Chris Harman


Thinking it through

(July 1996)

From Socialist Review, No.199, July 1996.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

It’s not so long ago that Japan got star billing from all those who apologise for capitalism. ‘Lean production’, ‘quality circles’, ‘just in time’, were all the rage for those looking for a quick fix from the problems of the firms in Britain. ‘After Japan’ was the slogan emblazoned on Ford’s drive to force up productivity.

Many of those extremely critical of the British variety of capitalism – like William Keegan in The Spectre of Capitalism and Will Hutton in The State We’re In – saw Japan as providing a capitalist alternative to Thatcherism.

But they’ve all been rather quiet about Japan of late. There is still much talk about the East Asian economies representing the way of the future. The references are all to Singapore, Hong Kong, South Korea and Taiwan – economies whose combined output is only about two thirds of Britain’s and less than half of France or Germany’s. The East Asian economy which dwarfs the others is all but forgotten.

There is a simple reason. Japan’s economy has been going through a longer, more serious recession than any of the other advanced countries, its banking system is in a very serious crisis, and its ruling class does not know what to do. The problems of Japanese capitalism have not been an accident, but have followed from those features that led it to boom for so many years.

A recent article by Martin Wolff in the Financial Times lays out the bare facts. For the past the 40 years the Japanese economy has been characterised by a rate of saving of more than 30 percent – higher than that in any of the other advanced countries (the rate in Britain and the US has usually been about half that figure).

This was possible initially because the working class, defeated in the great postwar strike wave and impoverished until the mid-1950s, could be forced to accept lower wages, longer working hours, more inhuman working practices and worse welfare provisions than was normal in Western Europe and the US.

Firms channelled the resulting profits into very high levels of investment in the expansion and updating of plant and machinery. The result was a growth rate in the 1950s, 1960s and 1970s not experienced anywhere previously – except perhaps in Stalin’s Russia.

In this way, Japan was able to overtake the major European economies by the mid-1970s. It was then able to climb out of the worldwide recessions in 1974-76 and 1980-81 by a surge in exports, based on the greater competitiveness of its capital intensive industry, despite a slow and steady rise in its workers’ real wages (which still, however, remained below those of the US, Germany and, probably, Britain).

Thus, between 1980 and 1984 export volumes grew by more than half, despite the generally depressed world economy. But any capitalist economy which relies for its dynamism on holding down wages and government spending at home while selling to other economies with higher such expenditures is likely to run into trouble in the long run. Its very success is likely to undermine its ability to continue with such a strategy.

It faces one of the problems Marx pointed to in Capital – the level of exploitation of the workforce designed to ensure high profitability opens up a gap between what is produced at home and what can be sold there. It can only bridge that gap either by ever higher levels of exports or by itself buying an ever greater proportion of production for investment in plant and machinery. But this leads to a still more rapid growth of output and a still greater gap between it and domestic consumption.

Things were already beginning to go wrong in the Japanese case in the mid-1980s, although few people noticed it at the time. Japan’s export boom led to a rise in the value of the yen compared to the dollar and the main European currencies which, in turn, slowed down export growth – to only 21 percent between 1985 and 1996.

Economic expansion increasingly came to depend on higher levels of investment undertaken in the hope of still greater exports in future.

But this necessarily led to a second problem pointed to by Marx – investment grew much more rapidly than profits. The ratio of profits to investment plunged, until it was less than half the level of 20 years before.

In the late 1980s Japanese capitalism seemed able to ignore this problem. The ‘bubble economy’, an orgy of speculating, led to astronomic rises in property prices and the stock exchange index, and frenzied expenditure on office development in Japan itself and the buying up of subsidiaries worldwide.

Then in 1990-91 it all came unstuck. Firms could not sell all the goods they were producing. The stock exchange index fell by more than half. Banks which had relied on their shareholdings to make massive levels of lending for property speculation suddenly found themselves desperately short of cash.

The state has been forced to engage in the sort of ‘borrow and spend’ policies which free market economists – and Labour politicians – tell us are out of date, in an effort to counter fears of a 1930s-type slump. It has turned a budgetary surplus of 3 percent of domestic product in 1991 into a deficit of 3.9 percent in 1995. This has not, however, prevented a rash of bank failures in recent months, or resulted in more than minimal economic growth rates.

Wolff, a committed supporter of free markets, is forced to note that ‘the current rate of investment, not far short of 30 percent of GDP, looks unsustainable ... It cannot profitably invest so high a proportion of GDP ... In the highly developed Japan of today it may be impossible for the private sector to find adequate opportunities for investment.’

Marx wrote in Capital that ‘the real barrier of capitalist production is capital itself’: success in accumulating in the past makes further accumulation extremely difficult and drives the whole of society into crisis. The Japanese example suggests he was right – which is why it is virtually ignored by apologists for the system.

Last updated on 21 December 2009