the considerable
role of the state in the French and Germany economy(the two major players in the creation of the
EBRD). This observation is confirmed by Bronstone(I999, 81) who studied a in-depth negotiation
process of the creation of the EBRD. See also Yasutomo 1995, 102-118.
See Killick, Gunatilaka, and Marr(I998, 12-17) for how policy-based conditionality has been justified
and legitimized. They point out three strands of justification: conditionality as a substitute for the
collateral asset which a private sector would require as a safeguard against default by the borrower;
conditionality as a safeguard against moral hazard; and lastly aid effectiveness.
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IMF broadened the content of its conditionality into such areas as the reduction or
elimination of public subsidies and the removal of price controls. The operation of the
market mechanism was also promoted through the liberalization of trade and
payments. The realm of the private relative to the public sector was extended by
numerous requirements for the privatization of public enterprises. The efficiency of the
public sector was additionally promoted through stipulations requiring some
chronically inefficient public enterprises to go into liquidation. Domestic resource
mobilization was promoted by tax measures, and by provisions for the reform and
deregulating of the financial sector, including the recapitulation and restructuring of
banking institutions and decontrol of interest rates.In other words, the IMF
“unobtrusively introduced microconditionality,”^ ^ and with this broadening of
conditionality, it marched to take a more active role in the sphere of economic
development, which had not been its primary institutional concern.
The World Bank, once it got started on imposing policy conditionality, was
also never behind the IMF. The World Bank launched economy-wide structural
adjustment loan(SAL) programs emphasizing in a similar fashion privatization, cutting
government subsidies, dropping trade protectionist measures, reducing regulation of
the private sector, and creating incentives to attract foreign capital.The U.S. driven-
contagion effect of applying the orthodox model to lending practices never stopped at
Killick 1995, 22-27.
Polak 1991,40.
“ The IMF’s changing tack into the area o f economic development created tension with the World
Bank, which was played out in various instances since the 1980s. The tussle was observed, for example,
in the management of the Asian financial crisis. See McFarlane 2001, 220-221.
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the World Bank and spilled over the other MDBs, namely the Inter-American
Development Bank(IDA) and the African Development Bank(AfDB).
Up until the end of the 1970s, all the MDBs more or less converged in terms of
lending policies, priorities, and prescriptions/^ Because of the World Bank’s adoption
of structural adjustment-type lending practices, the early 1980s became years of
growing divergence particularly between the World Bank and the other MDBs. By the
end of the 1980s, however, a general tendency of a growing convergence among the
MDBs was restored, despite debates that still occurred about the application of
structural adjustment-type lending practices. The restoration was made possible
through changes in power configurations made at both the IDA and the AfDA, the two
MDBs created and controlled by the borrowing countries(contrary to the World Bank
and the ADB) in each respect region: the negotiation between the donor and borrowing
members had led to parity in the voting shares at the IDA and to pressure for parity at
the AfDA.®^ As a result, the two MDBs’ lending activities and operations had almost
become indistinguishable from those of the World Bank.
Swimming against this tide was the ADB, which was the most passive of this
general tendency. For example, even though the ADB also initiated policy-based
lending in 1987, it has restricted its operations to sectoral adjustment loans(thus not
Danaher 1994, 3.
^ This convergence is evident in that the sectoral distribution o f the lending portfolios o f all the MDBs
then in existence was considerably identical. After all, up to the mid 1970s, all the MDBs gave primacy
to resource input-particularly capital for investment-with allowing recipient government to take control
over allocation of capital, since capital was relatively scarce in developing countries. It was assumed
that more investment would lead to high economic growth. See Culpeper 1997, 37-44. See also
Krasner(1981) for comparative aspects o f the three regional MDBs.
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demanding the World Bank style of structural adjustment).®"^ Furthermore, in terms of
lending policies and prescriptions, the ADB still focused on project loans, recognized
the importance of infrastructures, and(perhaps most importantly) allowed for state
guidance most notably in the form of making “two-step loans”^ ^ to recipient members,
all of which had become almost obsolete at the other MDBs. The ADB’s continuing
lending practice of preferring (now) old-fashioned loans to governments for big
agricultural and public works projects instead of providing significant help for the
development of private sectors in recipient countries led to increasing friction with the
U.S. executive directors at the ADB. Japan firmly resisted the U.S. pressure, because
the U.S emphasis on structural reforms was in contrast to Japan’s priorities that rested
on financing social overhead through each recipient government-public transport,
communications, and energy facilities-to enable private investors to establish
manufacturing enterprises.®® The tussle at the ADB marked the first clash of the
politics of economic development between the U.S. and Japan.
As was the case for the IDB and the AfDB, the U.S. conception of the ADB’s
proper role was that of a regional incarnation of the World Bank, making loans
conditional on adherence to policy reforms, like privatization and liberalization in the
“ See Scheman(1997) for the politics o f development at the IDA and Strand(2001) for the AfDA. See
also Culpeper 1995, 23-106.
^ Kappagoda 1995, 25-32.
^ Two-step loans refer to “funneling capital to the private sector through public agencies in recipient
governments.” As such, this practice does not deny a positive market-guiding role for the state by
explicitly recognizing government leadership in forging a private and public sector cooperation. As will
discussed below, debates over the legitimacy of this two-step loans between the U.S. and Japan were
played out not only in the ADB but also in the World Bank.
Woo-Cumings 1995, 243.
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financial and the commodity realms.^^ As such, the U.S. executive directors at the
ADB had since the early 1980s embarked on an assertive promotion of the
neoclassical model, which was deemed universal and applicable to all regions and all
MDBs. These officials in alliance with the ADB’s European shareholders vociferously
criticized the public sector orientation of the ADB’s lending policies as noted above at
the 1985 annual meeting.^^ They accused the ADB of doing business the Japanese way
by defaming that the Japanese officials involved in the ADB’s strategic planning work
entertained a “zen-like theory of economics(referring to these officials’ proclivity for
“flying geese model-see chapter 3).”® ^ The U.S. exeeutive directors continued to fight
hard with arrogance and inflexibility(in the eyes of the Japanese ADB officials) to get
the principles of market forces and privatization established in the ADB’s lending
policies. They insisted, for example, that any capital increase at the ADB must be
predicated on encouraging private sector development and that loans be provided
conditional on adherence to policy reforms, such as those that support financial
liberalization.’®
This posed a big problem for the Japanese ADB officials(most of whom were
seconded from the MOF as noted above). It was not just because these officials feared
that the U.S. excessive emphasis on private relative to public sectors could make
irreparable damage to the ADB’s reputation and operation as the most successful
Treasury Report, U.S. Participation in the Multilateral Development Banks in the 1980s, 1982. See
also Dutt(1997,2001) for the relationship between the U.S. and the ADB
Far Eastern Economic Review, May 16, 1985, 63.
^ Far Eastern Economic Review, May 7, 1992,49.
™ Woo-Cumings 1995, 245.
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project-based(as opposed to policy-based lending) lending MDB in terms of
mobilizing resources and channeling them to the developing member countries.’*
More important than that was their serious doubts on the neoclassical model’s
appropriateness for the Asian economies’needs. It was not that the Japanese officials
disagreed with the U.S emphasis on the importance of market forces, privatization, and
liberalization. Rather, they thought it was too early for the Asian countries to adopt
such neoliberal measures. As such, the Japanese officials, often in collaboration with
the ADB’s Asian directors, found out of step with the Asian reality the U.S. efforts to
apply the neoclassical model universally, in textbook fashion, to Asian countries. Most
of the Asian coimtries still depended heavily on strong government guidance and a
degree of protectionism for infant industries and lacked a strong private sector that
could carry out and sustain policy reforms envisioned by the tmiversal model.’^ As
Fujioka(a Japanese president of the ADB from 1981 to 1990) argued, there should not
be “an arbitrary difference between the public and private sectors.”’^ Japanese officials
increasingly criticized U.S. executive directors’ assertiveness of universal principles at
the ADB as dogmatic or too idealistic bearing out of “their suspicious knowledge and
Traditionally, the ADB’s strength lie in its diversity of well-designed and well-executed projects,
particularly its projects in the infrastructure and power utilities sectors, to which historically the ADB
has allocated a significantly greater proportion of its lending resources(54 percent) than has, for
example, the World Bank(28 percent). The World Bank, in contrast, has allocated considerably more to
program and adjustment lending(24 percent) than has the ADB(3 percent). As such, the ADB’s annual
evaluation reports proudly suggest the ADB has a comparative advantage over the World Bank in
project-based lending. See Culpepper 1995, 110-113. Similarly, Kappagoda 1995, 157-158.
Yasutomo 1995, 92.
Asian Finance, April 15, 1988, 34.
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expertise of Asian and Asian development experience.”^ " * To quote two arguments
made by the Japanese ADB officials;
America’s support for policy dialogue was tough. This is the Anglo-Saxon
approach, the World Bank approach. But the ADB should take an Asian
approach. The World Bank deals with the world and does not especially
understand Asian thinking. It has a Western philosophy: yes-no, give-not-give.
They have brilliant young economists, hut they don’t understand Third World
societies or psychology at all.’^
Policy dialogue is important, hut you must base in on Asian experiences. Then
it’s okay. But nonregional countries look at Asian development in a textbook
fashion, with textbook knowledge. The United States asks Japan to cooperate
on this basis, but Japan takes a lukewarm attitude.’®
However, this first clash of the U.S. and Japan at the ADB in politics of
economic development in the mid to late 1980s did not occur in the form of a clear
distinction of “Asian versus Anglo-Saxon” development approach. At this stage, Japan
did not have a clear conceptualization of the so-called Asian model. The Asian
experiences had yet to coalesce into a model or policy proposals. As such, Japan’s
advocacy of Asian development tenets during this time was primarily designed to
provide counterpoints to the U.S. executive directors’ strong drive for the application
of the neoclassical model.’’ Japan thus attempted to maintain the status quo at the
ADB by supporting the ADB’s lending practices(as noted above), which accorded well
with Japan’s preferred development strategy. Japan’s financial power at the ADB’*
Yasutomo 1995, 91.
Interview with a former ADB staff member, June 14, 1990, quoted in Yasutomo 1995, 92.
Interview with a MOF officialfa former ADB staff), August 1, 1989, quoted in Yasutomo 1995, 93.
” Yasutomo 1995, 88, 93.
During this crucial time, Japan’s share of cumulative contributions increased from 41.9 percent in
1986 to 50 percent in 1993. In addition, Japan has been a crucial lender to the ADB, 30.4 percent o f the
total in 1987-1993, compared to 11.7 percent from the United States. See Wan(1995, 513), Table 1:
Voting Powers vs. Contributions in the ADB of Key Members.
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made it possible so that the ADB could remain (still remains) the only MDB left
unscathed by the neoclassical economic orthodoxy as a project-based lending
institution/^
Japan’s first clash with the U.S. at the ADB generated three important
developments for its later challenges in the World Bank and elsewhere. First, the clash
provided the Japanese officials with unique opportunities to seriously study the
development experiences of Asian countries when they confronted the U.S. push for
the neoclassical model. The studies of the Asian experiences matured(or updated)
these officials’ previous conception of a proper development model based largely on
Japan’s experience and eventually led to the emergence of the Asian model stressing
government leadership(or the role of the state) in forging a private and public sector
cooperation. Second, Japan’s first defense experience of an Asian-type development
strategy at the ADB imbued the Japanese officials with an embryonic sense of Japan’s
“mission” as “the source of technology and knowledge for Asia, just as the advanced
Western states had served that function for Japan in the past.”^° Third and not least
importantly, the strong institutional linkage between the MOF and the ADB(as noted
ahove) returned many of these officials, who served the ADB at a time of great
contention with U.S., to the MOF’s influential positions in charge of Japan’s external
financial and development affairs. As such, the MOF started to be called “Asian-
oriented,” and such an Asian-oriented lineup enabled the MOF to speak out on Asian
™ The portion o f project loans at the ADB for 1986-1992 was above 50 percent annually. It even rose to
62.5 percent in 1992. See ADB Annual Report, 1988 through 1992.
“ Yasutomo(1995, p.94).
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development experience in the World Bank and elsewhere with greater knowledge and
self-confidence than ever before. Taken all together, it was no accident that toward the
end of the 1980s, Japan began to clearly articulate the Asian vis-à-vis the Anglo-Saxon
model. Japan stressed the role of the state in industrial and credit-allocation policies
while questioning the viability of a purely unregulated market mechanism. Japan
asserted the utility of protectionism at early stages of economic development as
opposed to rapid privatization.
Second Clash: Japan v& the U.S. at the World Bank and The East Asian Miracle
Japan’s tensions with the U.S. over a proper model of eeonomie development
eulminated in the World Bank in the early 1990s. The tensions spiraled up and
generated numerous attaeks and counterattacks between Japan and the World
Bank(Japan always thought the U.S was behind the World Bank operations). During
this turbulent period, Japan firmly established itself intemationally(going beyond Asia)
as the leader of state-led eeonomic development approach first by establishing the
theoretieal precepts of the state-led eeonomie development(OECF Occasional Paper
No.l) and, second, by literally foreing the World Bank to look into the importanee of
the Asian alternative to the Anglo-Saxon orthodoxy(77ze East Asian Miracle)}^
Despite growing uneasiness with the World Bank’s struetural adjustment
loans(SAL) program, however, Japan was not the one that initiated the tussle. Japan
did not openly carry its development agenda to the World Bank until 1989. It was
The World Bank’s accommodation for Japan’s push for the publication o f The East Asian Miracle, of
course, reflected Japan’s financial power. Japan became the second biggest shareholder in the World
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partly because Japan viewed the World Bank as “America’s bank” just as it thought of
the ADB as “Japan’s” or “Asia’s” hank. It was also partly because Japan had yet to put
together a coherent rendition of the Asian model.*^ It was not until the end of the
1980s that the MOF officials began to openly express their reservations about the
neoclassical approach’s effectiveness, universal application, and rigidities as they
studied and found contradictions between their observations of the SAL program’s
track record, especially in Latin America, and the Asian experience. These Japanese
reservations, together with Japan’s defense of an Asian-type development strategy in
the ADB, started to get attention from the IFIs(including the World Bank) that Japan
was promoting a different set of development strategies emphasizing the role of the
state in guiding markets, including managed trade as well as financial policies.
