From International Socialism 2:72, September 1996.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’Callaghan for ETOL.
Japan, for so long the wonder of the capitalist world, today displays many of the classic symptoms of economic, political and social crisis.
The country of relentless growth is experiencing something that looks very much like the kind of economic stagnation familiar in other capitalist countries. There are few signs of any return to the years of boom.  Just before Christmas the government launched another massive reflationary package designed to kickstart the economy again. The 1996/1997 budget plans to increase government spending and borrowing in order to inject new demand into the economy.  The banks face massive bad debts, estimated to amount to 20 percent of the value of the Gross Domestic Product (GDP), accumulated in the wild property speculation of the late 1980s. The ‘jusen’, the Japanese equivalent of building societies, need a huge bail out from the government to cover their activities during the same period. The proposed budget promises them $US6.6 billion to help solve their bad debt crisis. Nissan, one of the weakest of the big car companies, was forced to close its plant in Zama in April 1995, threatening the entire edifice of ‘lifetime employment’ in the major companies. The wages and living standards of Japanese workers, which have been transformed beyond all recognition since 1945, are under real pressure today. Toyota, the strongest of the car companies, recently restructured production in its plant in Motomachi: the novelty was that this pioneer of lean and efficient production decided to minimise the use of robots because they were proving more expensive than plain old human beings. 
Political life is in chaos. For decades Japan was governed by the Liberal Democratic Party (LDP). This party, very like the Christian Democrats in Italy, owed its origins to the Cold War. A reliable ally of the US, a bastion of the ‘emperor system’, which has a much greater symbolic importance in sustaining ideas of national identity and history than does the British monarchy, and a loyal friend of Japanese business, one faction or another of the LDP was always able to form the government. This long exercise of power produced the same sort of results as in Italy: politicians became deeply embedded in systematic corruption. At the end of the 1980s, the scale of the scandals became too great and the LDP began to break up. By 1993, for the first time since 1948, Japan had a government headed by a member of the Social Democratic Party. Admittedly, in the years in the wilderness, the party had dropped its opposition to US bases, defence spending, the national anthem and the emperor. In government it depended on the votes of one of the successor parties formed out of the factions of the LDP. Nevertheless, the post-war mould was broken. Since then the recomposition of the party system has proceeded apace. The Social Democratic Party itself is splitting up, with its current leader and former prime minister, Tomuichi Murayama, attempting to form a new ‘liberal’ party, openly committed to deregulated capitalism.
Socially, the stresses and strains of a capitalist crisis have begun to create ripples on the surface of Japanese society. One of the most assiduously propagated myths about Japan is that it is radically different from other countries. One aspect of the myth of difference is that Japan is an egalitarian society without social classes and with a very low degree of social conflict. Recent events have started to call that belief into question. The Great Hanshin earthquake in and around the industrial city and port of Kobe, which took place in January 1995, was more than just a natural disaster. The response by the authorities was so bumbling and inefficient that thousands suffered needlessly. The image of Japanese society as a smooth functioning machine was wrecked by the incompetence and corruption that were all too obvious. At the same time, the disaster manifestly had a much greater impact on the poor and working class areas, with their relatively flimsy housing, than it did in the richer areas. A year after the disaster 40,000 people, most of them old and poor, were still living in temporary accommodation. Inequality in Japanese society was vividly illustrated in the statistics of death, injury and displacement.
Even more dramatic have been the events following the release in March 1995 of the toxic gas Sarin in the Tokyo underground – 11 people died and 4,500 were injured. The subsequent investigations seemed to point to the existence of a large and well organised religious movement, the Aum Supreme Truth, that was so much at odds with official Japan that it was effectively at war with it. In December 1995 the Socialist government launched a legal process to ban the sect. The law they used was the 1952 Subversive Activities Prevention Law.  This monument to the Cold War, which the Socialist Party had always denounced in opposition, had previously been used against left wing individuals but never before against an organisation.
Such phenomena are not, of course, direct manifestations of class conflict, but they are certainly evidence of the great internal pressures in a society. These show up in universally recognisable forms. There are, for example, an estimated 10,000 homeless sleeping on the streets of Tokyo. Many are victims of the collapse of small and medium companies in the present recession.  They face constant police harassment and an almost total lack of any official support network. If there is little overt social struggle in Japan compared with many capitalist countries, that is because it is strongly repressed rather than because its causes are absent.