The strange peace was dismantled in September 1989 when the World Bank
made a strong criticism of Japan’s largest aid implementing agency. Overseas
Economic Cooperation Fund(OECF),*^ for its “two-step loans” policies in Southeast
A sia.® "* In the late 1980s, Japan established the ASEAN-Japan Development Fund as
part of recycling of Japan’s large current account surplus to support private sector
Bank in 1984. By 1989 Japan became the country with the biggest bilateral aid program in the world. In
1992, Japan equaled Germany as the second biggest shareholder in the IMF.
^ One o f the first publications Japan made for promoting its development agenda was the MITFs The
New Asian Industries Development Plan in 1987. It was written by MITI economists and Japanese
academics with the purpose o f setting out a regional strategy o f industrialization for Southeast Asian
countries. The publication illustrated the long-term nature o f Japanese planning and the coordination
between government and firms and stressed on the potential benefits o f the role o f the state in directing
the sectoral industrial policies through financial policy(assisting some industries more than others).
Even though Economic Planning Agency(EPA) has a legal authority over OECE, the MOF has much
stronger influence over OECF than does EPA. Most o f OECF high-ranking officials are former MOF
officials who remain loyal to their home ministry. As such, the MOF is often called a “parent” ministry
of OECF. See Hirata 1998, 311-312.
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development in the Southeast Asian region. OECF administered the fund, and as
usual, the fund was dispensed in the form of “two-step loans,” first to development
banks of aid recipient countries that then on-lend to targeted industries at below
market interest rates. In other words, the loans were “targeted, subsidized credits” to
be used for selected industries. Picking out the case of the Philippines, the World Bank
criticized Japan’s two-step loans practice on the grounds that this was inconsistent
with financial sector reform in that country that the World Bank was helping to
restructure with the aim of eliminating subsidized credits. A senior-vice president of
the World Bank wrote the president of OECF asking him to reconsider the policy of
subsidized targeted loans: “passing these funds to the banks and final beneficiaries at
below market interest rates could have an adverse impact on development of the
financial sector and hence would create unnecessary distortions and set back the
financial sector reforms which had been supported by the IMF’s Extended Fund
Facility and the Bank’s Financial Sector Adjustment Loan.” The World Bank
insisted in line with strict financial sector liberalization for client countries that credit
should always and everywhere be at “market” or non-subsidized rates.
The World Bank’s criticism provoked Japan, because it was amounting to
nothing short of annihilating Japan’s aid philosophy built upon Japan’s experience of
economic development. In Japan’s view, subsidized targeted credits were “the nerves
of the developmental state.”* ^ The credit policies were the Japanese state’s pivotal
Awanohara 1995, 168-169; Wade 1996, 7-8; Green 2001,236-239.
Quoted in Wade 1996, 8.
Woo-Cummingsed., 1999, 10-11.
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means of successfully developing selected industries(assist some business more than
others, given the limitation of resources), which would otherwise have had to pay very
high interest rates.^^ As such, Japan’s executive director at the World Bank made
strong protests to the World Bank’s senior management and to the Board of Executive
Directors from member governments, insisting that financial sector deregulation
should only be a means of attaining economic development rather than an objective in
itself, but to no avail.** The World Bank refused to back down. The World Bank
continued to voice skepticism on the state guidance of development processes while
theoretically refining and justifying the Washington consensus through the
publications of its annual World Bank Reports. Yet the World Bank had to find a way
to accommodate the rise of the Asian economies, particularly NIEs, as to why this
region has become rich and what other countries should learn from their experiences.
The 1991 World Bank Report, which was entitled ''The Challenge o f
Development and released in June, did just that. Unlike the two earlier World Bank
Reports that advocated the extreme neoliberal prescriptions for developing countries’
economic development,*^ the 1991 report made the famous “market-friendly”
conclusion for the development experiences of Japan, Singapore, Korea, and Taiwan,
which was coined by Lawrence Summer who joined the World Bank as chief
See Okuda(1993, 67-85) and Kubota(1993) for the contrast between Japan and the U.S. on this issue.
Awanohara 1995,168-169; Wade 1996,9.
The 1987 World Bank Report, entitled “Trade and Industrialization," provided the conceptual
framework for free trade policy as the engine of economic development. The 1989 World Bank Report,
entitled “Financial System and Development,” emphasized financial deregulation for developing
countries, urging removal of all interest rate controls and all subsidized targeted credit programs. See
also Levy Report published by the World Bank also in 1989 that took a strong view against government
intervention in financial markets.
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economist and vice president in January 1991 and who later countered Sakakibara in
the Asian financial crisis management as Deputy Secretary of the U.S. Department of
Treasury. By “market-fi'iendly” the 1991 report meant that these Asian countries were
successful economically due largely to “effective but carefully delimited government
roles” in facilitating adequate investments in human capital, provision of a competitive
climate of enterprise, openness to international trade, and stable macroeconomic
management. The 1991 report also acknowledged the cases where market mechanisms
were either lacking or inadequate to the task of economic development and where
privatization required caution and prudence. As such, the 1991 report seemed to
endorse “enlightened, selective, and moderate” state guidance of the development
process.
The 1991 report’s conclusion, however, brought everything back to the old
position. It argued for the increased withdrawal of the state fi-om the development
process in favor of market forces(by limiting the role of the state as the provider of a
regulatory framework for private-sector developments-a state not as a director or a
player but as a referee of market exchanges) and urged a change from the “old” state-
centric paradigm. The 1991 report concluded:
No one argues that there is a better economic system for the production and
distribution of goods and services than competitive markets.. .But markets
cannot operate in vacuum-they require a legal and regulatory framework that
only governments can provide.® ®
The 1991 report thus ended up restating a largely free-market view of appropriate
public policy for development under the label “market-friendly.” From Japan’s point
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of view, “market-friendly” still reflected too closely to the Washington consensus. To
Japanese eyes, the 1991 report was what Wade would call the origin of “the Art of
Paradigm Maintenance.”
In response to all these adverse developments, Japan made a sweeping critique
of the World Bank policy. Japan’s OECF(in charge of the ASEAN-Japan
Development Fund) issued its first Occasional Paper, thirty years after it foundation in
1961, entitled “Issues Related to the World Bank’s Approach to a Structural
Adjustment: Proposal from a Major Partner,” in October 1991.^* The following is a
summary of its main points by Wade:
1) For a developing country to attain sustainable growth, the government must
adopt ‘measures aiming “directly” at promoting investment’.
2) These measures should be part of an explicit industrial strategy to promote
the leading industries of the future.
3) Directed and subsidized credit has a key role in promoting these industries
because of extensive failures in developing countries’ financial markets.
4) Decisions about ownership arrangements, including privatization, should
relate to actual economic, political, and social conditions in the country
concerned, not to the universal desirability of privatizing public enterprises.
^ The World Bank Report 1991: The Challenge o f Development 1991, 3-4.
The Paper was first published in Japanese in OECF Research Quarterly, no.73, 11-18, 1991. The
English version was circulated at the Annual Meeting o f the World Bank and the IMF in Bangkok in
October 1991. The Paper was initiated by Kubota, a senior MOF official then on loan to OECF as
managing director o f the Coordination Department who was also known as a hardline Asianist,
supported by the MOF, and produced after 5-month of team work consisting of OECF and outside
academic economists. See W ade(1996,10, note 14) for the detailed internal processes o f producing the
Paper.
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For example, there may be legitimate national sentiments about the
desirability of foreign ownership.
5) Japanese fiscal and monetary policies in the post-war era may be worthy of
consideration. They were centered on preferential tax treatment and
development finance institutions’ lendings.^^
With these main points in focus, the paper concludes:
It is impossible to achieve optimum allocation of resources solely through
market principles regardless of the level of development. There are many areas
which cannot be handled by market mechanism(market failure), and
government intervention is necessary to cope with such conditions.. .We
wonder whether privatization is always the solution for improving efficiency of
public sector. Various conditions in individual countries must be taken into
account very carefully. Unfortunately, the World Bank’s approach seems to be
almost similar for every country.®^
As such, the OECF paper made clear that trade liberalization and financial
deregulation, the twin pillars of the World Bank prescriptions for developing
countries, should be a subordinate part of the industrialization and industrial strategy
rather than the objectives themselves. In order to support each main point summarized
above, the paper walked through a step-by-step criticism of the World Bank policy: On
the financial deregulation front, the paper pointed out that the World Bank’s rigid
insistence that capital should be allocated only through market interest rates that
correctly reflect its scarcity values was likely to prevent capital from flowing to
socially desirable economic activities that were too costly or risky for the private
sector to undertake. On the trade liberalization front, it argued that too hasty
Wade 1996, 10.
^ OECF Occasional Paper N o.l, 16-17.
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189
liberalization measures could cause balance of payments difficulties and make it
impossible for developing countries to gain competition and comparative advantage in
higher-value-added industries, reminiscent of Oshima’s critique of free trade policy in
1891 that “the ultimate implication of the theory of free trade is that agricultural
nations must remain agricultural, and industrial national must remain industrial.”^ " * On
the privatization front, the paper cautioned that in some developing countries,
government officials were the better managers and entrepreneurs than those in the
private sector and that the unqualified pursuit of privatization thus represented
degradation.
Even though the paper was designed to question several basie tenets of the
SAL program(based on the program’s track record so far accumulated) from Japan’s
point of view, it was hardly separable from Japan’s desire to fight back the World
Bank’s earlier critieisms. Apart from the politieal nature of the paper, the significanee
of the paper was two-fold: First, Japan “officially” spelled out at the international
level(going beyond the regional level) what a state must do(as opposed to pure market
mechanisms) for economic development as a player of rather than a referee of market
exchanges; By the same token, Japan “officially” merged(or molded) its development
experienee into the Asian model internationally by firmly artieulating that “industrial
poliey” played a eentral role in “the eeonomic development strategies of East
Asia(including Japan).”® ^
Oshima 1891. See chapter 3.
Ibid., 14.
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Japan reaffirmed its commitment to the role of the state and now the Asian
model by furthering its criticism of the World Bank’s blanket prescription for
economic development-trade liberalization and financial deregulation-at the expense
of government industrial and credit allocation policies. At the Annual Meeting of the
Board of Governors of the World Bank and the IMF in Bangkok in 1991 (the same
place where OECF paper was circulated), Yasushi Mieno, the president of the Bank of
Japan, deputizing for Japan’s finance minister, who is the Governor for Japan, argued
that government intervention can complement market mechanisms to “create the kind
of environment in which free markets can function effectively.”^ ® Addressing the role
of the state, Mieno did not forget to mention the Asian experiences. He said:
Experience in Asia has shown that although development strategies require a
healthy respect for market mechanism, the role of the government cannot he
forgotten. I would like to see the World Bank and the IMF take the lead in a
wide-ranging study that would define the theoretical underpinnings of this
approach and clarify the areas in which it can be successfully applied to other
parts of the globe.”
Mieno challenged the World Bank to study the Asian experience. The MOF
officials at the Annual Meeting called the World Bank’s approach “simple minded,”
resting on “outmoded Western concepts that fail to take account of the successful
strategies pursued by Japan and some of its Asian neighbors in developing their
economies.In private, these officials accused the World Bank economist of gross
arrogance, of presuming to lecture them on why Japan was doing the wrong things
^ Far Eastern Economic Review, March 12, 1992, 49.
World Bank, press release, no. 16, October 15,1991. Mieno’s statement was prepared by the
International Finance Bureau o f the MOF. Without much surprise, Kubota, who directed OECF
Occasional Paper No. 1, by now transferred back from OECF to a senior position in the IFB of the MOF,
drafted Mieno’s statement. See also Wade 1996,11.
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while at the same time asking for more Japanese money. They also added privately
that even though they directed their criticism at the World Bank, they were not blind to
the facts that the World Bank was under the U.S. influence, and that the World Bank
economists, regardless of nationality, were dominated by U.S. trained neoelassicists.^^
Having made an unusually sharp critique of the World Bank policies, the MOF
took issue with the 1991 World Bank Annual Report. The MOF expressed its
discontent of the report’s tendency to underplay the importance of the Asian
alternative to the Anglo-Saxon orthodoxy. The MOF pressured the reluctant World
Bank^®° to make a thorough study of Asian development experiences. By “Asia,”
Japan broadened the study this time to include Japan, NIEs(Korea, Hong Kong,
Taiwan, Singapore), and Indonesia, Malaysia, and Thailand while the 1991 World
Bank Report covered only four Asian countries(Japan, Korea, Singapore, and Taiwan).
At the insistence of Japan, and with funding of $1.2 million from Japan’s
PHRD(Policy and Human Resource Development Fund) fund, the World Bank finally
agreed to study the Asian experiences. The study was agreed to focus on the two key
questions Japan had so far posed: Did state interventions-such as subsidized targeted
Miller 1991, 1.
Awanohara 168.
The top management o f the World Bank had already once attempted to block the publication o f a
study report entitled later (when it was eventually published) “World Bank Support for Industrialization
in Korea, India, and Indonesia,” because its conclusion gave “too strong an endorsement of government
intervention.” The study report argued that the World Bank imwarrantedly discounted the positive role
of the state’s industrial strategy(especially for the Korean case), and urged the World Bank to “help
governments design industrial policies,” and to “adopt a more differentiated, nuanced approach to
recommending policy packages to individual government.” The top management called for the report
not to be made available outside the World Bank until its conclusions had been suitably revised. Masaki
Shiratori, the Japanese executive director, in collaboration with several executive directors from
borrowing countries pressed the top management to allow for its publication. They prevailed and the
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credit, protection of selected industries from imports, and export promotion-contribute
to the rise of the Asian economies?; Can policies that worked in Asia be used in the
rest of the developing world? The study got under way in January 1992 and was to be
written over eighteen months for publication at the time of the Annual Meeting of the
World Bank and the IMF in September 1993.*°* Lawrence Summers and Nancy
Birdsall(the director of the research department) were appointed to direct the study.
The political significance of Japan’s initiative at publishing The East Asian
Miracle study(later termed as it is) was such that Japan firmly consolidated the
internalization and extemalization of its identity as the leader of the state-led
economic development in relation to the U.S. as the leader of the neoclassical
economic orthodoxy, which had developed in various confrontations with the
U.S.since the mid-1980s . In terms of symbolic interaction theory,***^ by making its
Asian neighbors as the so-called “positive” reference group(“us”), from which Japan
would derive a sense of legitimacy and leadership indispensable for promoting its own
development experience abroad, Japan at the same time constituted a “negative”
study was published in 1992. See Wade(1996, f.n.l7) for more detailed information on this matter. See
also Far Eastern Economic Review, March 12, 1992, 49.
Once The East Asian Miracle study was initiated, the study got much attention for its political
significance. On the one hand, it could invalidate the orthodoxy. On the other hand, it could reject the
dissenting, unorthodox Japanese development philosophy. As such, depending on the final outcome of
the study, it could trigger a complete change of principles of economic development, which could then
influence all IFls’ lending prescriptions and policies. It was not only Japan that anxiously awaited the
study’s completion. All the struggling developing countries aspiring to join the high performing Asian
economies looked forward to it. Japan’s hope was that the World Bank would move away from the
dogmatic, neoclassical position embedded in SAL policies toward one that would embrace a more
significant position for state-led economic development along Japanese lines. See Far Eastern Economic
Review, February 10, 1992.
Mead 1934; Dittmer and Kim eds., 1993, 13-31; Wendt 1999,224-233.
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NOTE TO USERS
Page(s) not included in the original manuscript and are
unavailable from the author or university. The manuscript
was scanned as received.
193-213
This reproduction is the best copy available.
UMI
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In other words, the Thai government’s continued refusal to Tokyo led the MOF to
retract its scheme for bilateral assistance in two important ways. First, the refusal
amplified the suspicion to the effect that many of the MOF officials came to believe
that the IMF-type conditionality was now considered appropriate for resolving the
Thai crisis. The MOF understood well that it could not impose such conditionality on
its Asian neighbor, Thailand. Second, the refusal made the MOF wary of the
possibility of getting its bilateral bailout money repaid by the Thai government.^'’
Since the MOF, unlike the IMF, does not have any recourse(for example,
conditionality or seal of approval) to force Thailand to do what it wants the country to
do to ensure repayment, the MOF felt it too risky to go ahead with its bilateral
assistance without Thailand’s credible economic data. As such, the MOF finally
decided to hold off its bilateral assistance and in Sakakibara’s term, let the IMF play a
“tough guy” role.^^
However, the MOF’s decision was not that Japan would abandon its regional
leadership role and take a backseat to the IMF. As was the case in May 1997, the MOF
was confident that it could at least equal the IMF in voicing its opinions on the Thai
bailout operation.^^ The confidence derived largely from two factors. The first was
based on Japan’s financial willingness to provide at least half of the total funds
necessary for the completion of the bailout package. Simply put, the MOF believed
that “money can talk.” Perhaps relatedly, the second factor had to do with U.S.
I am grateful to Saori Katada for bringing this aspect of the MOF’s deliberation to my attention.
Sakakibara 2000, 177; Green 2001. 244. See also Financial Times, August 27, 1997, entitled Mr.
Yen's Delicate Dilemma. In this interv iew, Sakakibara says, “We do not like imposing policy or
interfering in each other’s affairs.”
“ Sakakibara 2000, 180.
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indifference toward the Thai crisis from the outset. The U.S. figured out that the
Thai crisis was “an isolated incident and that the IMF package, with some help from
Asian neighbors, would be enough to contain regional financial turmoil.”^’ Moreover.
congressional!y imposed restrictions on future use of the Exchange Stabilization
Fund(ESF) after the Clinton administration’s unilateral use of the ESF for the Mexican
bailout of $20 billion in early 1995 kept the U.S. from engaging actively in the Thai
rescue package.^* The U.S. did not have financial resources available for extending its
bilateral assistance to Thailand. Such a unique absence of the U.S as a serious player,
which was in stark contrast to the Mexican bailout in 1994, led the MOF to believe
that it could fill the “leadership” gap. In other words, facing the enormous uncertainty
emanating from the Thai government’s refusal, the MOF had chosen a rather familiar
pattern of implementing its foreign policy, “leadership by stealth,or “leadership
from the behind.”^ ® Sakakibara recalls:
Without the accurate information on the Thai economy, it was too risky for us
to choose this [offering Japan’s bilateral assistance]. Furthermore, it was out of
the question for us to impose our thought on our Asian neighbors like the U.S.
and the IMF could do on others, given a strong relational norm called “Asian
abstention” among Asian coimtries that precludes interfering in each other’s
affairs. Thus, we had no alternative but to ask the IMF to play a ‘tough guy’
role. We came to a conclusion at that time that we would show Japan’s strong
leadership for Asia under the IMF cover.. .However, putting the IMF
leadership on the surface generated a big problem later..
As such, neither U.S. pressure nor the domestic criticism of Japanese
taxpayers’ money going to foreign debt was present as much in the MOF’s choice to
^ ’ Katada 2001, 175.
^ ‘ Katada 2001, 175.
Drifte 1996.
'"Rix 1993,62-82.
Sakakibara 2000, 177.
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support the IMF program. Japan’s immediate economic gain did not seem to factor
much into the MOF’s decision either. Proving to the contrary, the MOF could have
extended the bilateral assistance(possibly with some type of collaboration with other
Asian coimtries) to Thailand had the latter provided the accurate economic
information upon any of the MOF’s three requests. As will be discussed below,
however, U.S. indifference turned out to be only a half-truth. It was indifferent to the
Thai crisis in terms of monetary contribution, but was active in terms of crafting the
austere IMF conditionality. This became a critical source of conflict with the MOF
along with the imfolding nature of the Thailand economic data.
Stage 2: The MOF and the AMF Proposal
After Japan’s announcement that Japan would only provide assistance if the
IMF participated in the bailout, the Thai government finally called on the IMF for help
on July 28, 1997. The terms of the bailout package were soon negotiated between
Thailand and the IMF, and the IMF insisted that the IMF loans would be contingent on
Thailand meeting six IMF conditions: raising taxes, cleaning up the finance industry,
balancing the budget, ending subsidies to state companies and utilities, keeping a tight
monetary policy, and continuing the current foreign exchange system to preserve
currency stability.^^ A basic agreement was reached between Thailand and the IMF on
August 5, 1997. The agreement stipulated that the Thai government was to reduce
public spending, to end public and quasi-public support for failing financial firms and
banks(the Thai government thus suspended operations of 42 finance firms. Since the
Thai government had already suspended 16 financial firms in May, this resulted in the
The Ottawa Citizen, August 6, 1997.
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suspension of total 58 firms out of the country’s 91 finance firms), to raise
taxes(the VAT was raised to 10 percent from 7 percent), and to remove the capital
controls imposed in May 1997.^^ Japan hosted an IMF-led international conference in
Tokyo for facilitating concrete terms for the Thai bailout package. The final agreement
came on August 11,1997, and the IMF approved a $17.2 billion bailout package under
the Emergency Financing Mechanism, which was adopted for accelerated loan
procedures in September 1995. The MOF actively supported Thailand throughout the
entire process of negotiation: Japan became the first coimtry to commit itself by
agreeing to provide $ 4 billion through the JEXIM Bank untied loans to Thailand,
which constituted the largest bilateral loans only equal to the IMF contribution($4
billion); the MOF made a considerable effort in mobilizing other Asian countries to
contribute to the bailout package; through Japan’s presidency of the ADB, the MOF
was also able to commit the ADB to contribute another $1.2 billion.^'* The Asian
coimtries(including Japan and the ADB) made a $11.7 billion contribution while the
U.S. failed to spare even a dollar on a bilateral basis. The Tokyo conference
seemingly ended as a huge success.And yet in less than 40 days, Japan challenged
the U.S.-led IMF bailout operation by proposing the creation of a $100 billion regional
fund, financed and run by “Asian” countries thus excluding the U.S. from the
membership.
” New York Times, August 12, 1997.
After finalizing the terms of the bailout package, the Thai finance minister, Thanong, came up to
Sakakibara to pay his gratitude for all the MOF had done for the negotiation. Thanong said that he was
really disappointed when the MOF turned down his request on July 18, but that he now deeply
appreciated the MOF for its efforts at facilitating the negotiation. See Sakakibara 2000, 181.
The IMF considered the conference as one of the biggest successes in its history of formulating the
bailout packages. Interview with an IMF official, Tokyo, Japan, July 30, 2002.
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What happened? What influenced Japan’s explicit policy shift from
“supporting” to “challenging” the IMF? What was the reason for Japan to exclude the
U.S.? As a way to lay out a general sense of what happened, it is worth quoting at
some length an article describing Japan’s AMF proposal on September 21, 1997 at the
Annual Meetings of the World Bank and the IMF:
Japan’s AMF proposal has emerged from its experience of participating in the
$17.2 billion IMF-led rescue package for Thailand this summer. The Japanese
have indicated that they are concerned about being asked to play a bigger role
in the world economy without any increase in their influence in international
organization. However, there was sympathy, outside the American delegation,
that Japan had a genuine grievance about its lack of influence on the
international economic stage, despite being an important contributor to the
IMF’s finances. Many also agreed that greater cooperation between Asian’s
central banks and finance ministers would help prevent a repeat of the recent
currency and stockmarket crisis-and might have been more effective than the
secret IMF mission to Thailand in urging policy reforms..
As indicated in the article above, Japan’s AMF proposal derived from the
MOF’s critical assessment of the IMF bailout operation for Thailand. The MOF
strongly felt the U.S. presence behind the IMF operation, which was believed to be
working in the U.S. interest in bringing down the Asian model with no appropriate
reason to do so whatsoever. Suspicion was aroused when the MOF officials observed
the great discrepancy between the unfolding nature of the Thai economic data and the
U.S.-led IMF policy prescriptions(and implementations) for further liberalization and
deregulation of the Thai economy. This in turn led to the power shift within the MOF
in favor of the Asianists. The Asian “solidarity” firmly evident in assembling the
$17.2 billion Thai bailout package further encouraged the MOF to take an independent
action. Excluding the U.S. was, however, not an easy decision at all. It was not until
The Independent, September 23, 1997, italic added.
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the early September that the MOF officials finally made up their minds about
excluding the U.S. as they defined the nature and characteristics of the AMF in
relation to the IMF.
The MOF’s consideration of establishing the AMF begam shortly after the
Tokyo conference drew to a close on August 11, 1997. The consideration was partly in
response to a study proposal that came out as a result of the Shanghai Conference of
the Executive’s Meeting of East Asia-Pacific Central Banks(EMEAP), which was held
on July 25, 1997. The Shanghai Conference adopted the study proposal for
establishing a standby facility that would support member coimtries’ economic
restructuring. But the MOF had already conceived of the embryonic form of the AMF
scheme around the time of the Thai crisis with four major reasons:
1. Concerns about the possibilities that the crisis might result in contagion.
2. Awareness that there were no money sources available outside of Asia.
3. Awareness that there was limited access to the IMF fund particularly for
Asian countries due to their traditionally small IMF quotas.
4. Even though the Asian governments achieved agreement for the Thai
rescue package, it proved difficult for some countries like Australia to
justify bilateral support in domestic political arenas on a case by case basis.
Thus it was thought easier to have an established regional fund for this
purpose.
As such, the MOF wanted to set up a regional institution that was able to channel more
funds to Thailand and other countries in Asia that could be affected by financial
37
Interview with a MOF official, June 1998, quoted in Katada 2001, 196.
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turmoil. In other words, the AMF scheme was bom with a mission to create more
dispensable short-term money for the affected countries in the region while possible
long-term roles for the AMF would provide a framework for “policy dialogue” on
various economic issues among the countries in the region.^* As such, from the outset,
the AMF scheme was conceived as a self-defense mechanism in the event of volatility
in international markets, designed to initially ward off further hostile attack(on
Thailand) from hedge funds. The MOF’s revisit of the AMF scheme in the aftermath
of the Tokyo conference was thus aimed at realizing a regional lender of last resort
that would provide liquidity to countries with balance of payment difficulties. In
Sakakibara’s terms, the AMF scheme had emerged from a simple conception that “like
there is the ADB vis-à-vis the World Bank, why not have the AMF vis-à-vis the
IMF?”
And yet, the AMF scheme was inherently destined to face the two interrelated
thorny issues from the outset, namely, who to include and exclude as the members of
such a regional fund and how to position it in relation to the IMF. As for the former,
the issue was whether to include the U.S., given the U.S. abhorrence toward an the
“Asian” only institution(for example, the U.S. negative posture on the earlier
Malaysian East Asian Economic Caucus proposal). The latter would depend on how to
define the former in a way that U.S. membership would mean that the new regional
institution would likely supplement and support the IMF without much autonomyfand
Interview with a MOF official, Tokyo, Japan, July 19, 2002. See also Los Angeles Times, October 2,
1997.