Many in Japan perceive there to be a deep and pervading crisis. One commentator wrote in his review of 1995 that:
To borrow the Latin phrase Queen Elizabeth II used to describe the year 1992 for the British royal family, 1995 for Japan was an annus horribilis. Two extraordinary events alone – the 17 January Great Hanshin earthquake, which killed 5,480, and the unending string of bizarre crimes allegedly committed by the Aum Shinrikyo cult – were enough to mark 1995 as a horrible year for the nation. The two combined to make the Japanese people realise that the safe society of which they were so proud could no longer be taken for granted. But there was more to be glum about during the year. On top of the natural and man made disasters were the deepening political chaos and the continuation of the economic slump, both of which were compounded by crises in the nation’s financial system. All of these factors added up to a mood of general unrest and concern about the country’s future among the general public... Many of the events that beset Japan in 1995 could be attributed to a common theme – the breakdown of the carefully nurtured system that had worked to keep the country moving forward over the past 50 years. Beyond the trouble these events caused on the surface, they forced the nation to address fundamental questions about Japanese society itself. A look at the nation’s political situation bluntly exposes the national drift that has occurred over the past few years ... The nation’s economy also languished throughout the year, although a few signs of weak recovery raised hopes from time to time. Meanwhile, most economists predicted that next year’s performance would not be much better. One issue that stood out in the midst of the general economic malaise was the crisis in the financial system. A few institutions – Cosmo Credit Cooperative, Kizu Credit Cooperative and the larger Hyogo Bank – collapsed in the aftermath of the plunge in real estate and stock values that left financial institutions with a huge amount of uncollectable loans, estimated by the government to amount to at least 40 trillion yen... Just when it seemed that things couldn’t get worse, they did. In early November, American authorities shut down the US operations of Daiwa Bank, Japan’s tenth largest city bank, as punishment for the conducting and covering up of illegal trading activities at Daiwa’s New York branch. That added to distrust, both at home and abroad, of Japan’s financial system and the Ministry of Finance, which closely oversees the banks. 
It is true that the Japanese have always been much less confident about the all conquering power of their economy than admiring foreign economists, but there is no doubt that 1995 has seen a new level of doubt and uncertainty even about the fundamentals of Japanese society.
The shattering of the illusions about Japan has been greeted with mixed feelings outside of the country. Some right wing commentators, particularly in the US, have seized on them with joy. For them, all of these things are evidence that the Japanese model of social cohesion and strong state intervention is not superior to that of the free market, individualistic model of the US and Britain. For others, particularly the right of the British Tory party, the consequence has been to shift attention to the ‘Asian tiger’ economies. These, it is argued, constitute an even better model for emulation since they are much more flexible than their giant neighbour, which must pay the price for its strong state intervention and increasing use of Keynesian economic policies. For commentators like this, it is important to emphasise every sign of problems and of social crisis, for they demonstrate that the end of the Japanese miracle is at hand. 
On the left, or whatever that section of the political spectrum occupied by Tony Blair and the British (New) Labour Party might be, many of the old illusions remain untroubled. For them, Japanese capitalism is different to, and better than, its British cousin. Japanese businessmen understand the need for investing in education and infrastructure. Japanese companies treat their employees as human beings rather than mere ‘hands’. Japanese business and Japanese politicians reach comfortable agreements about joint policies and pursue them in the long run and in the national interest. Michael Meacher, for example, wrote in the aftermath of Tony Blair’s tour of the Far East:
Economically, there is no alternative to a close partnership between private industry, the finance sector and the state, to end the destructive short-termism of recent years. All the world’s most successful economies have developed in this way. They have also promoted a modern training and education system so that citizens can take advantage of economic opportunities when they arise. Most have also sought a social partnership between employers and employees. The term ‘stakeholder economy’ captures these objectives very well. 
The fear for people like Blair is exactly the reverse of that of the right wing commentators. New Labour wants the old Japan of high growth rates and social peace to re-emerge as a result of the moderately reflationary policies of the government and to continue to place its traditional emphasis on the long term. They hope to emulate those features of Japan and dread that this might not prove a solution to the problems of British capitalism. The aim of this article is to show that both of these perspectives are wrong. Japanese capitalism is indeed in crisis and that crisis will not easily be resolved. It is likely that out of the present turmoil will emerge a country in which there is more, and more obvious, class struggle. But, on the other hand, the end of Japanese capitalism is not nigh. It is most unlikely that the social structures erected over the decades of boom will collapse immediately. Japanese capitalism will remain for the foreseeable future one of the most powerful and robust in the world.
In order to demonstrate the crisis affecting Japan, we need first to look at the origins of the Japanese economic miracle before going on to consider the problems that it has now run into. Against that background, we can look at the state of the Japanese working class and the potential it has for emerging as an independent force capable of challenging the whole system.
Of course, Japan is different. All historical examples of capitalism are different. British capitalism is different from German capitalism. Italian capitalism is different from US capitalism. Argentinian capitalism is different from Indonesian capitalism. The pressures of the world market and the globalisation of capitalism are not yet sufficient to efface these differences of history and of natural comparative advantage. The interesting questions are: how far and in what ways is Japan different? There is a strong train of thought which argues that Japanese society is fundamentally different from other societies, and that Japanese people are radically different from other ethnic groups.  Less extreme versions hold that there is a special kind of ‘Japanese model’ of society which confers competitive advantage on Japan, and which western ruling classes should emulate in order to be just as successful.