Sakakibara 2000, 182. But note that the ADB and the World Bank operate on different modes of
policy prescriptions and conditionality as was discussed above in length.
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vice versa). The MOF could not resolve these issues up until early September as it
kept pondering upon the institutional purpose of the new regional facility. The MOF’s
subjective understanding of the nature of the IMF bailout operation for Thailand
significantly triggered the MOF’s determination to make the AMF independent of the
IMF to a sufficient degree.
The MOF’s uneasiness with the IMF bailout operation for Thailand first
emerged in late July when the IMF started to declare that all was wrong and that
fundamental surgery was needed."*® In the eyes of most of the MOF officials, such an
ostentatious declaration looked contrary to what the IMF said about Thailand in its
1997 Annual Report, which was still praising the Thai government for their consistent
record of sound macroeconomic management policies."*' Even though the IMF claimed
that its 1996 Annual Article IV Country Analysis of Economic Policy"*^ indicated
some macroeconomic problems in the Thai economy and warned the Thai government
of the seriousness of its economic trouble in February and March of 1997, the IMF
provided no “official” warnings in the weeks and months before July 2, 1997."*^
Rather, the IMF issued its “World Economic Outlook” in May 1997, but it did not
convey any clear signals that Thailand or the other countries in Southeast Asia were in
serious trouble."*^ At the same time, however, these MOF officials also thought that the
Interview with a MOF official, Tokyo, Japan, July 26, 2002. See also Sachs 1998.
The IMF Report expressed some concern about the huge capital inflows. But overall the report gave
Thailand high marks on economic management.
The IMF’s Annual Article IV Country Analysis of Economic Policy cannot be publicized without
governments’ permission.
^ Winters 1999, 95; Rajan 2000, 14. After failing to anticipate the Mexican peso crisis o f 1994-1995,
the IMF created a new “early warning system” to provide governments and capital controllers with
more extensive and timely alerts at serious economic trouble on horizon.
^ Winters 1999, 95.
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IMF might be making a “sound” assessment of the Thai economy. The Thai
government refused to open up the country’s economic data three times to the MOF,
and the IMF now had access to them. By and large, the MOF officials were waiting to
see the IMF’s economic prescription for Thailand before deciding how they could
assist the Thai economy.
The basic agreement between Thailand and the IMF came out on August 5,
1997. As noted above, in return for access to the IMF bailout package, the Thai
government agreed to a stabilization and structural adjustment program. The
stabilization program stipulated that the Thai government would cut the current
accoimt deficit through the maintenance of high interest rates. It targeted the
achievement of a small overall surplus in the public sector by 1998 through an
increase in the rate of the VAT tax fi-om 7 percent to 10 percent, expenditure cuts in a
number of areas(ending subsidies on utilities and petroleum products), and greater
efficiency in state enterprises via privatization. The main part of the structural reform
was the closing down of insolvent financial firms. Before the baht devaluation, the
Thai government had suspended 16 finance firms, including the Finance One, once the
country’s premier finance firm. At the time of the basic agreement, the Thai
government declared that another 42 would be suspended, bringing the total to 58 of
the coimtry’s 91 finance firms.
The MOF basically welcomed the agreement as finance minister, Hiroshi
Mitsuzuka, expressed his endorsement for Thailand’s bailout plan.'*^ Nevertheless,
quite a few officials questioned the soundness of such economic prescriptions on two
The Ottawa Citizen, August 6, 1997.
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fronts; the government budget cuts might exacerbate deflation(doubts on the
stabilization program); and too hastily closing down of finance firms might not instill
confidence in the rest of the financial system(doubts on structural reform program)/^
But the MOF officials’ doubts still stayed at the level of pointing out potential dangers
that the IMF prescriptions might inadvertently generate. The MOF officials had yet to
have access to the Thai economic data in order for them to voice anything concretely.
As such, the MOF was not confident enough to go against the IMF, still believing that
the austere measures would bring back market confidence in the Thai economy.'’^
The MOF finally secured the Thai economic data sometime around the Tokyo
conference.'** This ushered in a major turning point of the MOF’s attitude toward the
IMF bailout operation. Contrary to the expectations arising from the Thai
government’s refusals, the Thai economy prior to the crisis had for a long time
enjoyed strong “fimdamentals.”(see, for example. Table 5-3 below) Thailand had
recorded strong economic growth for many years; its inflation rates were usually in
single figures and much below the developing country’s average. Thailand also had
high domestic savings rates. Moreover, Thailand had healthy fiscal positions. The
Public sector finances were either in surplus or had small sustainable deficits. Only a
significant blemish on this generally positive precrisis long-term economic record was
the position of the current account balance. Thailand had experienced huge current
account deficits, which in 1996 amoimted to almost 8 percent of the GDP.
Sakakibara 2000, 179
Sakakibara 2000, 179
48
I failed to ask a MOF official whether the MOF got the information either through the IMF or directly
from the Thai government.
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Nevertheless, the MOF also figured out that Thailand had a relatively low debt
service to export ratios throughout the 1990s. At the same time, the economic data
revealed the sudden interruption and reversal of normal capital inflows in
Thailand(see, for example. Table 5-4). As such, the MOF concluded that the Thai
crisis was not a crisis of the public sector but of the private sector, not a crisis of
solvency but of liquidity(temporary), which was in stark contrast to the Mexican peso
crisis in 1994. MOF officials said:
We finally got the data. We found that more or less fundamentals were still in
place, though we noted that Thailand had a problem with the current account
deficit as the deficit was being financed by bank borrowings. Then, we
observed the amount of money coming and going out of Thailand in such a
short period of time. Putting together, we thought that the Thai crisis was a
private sector-led liquidity rather than a solvency problem. It was the problem
arising from too much liberalization pressed by the U.S., too little institutional
support(to deal with the huge capital inflows), and too early of liberalization
and deregulation in terms of economic development. Then, we looked at the
IMF operation. We thought ‘something went fundamentally wrong’.'* ’
We thought from the beginning that the IMF conditionality was too harsh. But
once we received the Thailand economic data, it(the IMF operation) surprised
us. How could the IMF decide to impose such harsh measures when economic
fundamentals were not that bad? Some might think that that was the ordinary
IMF operation. But we had a different thought. After all, the IMF might base
its’ conditionality on the same economic data.“
In this vein, an IMF official recalled:
Japan suddenly started to become very defensive(of the Asian model) shortly
after the Tokyo conference. It puzzled the IMF, because Japan and the IMF
had maintained such a close working relationship for the Thai bailout
package.. .According to our former boss(Mr. Saito, a former director of the
IMF regional office in Tokyo), the Tokyo conference was one of the most
successful conferences the IMF had ever had before.. .The IMF thought Japan
wanted to enjoy a leadership role. Like the U.S. did it for Mexico, Japan
seemed to think that it was fine for Japan to do the same role...At the same
“ * ’ Interview with a MOF official, Tokyo, Japan, July 19, 2002.
Interview with a MOF official, Tokyo, Japan, July 26, 2002.
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225
time, the IMF figured out that the IMF’s attack on the so-called Asian
model was a bit too harsh for Japan to endure, given its track record of selling
the model to the rest of Asia/'
In other words, the MOF came to believe that “the most direct cause of the
Thai crisis was in general the liberalization of the global financial market and in
particular the deregulation of the capital accoimt that Thailand had imdertaken in the
preceding period,”^ ^ which the U.S., the IMF, and the World Bank were instrumental
in promoting. The Thai crisis was not entirely “home grown.” Instead, the Thai crisis
occurred even when the country’s fundamentals were still sound. The sudden
interruption and reversal of normal capital inflows in Thailand suggested that
whatever the trigger for the crisis(whether external macroeconomic imbalances or the
liabilities of the Thai financial institutions), the foreign commercial banks grossly
overreacted, giving rise to a panic-induced bank-run. The external creditors withdrew
their funds before Thailand was about to default. As such, in the eyes of the MOF
officials, the Thai crisis had almost nothing to do with any structural factors connected
with the Asian development model. The MOF officials questioned, “if
Asia’s(including Thailand) economic practices were so flawed, why did the region
enjoy such an extended period of high growth before the crisis?”'^ The MOF officials
in fact argued that if Thailand had continued to follow the Asian model of state-guided
investment and state direction of the financial system, there would not have been a
Interview with an IMF official, Tokyo, Japan, July 30, 2002.
Interview with a former JEXIM official, Tokyo, Japan, July 29, 2002. He said, “almost everyone
agreed that too much liberalization at least propelled the collapse of the Thai economy.” Sakakibara
2000, 166-167, 170-175. See also Green(2001,239-242) for the U.S. and Japan’s similarities and
differences o f the interpretations o f the causes of the Asian crisis. Green concludes the differences in
interpretation partly derived from different economic philosophies. Similarly, see also Sachs 1997;
Chang 1998; Stiglitz 1998; Wade and Veneroso 1998.
” Johnstone 1999, 131.
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Table 5.3, Key indicators for Asian crises economies: Malaysia, Indonesia,
Thailand, and Korea(% of GDP unless otherwise noted)
Malaysia
1975-1982
(average)
1983-1989
(average)
1990-1996
(average)
1995 1996 19(
Real GDP Growth(a) 7.1 5.4 8.8 9.5 8.6 7.0
Inflation(b) 5.3 2.0 3.5 3.4 3.5 3.7
Domestic Savings 21.6 29.4 32.1 33.5 36.7 37.0
Fixed Capital Formation 29.4 28.5 38.3 43.0 42.2 42.7
Current Account -2.0 -0.7 -6.0 -10.0 -4.9 -5.8
Fiscal Balance -6.3 -4.0 0.0 3.8 4.2 1.6
External Debt Service
Indonesia
3.8 9.0 6.0 6.6 5.4 8.4
Real GDP Growth(a) 6.2 5.5 8.0 8.2 8.0 5.0
Inflation(b) 15.0 8.1 8.6 9.4 7.9 8.3
Domestic Savings 19.3 23.2 28.9 29.0 28.8 27.3
Fixed Capital Formation 19.8 24.3 27.4 28.4 28.1 26.5
Current Account -1.2 -3.5 -2.6 -3.3 -3.3 -2.9
Fiscal Balance -2.6 -1.3 0.3(d) 0.8 1.4 2.0
External Debt Service
Thailand
3.5 6.8 8.6 8.5 9.0 10.5
Real GDP Growth(a) 7.0 8.1 8.6 8.7 6.4 0.6
Inflation(b) 9.0 3.1 5.1 5.8 5.9 6.0
Domestic Savings 19.6 25.4 34.2 34.3 33.1 31.8
Fixed Capital Formation 23.6 27.7 40.4 41.8 40.8 35.8
Current Account -5.6 -3.2 -6.9 -8.0 -7.9 -3.9
Fiscal Balance -5.8 -3.0 2.8 2.6 1.6 -0.4
External Debt Service
Korea
3.8 5.8 4.5 5.0 5.4 7.1
Real GDP Growth(a) 7.0 9.6 7.7 8.9 7.1 6.0
Inflation(b) 17.6 3.8 6.4 4.5 4.9 4.3
Domestic Savings 25.7 32.7 35.0 35.1 33.3 32.9
Fixed Capital Formation 29.4 29.4 36.7 36.6 36.8 35.6
Current Account -4.6 2.5 -1.9 -2.0 -4.9 -2.9
Fiscal Balance -2.7 -0.3 -1.0 0.0 0.0 0.0
Import Coverfc) n.a. 1.4(e) 2.2(f) n.a. n.a. n.a.
Sources: IMF, 1997, World Economic Outlook: Interim Assessment, December;
World Bank
Notes:
a: Percentage per annum
b: Average annual % change of consumer price index
c: Gross international reserves in months of import cover
d: 1991 and 1994 data unavailable
e: 1980-1990
f: 1995 figure
g: IMF estimate
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Table 5.4. Capital flows to Asian crisis economies: Malaysia, Indonesia,
Thailand and Korea (% of GDP)
227
1983-
1988
1989-
1995
1992 1993 1994 1995 1996 7997
Malaysia
Net private capital
flows/d
3.1 8.8 15.1 17.4 1.5 8.8 9.6 4.7
Net direct investment 2.3 6.5 8.9 7.8 5.7 4.8 5.1 5.3
Net portfolio
Investment
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Other net investment 0.8 2.3 6.2 9.7 -4.2 4.1 4.5 -0.6
Net official flows 0.3 0.0 -0.1 -0.6 0.2 -0.1 -0.1 -0.1
Change in reserves /e -1.8 -4.7 -11.3 -17.7 4.3 2.0 -2.5 3.6
Indonesia
Net private capital
flows/d
1.5 4.2 2.5 3.1 3.9 6.2 6.3 1.6
Net direct investment 0.4 1.3 1.2 1.2 1.4 2.3 2.8 2.0
Net portfolio
investment
0.1 0.4 0.0 1.1 0.6 0.7 0.8 -0.4
Other net investment 1.0 2.6 1.4 0.7 1.9 3.1 2.7 0.1
Net official flows 2.4 0.8 1.1 0.9 0.1 -0.2 -0.7 1.0
Change in reserves /e 0.0 -1.4 -3.0 -1.3 0.4 -0.7 -2.3 1.8
Thailand
Net private capital
flows/d
3.1 10.2 8.7 8.4 8.6 12.7 9.3 -10.9
Net direct investment 0.8 1.5 1.4 1.1 0.7 0.7 0.9 1.3
Net portfolio
investment
0.7 1.3 0.5 3.2 0.9 1.9 0.6 0.4
Other net investment 1.5 7.4 6.8 4.1 7.0 10.0 7.7 -12.6
Net official flows 0.7 0.0 0.1 0.2 0.1 0.7 0.7 4.9
Change in reserves /e -1.4 -4.1 -2.8 -3.2 -3.0 -4.4 -1.2 9.7
Korea
Net private capital
flows/d
-1.1 2.1 2.4 1.6 3.1 3.9 4.9 2.8
Net direct investment 0.2 -0.1 -0.2 -0.2 -0.3 -0.4 -0.4 -0.2
Net portfolio
investment
0.3 1.4 1.9 3.2 1.8 1.9 2.3 -0.3
Other net investment -1.6 0.8 0.7 -1.5 1.7 2.5 3.0 3.4
Net official flows 0.0 -0.3 -0.2 -0.6 -0.1 -0.1 -0.1 -0.1
Change in reserves /e -0.9 -0.8 -1.1 -0.9 -1.4 -1.5 0.3 -1.1
Source:IMF, 1997, World Economic Outlook, Interim Assessment, December.