In fact, it is quite possible to understand at least the main features of Japanese society and the evolution of Japanese capitalism using the standard methods of Marxist analysis. There are certainly differences to be noted and accounted for, but there are also strong similarities with other class societies and with the structure of other capitalist economies. In analysing Japan, a number of the main theoretical developments in Marxism associated with this journal and its predecessors turn out to be absolutely vital. As we shall see, it is impossible to understand either the successes or the problems of Japanese capitalism without an understanding of the complex nature of bourgeois revolutions, the role of the state in the capitalist economy, the impact of arms production on the world economy and its constituent parts, the way in which capitalism can develop unevenly and reach its most advanced forms in very backward countries, and the impact of structural divisions in the labour force on the ability of the working class to defend its own interests and fight capitalism.
There is something real to understand and explain. Between 1950 and 1985 the Japanese GDP grew by 1,409 percent. This contrasted with 557 percent in Western Germany, 323 percent in the US, and 223 percent in the UK.  Japanese growth rates during this period were not only very high compared to those of other countries, they were also high in terms of historical comparisons. One leading Marxist Japanese scholar wrote in 1990:
In the 22 years from 1951 the Japanese GDP grew continuously and rapidly by 9.2 percent per annum on average, making it seven times as big as a result. The annual growth rate was elevated from 8.9 percent in 1951–61 to 9.4 percent in 1961–73. These were remarkably high rates of economic growth in historical experience in the world. As a result, in the two decades until 1973, Japanese GNE (Gross National Expenditure) per capita multiplied 12.5 times in nominal yen and 4.9 times in real terms. This process was certainly not merely a quantitative change. In the first half of this period, various home electrical appliances such as cleaners, TVs, washing machines, refrigerators, which had been almost non-existent in Japanese economic life just after the Second World War, became popular and generalised. In the second half, along with the sophistication of these home appliances, an automobile society with a general ownership of cars was constructed. 
Japanese capitalism thus not only grew very quickly, but at the same time it transformed the social structure of Japan. In 1950 wage workers made up only 39.3 percent of the total Japanese working population. By 1970 wage workers made up 64.2 percent. In absolute numbers, they had increased from 14.2 million to 33.8 million. The main industries which suffered erosion as a result of this change from independent petit bourgeois production to collective proletarian labour were the primary industries of agriculture, forestry and fishing, and most notably agriculture. The percentage of the employed population working in these industries fell from 54.2 percent of the total in 1947 to 8.3 percent in 1987. In absolute terms, it fell from nearly 18 million to just under 5 million during the same period. 
In order to understand this rapid and protracted growth, we need to take a brief glance at the history of modern Japan. This is usually taken as beginning in 1868, with the overthrow of the Shogunate and the restoration of the power of the Meiji imperial dynasty. There is a huge controversy over whether this constituted a bourgeois revolution or not.  For Marxists in the tradition represented by this journal, this is a slightly mistaken debate. The dynamics and character of any revolution are extremely interesting, but the essential issue is not whether a revolution is actually carried out by the bourgeoisie, or even whether its leading proponents believe that they are establishing a bourgeois society. For us, the key question is what kind of social and economic outcomes flow from the revolution. In the case of Japan, it is quite clear that the effect of the Meiji restoration was to enable the flowering of industrial capitalism, and in that sense it fulfilled the main historical functions of a bourgeois revolution. 
The kind of capitalism that emerged, however, was deeply marked by the time and place of its origins. The Japanese ruling class embarked upon its industrialisation policy at precisely the moment at which European and US capitalism were entering the most aggressive phase of territorial expansion associated with classical imperialism. Indeed, the coup which overthrew the Shogunate was a direct result of the ‘black ships’ of the United States navy forcing the Japanese to open their ports to foreign trade. The Japanese ruling class needed to look no further than China to see the fate which awaited the state which could not defend itself against the imperialists.
The section of the ruling class which emerged victorious in the 1870s embarked upon industrial development in much the same spirit as Stalin was to do half a century later in the USSR: it was their intention to develop modern industry in order to equip themselves with modern weapons. In order to retain their ability to rule, they were quite happy to ditch major elements of Japanese tradition and Japanese society. For the outside observer, there could be nothing more ‘Japanese’ than the samurai. In fact, the Meiji government launched a massive attack on this class and provoked serious opposition:
… samurai opposition initially took the form of armed uprisings that sought to topple the government. The underlying cause of the rebellions was profound discontent and considerable economic distress within the former warrior class caused by early Meiji reforms that dismantled the feudal polity and all but abolished samurai elite status ... Viewed as the organised, political response of a dispossessed social class, the half dozen shizoku rebellions between 1874 and 1877 can be explained as the predictably violent reaction of a traditional elite displaced by a modern revolution. 