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Table 5.5. External Debts and Foreign Reserves of Indonesia, Malaysia and
Thailand. 1992-97 (US$ Billions)
1992 1993 1994 1995 1996 1997
Indonesia
Total external debt 88.0 89.2 107.8 124.4 129.0 120.7
Short-term debt 18.1 18.0 19.5 26.0 32.3 80.0
Pte non-gnaranteed debt 16.3 14.0 24.4 33.1 36.7 50.8
Foreign reserves 18.3 18.6 17.1 20.6 26.6 16.4
Reserves/Short-term debt 1.0 1.0 0.9 0.8 0.8 0.2
Malaysia
Total external debt 20.0 26.1 29.3 34.3 39.8 42.9
Short-term debt 3.6 7.0 6.2 7.3 11.1 14.6
Pte non-guaranteed debt 4.0 5.7 9.5 11.0 13.0 25.9
Foreign reserves 18.1 28.3 26.6 25.0 27.7 21.7
Reserves/Short-term debt 5.0 4.0 4.3 3.4 2.5 1.5
Thailand
Total external debt 41.8 52.7 65.6 83.2 90.8 95.9
Short-term debt 14.7 22.6 29.2 41.1 37.6 36.5
Pte non-guaranteed debt 13.8 15.3 20.2 25.1 36.2 66.8
Foreign reserves 21.2 25.4 30.3 37.0 38.7 27.0
Reserves/Short-term debt 1.5 1.1 1.0 0.9 1.0 0.7
Memorandum items:
Domestic Banking Credits
Indonesia n.a. 63.2 76.1 89.0 106.8 52.3
Malaysia n.a. n.a. 84.6 110.6 136.8 108.5
Thailand n.a. 137.1 183.2 226.3 256.5 142.3
Source;IMF (1998. 1999) & World Bank, Global Development Finance and BIS.
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crisis in the first place. The Thai crisis occurred directly as a result of liberalization
and deregulation when the Thai government relinquished controls over the financial
sector as well as corporate investment activities.^^ This led to misallocation of
investments as well as overinvestment as claimed by the U.S. and the IMF as direct
causes of the crisis. In Sakakibara’s terms, the Thai economic turmoil represented “a
crisis of global capitalism" not of Asian capitalism.^'* The Thai crisis demonstrated
that “the Washington Consensus was over.”^ ^ Describing the turmoil in Asian
economies as “not an Asian crisis, but a crisis of global capitalism(thus angering
Western policymakers),” Sakakibara argued at the World Economic Forum in Davos:
The crisis had been caused primarily by a huge inflow of foreign capital. The
Asian economy is not in meltdown. What we have seen is a bursting of the
bubble, an end of the euphoriafabout the market mechanism).. .The crisis was
caused as much by reckless foreign lending to the region as anything else.. .1
am an advocate for deregulation and reform in Japan and everywhere, but the
Asian crisis is primarily a capital account crisis.. .Lots of people talk about the
structural problem of the region now, but they have known about these things
for years but before the crisis nobody said there was anything wrong with
them, rather the reverse.^
As such, the MOF defined the Thai crisis as a liquidity rather than a solvency
problem with the view of Thailand’s proven record of being able to sustain fast
economic growth, sound fundamentals, export orientation, and the ability to service
their debts in the long term. As a result, an appropriate and effective strategy to deal
with the Thai crisis in the MOF’s view was to pump money into Thailand rather than
The MOF officials euphorically call the Thai crisis “fiitago kigi(twins crises).” By “twins crisis” they
mean that the Thai crisis resulted from the twins, liberalization and deregulation.
^ Interview with Sakakibara, May 15,2001, PBS.
Interview with Sakakibara, April 1999, quoted in Green 2001,247.
The Independent, January 31, 1998. Sakakibara’s argument drew a robust response from Rudi
Dombusch, professor of economics at MIT who was at the meeting. Echoing the view o f most Western
governments, Dombuscch described the turmoil as “not a crisis in global capitalism, but in crony
capitalism.”
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the fundamental restructuring of the Thai economy. In this sense, the MOF cast
reasonable doubts on the effectiveness of the IMF’s too tight fiscal and monetary
prescriptions for the Thai economy. The MOF officials initially thought that the IMF
confused Thailand’s capital account crisis, caused by massive international capital
flows and a surfeit of short-term debt, with traditional current account crisis caused by
factors such as high inflation, low savings, and fiscal deficits. As is indicated in the
interviews quoted above, however, it did not take long for these officials to make a
conceptual change concerning the IMF bailout operation from “confusion” to
“intention.”
The most significant factor that contributed to such a conceptual change on the
part of the MOF was the MOF’s recognition that the U.S. Treasury Department had
spearheaded the crafting of the terms of conditionality for the Thailand bailout
package.^’ It was an unexpected call for the MOF, given that the U.S. had so far
showed its reluctance in getting involved in the Thai crisis management. After all, the
U.S. offered no money of its own to Thailand. The unfolding strong presence of the
U.S. infallibly made the MOF believe that the U.S. Treasury Department had control
over the IMF operation. The U.S. moved under the IMF cover. It was thus no
coincidence that not only the U.S. Treasury Department but also the U.S. State
Department did not hesitate to point out that the onset of the Thai crisis reflected the
deep-seated problems in economic fundamentals. Even before the Thai bailout
” Interview with an ADB Institute official, Tokyo, Japan, August 3, 2002. See also, for example. New
York Times, October 31, 1997 and Katada 2001: 175, note 10 of chapter 8. Many IMF officials with
whom Katada interviewed endorsed the U.S. involvement in crating the conditionality for the Thai
bailout package.
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package was completed in Tokyo, U.S. high officials had already started
mentioning “correcting” fundamentals:
We are very pleased that Thailand has taken this step(the Thai government’s
basic agreement with the IMF on August 5, 1997). We support the IMF
program. ..We think that focusing on correcting some of the fundamental
problems that the Thai economy has is the best way to stabilize the baht.^*
We are obviously concerned with the economic and financial situation
generally and that is why we have said we are prepared to support
extraordinary IMF access for Thailand, if and when an appropriate program is
agreed... The crucial elements of such a program are strong fiscal adjustment,
measures to reform the financial system and remove capital controls and
achieve greatly improved transparency in economic management.^’
As such, it was not difficult for the MOF to decode what the U.S. Treasury
Department meant by stressing “getting fundamentals right.” It pointed to the case for
“crony capitalism” based on the understanding that the Thai economic crisis(later the
Asian economic crisis) resulted from the basic economic and social structures of
Thailand, and the crisis would continue unless the inherent problems of such
structures(structural problem) were rectified. Since the Thai government’s turning to
the IMF for help on July 28,1997, the U.S Treasury Department led by Summers
repeatedly advocated structural adjustment requirements for the Thai government’s
access to the IMF bailout package and generated neoliberal-based prescriptions for
curing the ailing Thai economy.^® Even though the U.S. Treasury Department noted
that there might have been various immediate triggers-a property price bubble,
macroeconomic mistakes(for example, supporting for far too long a nomimally fixed
exchange rate), and a fall in the rate of growth of exports, the underlying root causes
^ Stuart Eizenstat, Undersecretary o f State, The Toronto Star, August 11, 1997.
” Lawrence Summers, Deputy Treasury Secretary, The Toronto Star, August 9, 1997.
“ See, for example, Rubin 1997; Summers 1997, 1998.
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were structural and thus an integral part of the Asian model of development. The
Thai crisis manifested itself in the form of overinvestment, misallocation of foreign
capital inflows, and severe problems in financial sectors, for which the state-guided or
state-centered financial system in Thailand was largely responsible. In drawing these
conclusions, the U.S. Treasury Department adhered to the view that financial markets
are fundamentally rational. The Asian economic crisis began because investors world
wide were “punishing” behavior and practices inconsistent with market principles.^' In
particular. Summers asserted:
The problem with this model of economic development is that while it was
built on the fundamentals-on high savings, high levels of education, and hard
work, it favored centralized coordination of activity over decentralized market
incentives. Governments targeted particular industries, promoted selected
exports, and protected domestic industry. There was a reliance on debt rather
than equity, relationship-driven finance not capital markets, and informal
rather than formal enforcement mechanisms.“
And Sakakibara recollected fi-om his conversations with Rubin and Summers:
...I was saying from the outset that this(the Thai crisis) was a crisis of global
capitalism. But in 1997, Larry’s view and Bob Rubin’s view was that it was an
Asian crisis, and especially, Asian policy management was the problem-Asian
governments and Asian corruptions and collusions, the Asian structured
economic system, which is close to the structure of the Japanese. I admitted
that the problems had arisen both on the part of the borrowers and the lenders,
and the lenders were mostly Wall Street, so it was a problem created by both
the borrowers and lenders; it was a problem of the global economy."
As such, the MOF was unsurprised when the IMF echoed or presented similar
views on both the causes of and prescriptions for the Thai crisis. At the same time,
however, the U.S.-led IMF’s decision to “regard the crisis as originating in problems
" Johnstone 1999, 130-131.
" Summers 1998.
" Interview with Sakakibara, May 15,2001, PBS.
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of 'insolvency’, and tackle them by insisting on major structural reforms and the
virtual dismantling of the Asian model, has instilled in the MOF officials ‘the
suspicion’ that the IMF bailout operation overstepped the mark and made the blunder
of converting temporary currency crises into full-blown economic ones.”^ The
suspicion was ever growing as the MOF was witnessing the unfolding nature of the
IMF conditionality.
As it turned out, the IMF conditionality in return for its financial assistance to
Thailand went much further than its usual requirements(cuts in money supply, high
interest rates, and fiscal retrenchment, etc.) aiming at stabilizing the currency,
reducing current account deficits, curbing domestic demands, and restraining
inflation(see above the basic agreement between the IMF and Thailand on August 5,
1997). The IMF demanded far-reaching changes in the economic and social systems of
Thailand. These changes included still more liberalization of the financial sectors. The
Thai government had to permit hostile takeover of domestic firms by nonresidents,
remove all limitations on foreign ownership of the Thai financial firms, and push
ahead with liberal foreign investment legislation that would allow foreigners to own
land, a practice that had long been taboo in Thailand.^^ The Thai government also had
to make commitments to restructure public enterprises and accelerate privatization of
certain key industries-including energy, transportation, utilities, and communications-
by eliminating the tax, tariff, and credit privileges provided to these industries.
Hughes 2000, 242.
“ Bello 1998,435. See also Rapkin 2001, 394-395.
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Furthermore, the IMF demanded changes in the system of corporate governance,
in labor laws, in govemment-business relations, and in competition policy.
The MOF found no “rationality” in the IMF impositions other than feeling the
powerful neoliberal drive of what Bhagwati calls the “Wall Street-Treeisury-IMF
complex.”^ After all, the MOF internally and externally defined and represented the
Thai crisis as not a crisis of the “public sector” but a crisis of the “private sector,” as
not a crisis of “solvency” but a crisis of (temporary) “liquidity,” and not a crisis of
“the Asian capitalism” but a crisis of “global capitalism.” From the MOF’s point of
view, applying the usual IMF austerity measures(which were tried and tested in Latin
American and Africa, where the principle economic ills were large budget deficit, high
inflation, and massively indebted public sectors) to Thailand itself was controversial.
It was simply because inflation was low and budget deficits did not exist in Thailand.
Setting aside that the IMF’s insolvency-busting methods were seen as simply
inappropriate to deal with what was essentially a problem of liquidity, the extensive
conditions of the IMF on Thailand, which went well beyond the usual IMF mandate
and deep into what heretofore had been considered members’ sovereign prerogatives,
could not be understood other than bringing the Thai economy more into line with
Anglo-Saxon-type economic practices. The insisted reforms appeared aimed at
dismantling the Asian model of development. Forcing Thailand(all affected Asian
countries later) to undergo severe structural reforms as advocated by the IMF and the
U.S. Treasury Department was “tantamount to punishing the innocent.”^’ It was
“ Bhagwati 1998.
‘^Johnstone 1999, 131.
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particularly so because the IMF policies of high interest rates and the break-up of
domestic corporations in Thailand were believed to have blocked the ability of the
Thai economy to search for ways to boost exports, just at the very time when it was
under pressure to do so in order to overcome the liquidity crunch.®* As such, the MOF
came to imderstand that the response of the IMF to the Thai crisis was largely dictated
by an agenda drawn up by Washington and Wall Street to end the Asian model of
development and replace it with a more open financial market as the U.S. and the IMF
represented the crisis from the outset as the inevitable results as Thailand’s failure to
follow the norms and standards of global capitalism(see below the three justificatory
reasons for the AMF proposal). The IMF was seen to have been more interested in
opening up the Thai economy through dismantling the very system that had ensured its
success in the first place. Sakakibara answered the questions regarding the role of the
IMF in the Asian crisis:
...But the initial mistakes committed by the IMF in late 1997 and early 1998
were very crucial-tightened the monetary policy which was not necessary,
imposed very rigid and sometime unrealistic structural reforms in a somewhat
unreasonable manner. It was too hasty. Structural reforms in Asia may have
been necessary but it should not have been imposed from outside without
internal preparations for the change...these are not the appropriate functions of
the IMF. The IMF needs to concentrate on macro-policies and liquidity issues
rather on than structural problems.. .it was not the function of the IMF to
impose those reforms on the countries in crisis..
The MOF subsequently tried to lessen the IMF conditionality, but with no
avail.’® The U.S. and the IMF justified such “rigorous” lending conditions in terms of
“ Hughes 2000,243 ; Sakakibara 2000, 178-179,181.
^ Interview with Sakakibara, January 13, 2000, New Strait Times(Malaysia).
70
Not only the U.S. and but also Germany opposed any modification. According to my interview with a
former JEXIM official, Japan’s number 2 position in the IMF is almost meaningless when it comes to
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a diagnosis of the crisis that placed heavy causal emphasis on features that were
internal to Thailand and characteristic of the Asian model of development(citing
“close ties between business and government, corruption and nepotism, banks that
extended loans on political connections”).^* Such alienation ushered in the MOF’s
changed subjectivity of Japan in relation to the coalition of the U.S. and the IMF,
which was constituted by the MOF’s interpretation concerning the entire structure of
its interaction with the U.S.-led IMF bailout operation. Despite the MOF’s initial
desire that Japan equal the IMF in managing the Thai crisis “both financially and
intellectually,” the monopolistic, unflinching power of the U.S. and the IMF in
generating what Wendts calls “discursive conditions,”^ ^ in which the viability of the
Asian model was “normatively” denied, and the privilege of market-based processes
and outcomes was “normatively” endorsed, reminded the MOF of the familiar pattern
of the U.S.-led IFIs’ attitude toward Japan, which is “Japan’s money but not ideas.”
The flip side of this was the U.S. cutting financial commitmentsfin the IFIs) while
maintaining its influence, which is “talking(or “lecturing”) without money” from the
MOF’s point of view.^^ The MOF felt that Japan’s money was being used for the U.S.
policy agenda.’" *
In the meantime, the IMF program was failing to deliver on its promise. Not
only was the Thai economy further deteriorating, the currency crisis was more
the question of the IMF conditionality. Japan’s quota is relatively very small compared to that o f the
U.S. and Europe combined. Japan’s number 2 position was powerless against the coalition of the U.S.
and Germany. Interview with a former JEXIM official, Tol^o, Japan, July 29,2002.
Interview with Sakakibara, May 15,2001, PBS. See also Rapkin 2001,395.
Wendt 1999, 135.
See, for example, Ogata(1989) and Yasutomo(1995) on the U.S.-Japan conflicts on the World Bank.
This point was noted by virtually every official with whom I interviewed in Tokyo, Japan, July-
August, 2002.
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intensively spreading to the Philippine peso, Indonesian rupiah, Malaysian ringgit,
and Taiwan dollars as financial speculators engaged in selling off stocks and local
currencies, calling in debts, and buying dollars. The abrupt closing down of 42
financial firms in Thailand caused panic run on the whole banking system.^^ The
IMF’s demands for budget surplus along with fiscal contraction and discount rate
increases bankrupted a great deal of local industries. Even exporters, who should have
been able to compete on export price, owing to a depreciation of the baht, were unable
to obtain new loans, due to the credit crunch. High interest rates made investors fear
growing domestic debt problems. The relentless attacks on the baht continued, and the
non-performing IMF policies puzzled the Thai government. Due to the continued
panic, the $17.2 billion IMF bailout package was easily depleted and becoming
insufficient to address the falling debt. Frustrated with the severe conditions the IMF
imposed for its financial assistance, which were turning out to be precipitating the
crisis, the Thai government, by August 18,1997, called for the establishment of an
Asian fund(or an ASEAN Monetary Fund; the name was tentative) to support Asian
currencies against foreign speculators.’^ All these developments called for Japan’s
response.
The MOF had three policy options available. First was “non-action,” which
was to maintain the status quo(though reluctantly) with the U.S-led IMF bailout
operation. Second was offering Thailand bilateral assistance, which could have been
implemented earlier. The last optioin was to set up a standing regional institution (the
” See, for example, the IDE(Institute o f Developing Economies) Spot Survey(1999, 67-70) for the
detailed description of restructuring of the Thai financial institutions under the IMF bailout operation.
Hiwatari 2 0 0 2 ,9( unpublished manuscript). See also Katada 2001, 175.
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AMF; a regional lender of last resort; multilateral assistance) tluough which Japan
and other members could provide Thailand with swift emergency credits, which would
be a direct response to the Thai government’s initiation as noted above. The first
option, “non-action,” was unacceptable to the MOF officials. “Non-action” meant
succumbing to “Wall Street-Treasury-IMF complex” according to the MOF’s
interpretation of its interactive structure with the U.S.-led IMF operation, whose
primary purpose was imderstood as “rolling back” the Asian model of development
which Japan had so far been so proud of. As such, both bilateral and multilateral forms
of assistance were deemed appropriate only if they would work outside the neoliberal
IMF framework. In other words, both bilateral and multilateral policy options required
Japan’s independent regional leadership. The AMF prevailed in the end. The MOF
officials gave three main reasons for choosing the multilateral over the bilateral
assistance:
1. The demonstrated Asian solidarity and demands for a standing regional
institution to maintain monetary stability, which had developed since
1995^^ and intensified and consolidated throughout the Thai crisis
management. It was the right timing to realize it.
” For example, Thailand, Indonesia, Malaysia, Hong Kong, and Singapore joined an agreement for
mutual cooperation to cross-support their currencies from November to December, 1995. As noted
above, the agreement was put into practice on May 14, 1997 when the central banks of these countries
took part in defending the baht with $10 billion contribution. In this vein, Japan convened the first
meeting of the East Asia-Pacific Central Banks Executives(EMEAP) in July 1996. On this point, see
Sudo 2002, 109.
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2. Strategic concern: the multilateral approach would be less likely to less
provoke the opposition of the U.S. and the IMF than Japan’s independent
bilateral approach
3. The MOF’s need for multilateral cover for dispensing Japanese taxpayers
money, given Japan’s own domestic economic and financial problems at
that time.’*
The MOF’s decision to go outside the U.S.-led IMF framework simultaneously
resolved the issues of membership, whether to exclude the U.S., and the relationship
of the AMF to the IMF, which were two sides of the same coin. As the MOF defined
the immediate institutional purpose of the AMF in terms of ensuring speedy
disbursements of funds to Thailand(and the other affected coimtries) to weather a
storm called “the IMF conditionality” and thus to get out of the liquidity crisis as early
as possible, the exclusion of the U.S. was to be considered a key in running the
AMF independent of the IMF to a substantial degree.*® The MOF claimed that the
’* Interviews with MOF officials, Tokyo, Japan, July 19 and July 26,2002. One llMA(lnstitute for
International Monetary Affairs) noted that the bilateral option was seriously considered. Interview with
IIDA officials, Tokyo, Japan, July 23, 2002. For the reason 1, see also Sakakibara 2000, 182-183.
” According to a MOF official(interview, Tokyo, Japan, July 19, 2002), there were three reasons that
precipitated the AMF proposal: (1) the MOF’s frustration with the IMF conditionality(in his words,
“there would be no uniform conditionality. Conditionality should be different, country by country.”);
(2) Furthermorefperhaps expected), the IMF bailout operation was worsening the situation; and thus (3)
the AMF as a mechanism to provide “more quick money.” Compare and contrast these three reasons
with the four reasons for the emergence o f the AMF around the time o f the Thai crisis as noted above.
* * Katada(2001 ; 11, note 26 in particular), unpublished manuscriptfconference paper). According to her
interview with SakakibarafTolq'o, Japan, July 19,2001), Sakakibara noted that the exclusion o f the
U.S. was intentional so that the Asian leaders could discuss regional financial problems without the
U.S. pressure. This point was also confirmed by my interviews with the MOF officials noted above. My
another interviewee, an lDE(lnstitute o f Developing Economies) official(Tokyo, Japan, July 26,2002),
illustratively told me, “1 was not surprised when 1 was first heard that the U.S. was excluded from the
AMF. The U.S. did nothing on a bilateral basis. The U.S. would be an obstacle to implement quick
money providing to countries in trouble. lt(the exclusion) was rather natural, given the history o f the
MOF’s confrontations with the U.S. in various multilateral settings. The MOF officials always
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AMF would not “be a subset of the IMF, but must retain some regional flavor-and
autonomy in spite of ‘complementarity’ with the IMF.”* * After all, the AMF’s
intended quick disbursements to Thailand would not be possible if its operation were
to be contingent on IMF approval: how could the AMF funds be disbursed without
delay if the IMF would have to have time to formulate and negotiate the terms of
conditionality with the Thai government again?*^
After several consultations with Asian coimtries, the MOF decided to formally
propose the creation of the $100 billion AMF, financed and run by Asian countries, at
the Annual Meeting of the World Bank and the IMF in Hong Kong in late September
of 1997. Japan would contribute $50 billion while the rest of the members would take
responsibility for the other $50 billion. A method of financing $100 billion was to
pool parts of the foreign exchange reserves of each member.*^ The AMF’s
membership was provisionally concluded to include China, Hong Kong, Japan, Korea,
Australia, Indonesia, Malaysia, Singapore, Thailand, and the Philippines. On
September 10,1997, Sakakibara “unofficially” informed Hong Kong, Singapore,
Malaysia, Thailand, and Korea of Japan’s plan to propose the AMF. On the same day,
the MOF’s two high officials came to visit China and Australia to explain Japan’s
AMF proposal. The MOF also proposed to all these potential members of the AMF to
complained that the U.S. liked to use Japan’s money for its own purpose.” Similarly, see Nordhaug
2000,5; Sakakibara 2000, 184.
*' Interview with the MOF officials, quoted in Financial Times, November 14, 1997.
This point was also noted by Rapkin 2001, 397.
Interview with Sakakibara, Soutii China Morning Post, February 15, 2000.
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hold an informal session to discuss Japan’s AMF proposal when Asian finance
ministers met in Hong Kong on September 12, 1997.^
Once the MOF’s ideas of excluding the U.S. from the AMF and the
relationship of the AMF to the IMF got circulated, the MOF faced strong opposition
from both the U.S. and the IMF even before Japan’s finance minister, Mitsuzuka,
officially proposed the AMF at the Annual Meeting of the World Bank and the IMF
on September 21,1997. Both the U.S. and the IMF initially did not react unfavorably
to the idea of establishing a standing regional institution in Asia. For example,
Sakakibara met with Summers, Deputy Secretary of the U.S. Treasury Department, at
OECD Meeting in Paris on September 8, 1997. Sakakibara explained to Summers the
basic framework of the AMF proposal during their lunch. Sakakibara, however, did
not tell Summers about the two interrelated issues, the exclusion of the U.S. and the
relationship of the AMF to the IMF, because he was not yet sure of the latter(how
much independent the AMF would be). Summers reacted not so negatively, believing
that the U.S. would be naturally included and that the AMF idea was still in the stage
of “brainstorming.”* ^ The IMF was even supportive of the AMF when the AMF
proposal first appeared on surface. Michel Camdessus, the IMF managing director at
that time, was supportive in the sense that the new instimtion could provide more
financial resources to the affected economies of Asia.*^ Stanley Fisher, then the IMF
Sakakibara 2000, 184-185. Perhaps before August 27, 1997, the MOF seems to have concluded
substantial parts o f the AMF proposal, such as the membership and the relationship o f the AMF to the
IMF. When Sakakibara was asked about Japan’s preparation for leading to establish a new regional
institution, he answered, “Japan is prepared to play a major role commensurate with its economic
size. .1 am ready for that. The Ministry of Finance is ready.” See Financial Times, August 27, 1997.
Sakakibara 2000, 184.
* * Interview with an IMF official, Tokyo, Japan, July 30, 2002.
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further than that. He mtemally(within the IMF) raised the issue of studying how the
IMF could coexist with the AMF.*®
Everything was completely turned around with the arrival from Hong
Kong(Asian finance ministers’ meeting on September 12 as noted above) of the news
of “the exclusion of the U.S.” and “the AMF’s independence(though not completely).’
It was precisely because Japan-centered AMF meant that the AMF would apply
“different” conditionality.*^ As such, in an IMF official’s words, the IMF “withdrew
the positive feelings about the AMF,” and the U.S got “infuriated” in Sakakibra’s
words.^°
Summers called Sakakibara at his home in the middle of the night on
September 14. The 2-hour-long heated discussion started with Summers’ furious
opening remark, “I thought you were my friend.”^' Summers severely criticized
Sakakibara for his intention to exclude the U.S. and to create the AMF working
independent of the IMF. Even though Summers based his criticism of the AMF
proposal on the grounds that the AMF would imdermine the authority of the IMF(by
Fisher criticized the AMF proposal as a threat to the authority and effectiveness of the IMF itself.
Financial Times, September 23, 1997.
“ Interview with an IMF official, Tokyo, Japan, July 30, 2002.
* ’ Interview with an IMF official, Tokyo, Japan, July 30,2002.
Interview with Sakakibara, May 15,2001, PBS.
” Sakakibara 2000, 185-186. This incidence gives a fresh insight into the actual content o f the AMF
proposal, which was not clearly exposed until it eventually died down in November 1997. On page 185,
Sakakibara wrote that "befSummers) picked up a copy o f our AMF proposal from a certain country and
started to criticize the details o f the proposal.” An inference one can make out o f this passage is the
existence o f the detailed AMF proposal, which was kept to only a handful o f the high ranking MOF
officials and circulated to Asian finance ministers in Hong Kong. September 12, 1997(see above) as a
“classified” document. In fact, one of my interviewees told me that he heard a “rumor” from the MOF
officials that the detailed planning of the AMF was written in the MOF, which did not go public.
Interview with llDA(lnstitute for International Affairs) officials, Tokyo, Japan, July 23,2002.
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reducing its leverage to compel reforms by means of conditionality) as well as the
“global” efforts to ride out the crisis, he did not shy from expressing that the AMF
proposal would constitute an “Asian” or a “Japanese” challenge to the U.S/^
Sakakibara did not back off. He responded by saying, “there’s a such thing Asian
Development Bank as against the World Bank. Why not an Asian Monetary Fund?”^ ^
Summers’ criticism was only the beginning of U.S. attempts to block the AMF
proposal. Rubin, Secretary of the U.S. Department of Treasury, called his coimterpart,
Mitsuzuka, to confirm the U.S. opposition to the AMF proposal on September 17. On
the same day, the U.S. sent a memo with joint signatures of Rubin and Greenspan to
finance ministers of APEC(Asia Pacific Economic Cooperation) emphasizing the U.S.
willingness to cooperate with Asian coimtries in precipitating the increase of the IMF
quotas for Asian countries and the creation of a new financing “window” that would
permit more expeditious IMF responses to the crises. Nonetheless, the memo made
clear that the IMF should be at the center of all these crisis management efforts. On
September 20, a day before Japan officially put the AMF proposal on the table, Rubin
met with Mitsuzuka in Hong Kong and urged Japan to give up on the AMF proposal.
In addition, Rubin made a coimterproposal to his Japanese coimterpart to work
together to create a regional surveillance system that would include the U.S. U.S.
efforts to block the AMF proposal were not confined to pressuring Japan. The U.S.
attempted to persuade other Asian and European countries not to accept the AMF
Interview with Sakakibara, May 15,2001, PBS. See also Sakakibara 2000, 186.
” Interview with Sakakibara, May 15,2001, PBS.
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proposal. Among the potential members of the AMF, Australia became the first
coimtry to backpedal.^'*
The exclusion of the U.S. and the AMF’s independence generated domestic
critics as well. The most vehement critic was the MOFA(Ministry o f Foreign Affairs),
which traditionally puts the highest priority on the U.S.-Japan relationship. The
MOFA reacted negatively to the idea of excluding the U.S., anticipating the negative
reactions from the U.S. Even within the MOF, those MOF officials having a close
working relationship with the IMF tried to “tone down” the AMF proposal, even
though they did not necessarily score high on the IMF bailout operation. The pro-IMF
officials’ focus was not on nullifying the AMF, but on adjusting the expected role of
the AMF in terms of complementing the IMF(rather than supplanting the IMF).^^
The MOF also confronted some opposition fi-om Japan’s private sectors.
Despite many Japanese financial and manufacturing sectors’ exposure to the Thai
crisis(and later Asian economies in trouble as noted above), they were not entirely
supportive of the AMF proposal, which would be a regional mechanism for disbursing
“quick” funds to get Thailand out of the crisis. Initially, private sectors(both financial
and manufacturing) could not react, mainly because they did not know what the AMF
was all a b o u t.T h e MOF had only limited consultation with them(mostly
“information exchange[joho kokan]) about the AMF.^^ Eventually, however.
’^Sakakibara 2000,186-190.
^ Another powerful ministry, the MITI, stayed neutral, mainly because the issue was not its
jurisdiction. But overall the MITI was sympathetic toward the AMF proposal. Interviews with MOF
officials, Tokyo, Japan, July 19 and 26,2002. See also Kikuchi(2001, 166) for the MOFA’s opposition
and Green(2001, 247) for the pro-IMF officials’ efforts to tone down the AMF proposal.
Interview with a former JEXIM official, Tokyo, Japan, July 29,2002.
” Katada 2001, 196.
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manufacturing sectors went against the AMF proposal on the grounds that “it
would be dangerous to provide easy money in the name of an Asian rescue that could
undermine the reforms and adjustments usually demanded by the stringent
conditionality o f the They were, however, aware that “such action(creating
the AMF that allows Thailand(and the other affected countries as noted above) might
result in the loss of golden opportunities for further liberalization of the Asian
market.”^ Japan’s financial sector opposed the AMF for a different reason. Those
supporting the solutions through the IMF argued that “such a fund as the financial last
resort creates a psychology of dependence.”* ® ®
Such multidimensional opposition was offset by enough encouragements not
only from the Asian central bankers and finance ministers, but also from Japan’s
Prime Minister, Hashimoto, who had sought to develop Japan’s independent policy on
A sia.*® * The MOF went ahead without any modification in the membership, and
Japan’s finance minister, Mitsuzuka, officially proposed to create the AMF on
September 21,1997 at the Aimual Meetings of the World Bank and the IMF. Both
Ibid., 196.
^ Interview with a former president of Nissho Iwai, a Japanese trading company, Asahi Shimbun,
November 6, 1997, quoted in Katada 2001, 196.
Asahi Shimbun, September 20, 1997, quoted in Katada 2001, 196. For the same argument, see also
Asahi Shimbun, November 8, 1997. Of course, there were some bankers supporting the AMF proposal
on the grounds that the Japanese government would use such a fund to help diem withdraw from
Thailand and possibly from other financially troubled countries in Asia without accruing significant
loss. According to my interviews, however, Japan’s financial sector, overall, did not worry much about
the seriousness of the Thai a isis around the time the AMF was proposed. Even though their investment
was highly exposed to the Thai crisis, the total amoimt o f the investment in Thailand was relatively
small compared to the their domestic non-performing bad loans. As such, they were paying more
attention to their domestic (Mtiblems. In addition, they, like almost everybody, never expected the Thai
crisis to become the “Asian” crisis at this point. Interview with an IDE official, Tokyo, Japan, July 26,
2002. Interview with a former JEXIM official, Tokyo, Japan, July 29,2002.
Interview with a former JEXIM official, Tokyo, Japan, July 29, 2002. See also Daily Yomiuri,
November 4, 1997.
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Mitsuzuka and Sakakibara acknowledged that the plan was “not yet concrete."
Nonetheless, they emphasized that the AMF would be “compatible” with the IMF, but
with a “unique” focus on the Asian countries’ “specific” needs.
The AMF was not realized in the end as Japan finally retracted it at a meeting
of finance and central bank governors from fourteen Pacific Rim countries in Manila
on November 18 and 19, 1997.*°^ In Sakakibra’s words, “I tried, Japan tried...but
against the coalition of the U.S., the IMF, and Germany, I was powerless.”’^
Nonetheless, the idea of the AMF was never completely put to rest. It was first revived
at a time when Japan’s new finance minister, Miyazawa, announced the New
Miyazawa Initiative on October 28, 1998, which was officially known as “A New
Initiative to Overcome the Asian Currency Crisis.”’® ^ The original(potential) members
of the AMF now constitute the so-called the “ASEAN plus Three(China, Japan, and
Korea)” and made a first step toward the AMF in the form of bilateral swap
arrangements among central banks called “Chiang May Initiative” on May 6, 2000. As
See Nihon Keizai Shimbun, September 22, 1997 and September 24, 1997.
Hajime Shinohara, a former MOF high official and the managing director of Japan’s IlDA(lnstitute
for International Monetary Affairs), argued that “throughout the 1998 Japan had not disavowed the
scheme(the AMF), not had it accepted the Manila framework as the last word, considering it just a step
in the direction of the AMF’s extablishment.” Business Times(Malaysia), March 10, 1999.
Interview with Sakakibara, Australian Financial Review, September 5, 2000. Katada(2001) also
noted that Japan’s own worsened domestic and financial problems in November 1997 contributed to
Japan’s retraction. Interestingly, China also opposed the AMF(but now supports the AMF). However, it
was not that China reacted unfavorably to the AMF from the outset. According to my interview, the
Chinese position was shifted after Rubin flew to China to dissuade China from supporting it. Rubin’s
visit may have triggered the regional rivalry tietween China and Japan. Interview with a former JEXIM
official, Tokyo, Japan, July 29,2002.
The New Miyazawa Initiative was Japan’s total o f $30 billion bilateral assistance to the Asian
economies in crisis, half in the form of medium and long-term funding for Asia’s economic recovery,
and half for short-term lending. Even at this time, the U.S. initially did not react favorably to the
initiative. The MOF had to insist that it was “the sovereign right of Japan to help countries in Asia and
that the initiative should eventually benefit the U.S. as a whole.’’ Interview with Sakakibara, New Strait
Times(Malaysia), January 13, 2000.
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2 4 7
recently as July 2002, the finance ministers from “ASEAN plus Three" had a
meeting to discuss the establishment of the AMF.’°^ Would the AMF come true in the
foreseeable future?
Identity-Intention All the Way down
This chapter has so far explored the micro-processes of Japan’s decision to
propose the AMF in the midst of the Asian financial crisis. It has demonstrated that
Japan strategically chose to propose the AMF as a regional mechanism to be able to
pump money into Thailand and the other affected countries. Japan’s intention was not
to allow the U.S.-led IMF’s imposition of structural changes to dismantle an “Asian”
or “Japanese” conception of the regional economy both in the short(more prolonged
crisis) and long(imstable economic development) terms. For the AMF to work along
with the “Asian” conception of economic development, a U.S. presence in it would
not help. The AMF proposal was thus launched excluding the U.S. As such, the
empirical evidence collected here endorses Sakakibara’s own rationalization(which is
noted at the outset of this chapter) that “the AMF would defend the “Asian model” of
economic development by quickly providing emergency funds to Asian states without
IMF-like conditionality.” In other words, such a rationalization is taken as a cause in
terms of providing a primary reason for Japan’s AMF proposal(see chapter 2).'°^
That said, how did the dynamics of identity and intention work to produce
Japan’s AMF proposal? Based on the empirical findings so far presented, below I will
Nihon Keizai Shimbun, July 2, 2002.
Following is the definition o f a “primary” reason as a cause as introduced in chapter 2:
“/((rationalization) is a primary reason why an agent performed an action A under the description d only
if R consists of a pro attitude of the agent towards actions with a certain property, and a belief o f the
agent that A, under the description d, has that property.” See Davidson(2001, 5) for the definition.
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briefly explain away alternative explanations(see chapter 2 for more detailed
analysis) and then illuminate how the identity-intention framework worked in the case
of Japan’s AMF proposal.
Even though the MOF’s AMF decision may have worked within the broadly
defined boundaries of Japan’s interest in the stability of the regional economy for its
own sake(economic interdependence), the empirical analysis so far presented in this
chapter does not offer evidence pointing to Japan’s certain, short-term gains out of the
AMF. There was no evidentiary consideration for the MOF to focus on Japan’s
immediate material gains at a pivotal moment of choice. Coimterfactually, if the
MOF’s primary reason for the AMF proposal were to, say, protect the interests and
needs of Japan’s highly exposed private sectors to the affected countries(as some
bankers wished for the AMF as noted above), the MOF would have required
extensive, not limited, consultations with Japan’s private sectors in its planning
processes of the AMF. Furthermore, the “purely” material explanation could not
provide any rationale for the very private sectors’ opposition.
Related to these coimterfactuals is another set of empirical conclusions drawn
from the political dynamics of intra and intergovernmental disagreements. An analysis
solely focused on Japan’s short-term gain would not offer an explanation for the
MOF’s divisiveness over the exclusion of the U.S. The material conception of
interests would have dictated the “united-front” rather than the “tug-of-war” within the
MOF, let alone the MOFA’s stiff criticism of the AMF excluding the U.S. After all,
given Japan’s willingness to commit $50 billion to the multilateral AMF, the MOF’s
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choice to extend bilateral assistance to the affected countries would have entrusted
it with more manipulative leverage or power over the use of the funds.
On the other hand, explaining Japan’s AMF proposal from Japan’s desire to
take a regional leadership role in dealing with the crisis would capture substantial parts
of the Japanese intentions. Nonetheless, the argument for regional leadership or
responsibility would be too general to account for the specificities of the AMF
proposal, such as the exclusion of the U.S. and the relationship of the AMF to the
IMF. As such, this line of argument is not equipped with providing the basis upon
which the MOF “resented” the U.S.-led IMF bailout operation, which in turn resulted
in the way the AMF eventually took shape.
Identity-intention framework, which is the central theoretical agenda of this
dissertation, not only provides such specificities of Japan’s AMF proposal, but also is
able to illustrate the entire picture of interactions of all players concerned here. First,
the Thai government’s intention to avoid the austere IMF conditionality by bringing in
Japan’s bilateral assistance could not have been conceived without its understanding
of Japan’s identity as the leader of antiparadigmatic development approach, which had
developed through Japan’s various confrontations with the U.S. The Thai
government’s assumption that Japan’s money would come without much
conditionality could not be separate from such a conception of Japan’s identity in the
realm of international finance and development. Otherwise, there would have been no
appropriate reason for turning to Japan for help.
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Second, the U.S. opposition to the AMF proposal could be understood in
this context of the binary identity d im en sio n .T h e $100 billion AMF could have
been a “blessing" for the U.S. in the crisis management. Such financial contributions
could have provided the U.S. with an opportunity to manage the crisis without using
U.S. taxpayers’ money. Instead, the U.S. took Japan’s proposal as a Japanese
challenge to U.S. authority and subsequently blocked the AMF proposal. The Japanese
“challenge” could not have been constituted without the U.S.’s own binary
understanding of itself and Japan as the leaders of different modes of economic
development.
Lastly, this identity-intention framework manifested itself most clearly in
Japan’s responses to the U.S.-led IMF bailout package. As noted above, the MOF
officials made a significant conceptual change concerning the IMF bailout operation
from “confusion” to “intention” when they got to know the U.S. Treasury
Department’s involvement in crafting the terms of conditionality for the Thailand
bailout package. This incident ultimately set the tone for Japan’s road to the AMF.
Such a meaningful understanding of actions of the U.S., including its nature, motives,
and interests in a given political context on the part of the MOF could not have been
substantiated without the MOF’s binary conceptualization of self and other, which
emerged out of the repeated interactions between the two major proponents of
different modes of economic development. In particular, Japan’s intentional exclusion
A “conspiracy” theory represented as the U.S. “buying off Asia” is beyond the scope o f this
dissertation. However, at least around the time that Japan proposed the AMF, the U.S. did not anticipate
the Thai crisis to spread to engulf almost the entire region(later even spreading to Russia and Braizil) of
Asia either. As such, the U.S. opposition to the AMF from the mid September, 1997 on might not be
solely designed to “buy o ff Asia.”
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of the U.S. from the AMF membership was a direct result of Japan’s identity-
based interpretation concerning the structure of its interaction with the U.S-led IMF
operation in Thailand.
As such, the identity-intention framework first led the MOF officials to define
the situation they faced in one way over the others, which in turn informed them that
proposing to create the AMF without the U.S. would be most appropriate and
compelling in a given political context. In this way, the MOF’s binary conception of
identities of the U.S. and Japan became the basis of reasoning for what it wants in the
name of Japan’s national interests.
Based on the identity-intention framework developed above, chapter 2
expected the four major sequences of the social interaction processes between the
U.S.-led IMF and Japan in the Thai bailout operation.*®^ To conclude this chapter, in
what follows, I apply the expected sequences to the actual interaction processes
discussed above. First, the U.S.-led IMF, acting on its definition of the Thai crisis as a
problem generated by “crony capitalism,” engaged in an act that signaled to Japan(the
MOF officials) both its intention to fundamentally reform the Asian model of
economic development and its desire for Japan to play a supporting role in the
management of the Thai crisis. In the second sequence, the MOF officials interpreted
the meanings of the U.S.-led IMF action in relation to their own perception of the
evolving nature of the Thai crisis including the causes of the crisis. They defined the
Thai crisis as a problem of liquidity, not of solvency, generated by the huge amount of
capital outflows in a short time period. As such, the MOF officials interpreted the
See chapter 2, 56-57.
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imposed, extensive conditions of the IMF on Thailand as aiming at dismantling the
“innocent” Asian model of economic development. In the third sequence, the MOF
officials, on the basis of this interpretation, which involved the previously established
collective meaning structures associated with the identities of the U.S. and Japan as
two leaders of different modes of economic development, now engaged in an action of
its own. The MOF defined Japan’s national interest in terms of defending the Asian
model of economic development. Japan proposed the AMF that excluded the U.S.
from membership. The exclusion of the U.S. from the AMF membership was a key
factor realizing such an interest. This constituted a signal to the U.S.-led IMF in the
same way in which the U.S.-led IMF action(the demolition of the Asian model) had
signaled Japan. Finally, in the fourth sequence, the U.S.-led IMF responded: It blocked
the establishment of the AMF.
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CHAPTER 5. CO NCLUSIO N
Political processes are as much concerned with managing interpretations and
creating visions as they are with clarifying decisions... We are led to a
perspective that challenges the first premise o f many theories ofpolitics, the
premise that life is organized around choice. Rather, we might observe that life
is not only, primarily, choice but also interpretation.^
Summary and Argument
By examining the two research questions that are designed to develop a
holistic account of the Japanese challenge, I have so far explored historically informed
conceptual and theoretical insights into the nature and evolution of the Japanese
challenge to the neoclassical economic orthodoxy. What has been emphasized
throughout the analysis is the constitutive power of human interpretation in shaping
and organizing the political features of international relations. As Adler and Haas aptly
put, “between international structures and human volitions lies interpretation. Before
choices can be made, circumstances must be assessed and interests identified.”^ What
matters is not so much “objective” conditions or realities but how actors as human
beings understand them. In this constructivist vein, this dissertation has identified
“identity,” a relational social construct, as a critical source enabling the constitutive
power of human interpretation to generate such a social effect as the Japanese
challenge, which was enacted domestically and projected internationally.
As for the question of what made it possible for Japan to challenge the
neoclassical economic orthodoxy, I have inductively uncovered with a longitudinal
analysis of three Japanese economic development discourses(Marxism, Economic
' March and Olsen 1989, 51.
^ Adler and Haas 1992, 36.
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Liberalism, and Developmentaiism) the deep-seated “abnormal/normal” meaning
structures to which the Japanese themselves have historically attached to their
economic development identities(whether it be class-led, state-led, or market-
oriented), which in turn enabled specific types of political actions of states to be
conceivable, plausible, and even compelling while making some other political actions
unimaginable. The ways in which all three development discourses attached the
abnormal/normal meaning structures to Japanese development identities derived from
their attempts to comparatively locate the Japanese development experiences in the
context of their views on the role of the state in the development history of the
successful economic development history of the West(or Western developed
countries; Asia later included). Since each discourse’s conceptualization of what is
“normal” varies, what is normal for Marxism is different from what is normal for
Economic Liberalism, which is also different from Developmentaiism.
With respect to Japanese Developmentaiism, the ultimate thread winning over
the others with the rise of Asia in the 1980s that constituted a challenge to the
neoclassical economic orthodoxy, I have demonstrated that despite Japan’s different
politico-economic-historical settings, evidence of interpreting the state-led economic
development as “normal(or universal)” has since the Meiji Restoration been a
penetrating theme for the Japanese developmentalists. By “normal,” it is meant that
the state-led industrialization is a prerequisite for economic development particularly
for late-comers. On this basis of the historically informed “normalcy” meaning
structure, the Japanese developmentalists delegitimatized the neoclassical economic
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orthodoxy’s commitment to a universal development philosophy as nothing but a
practice hijacking the history of the world economy. They claimed that the state-led
economic development, rather than just an alternative possibility to economic
development, has been a normal practice for all the successful late-industrializers
As such, I have ontologically imcovered the discursive, deep-seated meaning
structure called “normalcy(the Japanese developmentalist version)” that provided the
justificatory foundation for Japan to challenge the neoclassical economic orthodoxy in
the first place. The analysis suggests that the Japanese developmentalists would not
have conceived of challenging the neoclassical economic orthodoxy without their
historically constructed normalcy meaning structure. It is precisely because
challenging the neoclassical economic orthodoxy is to claim the international validity
of the state-led economic development model(or Japanese model), which would not
follow from “uniqueness” or “idiosyncracy” of the model. The flip side of it is the
unthinkability or unimaginability that the U.S. would promote the state-led economic
development, which is derivable from the U.S. historical construction of the “magic of
the market place” as the source of the successful economic development for itself and
others.
The analysis also suggests the contingent nature of how the Japanese challenge
came about. If the fates of Asian and Latin American(and African) economies had
been reversed, the developmentalist version of normalcy would have been critically
undermined. The Japanese developmentalists would have still had to extrapolate if
Japan was normal, let alone questioning the universal validity of the neoclassical
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256
economic orthodoxy. A different version of normalcy would have been on the rise,
given the fact that all the three economic discourses have been competing for
relevance.
As for the question of why Japan proposed to create the AMF in the middle of
the Asian financial crisis while intentionally excluding the U.S., this dissertation’s
main original claim is that the Japanese state officials’(Ministry of Finance)
conception of Japan and the U.S. as two leaders of different modes of economic
development provided the basis upon which Japan proposed to create the Asian
Monetary Fund. Since Japan’s decision to propose the AMF was not an isolated event
but stood in an inner relationship with previous events(clashes with the U.S. at the
ADB, the World Bank, and so on), I have traced the AMF decision’s intrinsic relations
to them. In doing so, I have also illuminated the processes by which the MOF officials
have since the late 1980s internalized the binarization of Japan and the U.S. as the
leaders of different modes of economic development as they continued to confront the
U.S. in various forums of international finance and development. 1 have paid particular
attention to Japan’s pushing the World Bank to publish The East Asian Miracle in
1993 as this event constituted a “formative moment” where Japan first officially
challenged the U.S.-led neoclassical orthodoxy at the international levelfgoing beyond
the regional level).
In this dissertation, I theoretically developed an identity-intentionfreason-
based) conceptual framework designed to establish causation between an identity and
an outcome in the form of social action. I developed the framework by tmpacking a
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257
constructivist claim that “identities are the basis of interests" to show how it is the
case. I tested the framework against Japan’s AMF proposal. And I demonstrated how
the framework offers a better interpretation of Japan’s Asian Monetary Fund proposal
in comparison with those alternative explanations I have collected from the existing
literatures on Japanese foreign policy, namely “economic interest group,” “state-
centered,” and “systemic” approaches.
More precisely, I explained the developments of Japan’s AMF proposal(from
initial cooperation to conflict with the U.S.-led IMF bailout operation in Thailand) as
emerging out of Japan’s changed subjectivity of the self in relation to the U.S.-led
IMF bailout operation in Thailand. I demonstrated that the changed conception of the
self and others on the part of the MOF officials have determined the tracks along with
the dynamics of interests have been formulated and reformulated. I argued that the
immediate cause of Japan’s AMF proposal was Japan’s interest in defending the Asian
model of economic development by setting up a financial mechanism for quick
disbursement of funds to the crisis-affected regional economies in Asia, which
resulted from the MOF officials’ interpretation of their interactive structure with the
U.S.-led IMF bailout operation in the management of the Thai crisis. The exclusion of
the U.S. from the AMF membership was the key in realizing such an interest. Such a
specificity of identifying Japan’s interest cannot be captured outside the identity-
intention framework.
As such, throughout the analysis of the Japanese challenge to the neoclassical
economic orthodoxy, I have empirically demonstrated the importance of social
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258
stmctures(materia! structure is a part of the larger social structure) in defining
actors’ social identities and in shaping how actors interpret their material environment.
Actors’ interests themselves are social rather “rational” in a sense that interests cannot
be detached from a social context woven from rules and meanings, which define
relationships between the self and others and give interactions their purpose. The
assumed context free, timeless, and abstract model of the rational actor is ill equipped
for capturing the importance of constitutive social forces in shaping actors’ interests.
The parsimonious elegance of rational theorizing of international relations tends to
come only at the expense of more concrete, explicit, and historically informed studies
of international relations. After all, the rational model does not offer a way to theorize
actors’ interests nontautologically: states do act according to their conception of self-
interest. Because they act instrumentally based on self-interest, they are called
“rational” actors. By “rational,” it is meant that states choose more(or most) attractive
alternatives within constraints of available information, the interests and strategies of
other states(or non-state actors), and the distribution of power. State officials(or
decision-makers), because they are rational by assumption, are assumed to calculate
costs and benefits as rational model theorists suggest. Usually, it does not matter
whether the actors concerned actually think and speak in ways consistent with rational
model theorists.^
In contrast, a historically informed constructivist approach to international
relations so far advocated in this dissertation furnishes a nontautological
understanding of the origins of an interest that is endogenous to the dynamic
^ Elman and Elman 2001, 31.
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259
theoretical account of the relationship between identity and interest. As Hopf aptly
puts, “it(the relationship of identity to interest) is nontautological because evidence of
the interest and its content is not the interest itself. It is endogenous because the
origins of the interest and the identity of the individual are both located within
theoretical account of identity. International constraints and opportunities or
strategic interests involving threats and opportunities, which are primary conceptual
tools that the rational approaches employ to account for states behavior, must be
constituted as such by historical actors themselves in the first place. Otherwise, the
validity of an argument away from referring to the actors’ point of view is always
vulnerable to the overdetermination of given interests as well as the underspecification
of the kinds of interests at stake. As such, the rational approaches might end up
inquiring into what it should be rather than what it is.
In other words, actors’ preferences cannot be “read o ff’ a material description
of the world, because they live in a material world that they interpret, and it is on the
basis of these interpretations that they present various policy options to themselves.
Thus, “a study of action must always be undertaken as a study of the cultural resources
through which people give meaning to the material worlds in which they live.”^ The
way actors rank their preferences is very much dependent on how they interpret the
situation, not on something inherent in material imperatives. As was discussed above,
the identity-intention framework provides a theoretical account of how actors’
identities constitute a meaning-oriented social cognitive structure that makes threats
‘ Hopf 2002, 16.
’ Ringmar 1996, 37.
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2 6 0
and opportunities, enemies and friends, intelligible, thinkable, and possible, which
in turn helps reconstruct actors’ reasons and goals for their actions in response to
prevailing conditions(whether it be material or ideational). As such, the framework
offers to endogenize the formation of interests by connecting them theoretically and
empirically to identity and its associated discursive practices.
Contribution
This dissertation theoretically and methodologically contributes to social
science in general and International Relations in particular by developing an identity-
intention(reason-based) conceptual framework designed to establish causation
between an identity and an outcome in the form of social action. The framework aims
at providing a theoretical basis upon which reflective human agents define their
interests in sociohistorical contexts. The identity-intention framework of foreign
policy choice has performed well in explicating Japan’s AMF decision to merit testing
in other historical locales. Methodologically, this dissertation exemplifies a way to
connect from meaning-oriented discursive practices through the formation of interests
to actual policy actions by specifying a clear path of analytical steps. Such a
specification will be also useful for other researches in a similar vein. Thematically,
this dissertation contributes to expanding security-issue-related IR constructivist
literature to incorporate international political economy. My case study also
contributes to understanding the Japanese foreign policy in the area of international
finance and development.
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261
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Creator Lee, Yong Wook (author)

Core Title The Japanese challenge to the neoclassical economic orthodoxy: Identity and interest in Japan's policies toward the East Asian miracle and the Asian Monetary Fund

Contributor Digitized by ProQuest (provenance)

Degree Doctor of Philosophy

Degree Program International Relations

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Tag history, Asia, Australia and Oceania,OAI-PMH Harvest,political science, international law and relations

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