In their positive programmes, they consciously modelled some of the major new Japanese institutions on the best available capitalist models. The state bureaucracy and the army were rebuilt on Prussian lines. The navy was constructed as a carbon copy, right down to the details of the uniforms, of the British Royal Navy.
They also recognised that a country coming late to capitalist development needed strong state intervention in order to survive. In fact, the Meiji state itself was the organiser of industrial production in many cases, primarily for military production.  The use of tariffs and other protective measures enforced by the state was necessary to protect infant industries from foreign competitors. The toleration, indeed the encouragement, of large scale integrated groupings of companies was necessary to ensure that production was on a sufficient scale to survive. The subordination of the immediate needs of particular companies to a conception of a longer term interest was implicit in the fact that military production was the main aim of industry.
At the same time, unlike in some other later developing capitalisms, the ruling class recognised that they could not industrialise by cutting themselves off from the world market. The country was simply too small and too poor for an autarchic solution to be credible. In the first phase of capitalist development, taking place in the high period of territorial empires, the orientation on the world economy meant trying to construct their own empire to rival the worst European examples.  In this, they had some success, notably in defeating Russia in 1905–1906, and establishing colonial rule in Korea. Later, in the 1930s, they invaded China and set up a puppet government in Manchuria while struggling to control as much of the rest of the country as possible. 
Thus two major trends which are often held up as examples of the uniquely ‘Japanese’ nature of capitalism in that country, and explained in terms of the timeless features of the society, are in fact the direct result of the immediate historical circumstances in which industrial capitalism began to develop there. State intervention in industry, going so far as to constitute a powerful tendency towards state capitalism, was recognised as a general feature of the imperialist age by Bukharin.  If that recognition took an extreme form in the case of Stalinism in the USSR, the same tendency towards a fusion of state and capital was present in many other economies in the same epoch, and for the same reasons of imperialist rivalry. Japan was, and to some extent still is, an example of just such a general trend.
To argue that the Japanese ruling class saw its interests with a peculiar clarity, and that it pursued them with a ruthless logic, is not to claim that they possessed a degree of insight not given to the capitalists of other countries. They certainly made mistakes. The most notable was the lunatic decision to attack the incomparably superior power of the US. In the long run, such a war could only have one outcome: the defeat of Japanese imperial ambitions. 
Military defeat in 1945 had far reaching consequences for Japanese capitalism and launched it on the path which has led to its current position. The most obvious consequence was that it spelt the end of any attempt to play the role of an independent imperialist power: in that sense, the aim of the Meiji restoration had been as unrealisable as the attempt to build socialism in one country. Japan was occupied by the US, which dictated a new constitution and set about ‘democratising’ Japan in its own image. As we shall see, the internal consequences of this process very rapidly went too far for General MacArthur and President Truman. At the same time, the collapse of the Chang Kai-shek regime in China forced the US to look for a new secure base to fight communism in the Pacific. Japan was the main beneficiary of that new situation.
The world economy in the long post-war boom was dominated by what has been known in this journal as the ‘permanent arms economy’.  In essence this theory argues that the structural problem facing capitalism is that, as it produces greater and greater amounts of surplus value, so the ratio of machines to workers (called the organic composition of capital, which expresses the relationship of dead to living labour) rises. The result of this is that the rate of profit tends to fall over time and this can only be reversed by the destruction of large amounts of capital. That is normally done by slumps, in which machines and factories stand idle and finished goods decay. It can also be done by wars, in which factories are bombed, warships are sunk, and there is general all round destruction. However, from an economic point of view, the same effect can be achieved simply by devoting substantial resources to military production, without ever fighting a war. Capital and labour expended on weapons production are ‘luxury’ production which generates no new productive capacity. When the warship or the bomber is obsolete, the exchange value embedded in it is destroyed every bit as much as if it had been blown apart. This portion of the social surplus is thus not available for reinvestment, so the tendency to overaccumulate capital is slowed down, although it is not reversed. The tendency to endemic crisis is thus reduced. 
After the end of the Second World War, arms expenditure in the major economies remained at a very high level compared to previous periods in the history of ‘peacetime’ capitalism. This meant that the system avoided the kind of sharp contractions which had been such an obvious part of the economic life of the 1930s. In the place of regular catastrophic slumps, there was a long boom in capitalist production. There were still the booms and slumps of the standard business cycle, but these did not produce the drastic systemic consequences which had had such a severe effect before the Second World War.
This phenomenon had three major consequences for the development of the Japanese economy. The first of these was the general effect which arms spending had on the world economy as a whole. The general expansion of the economy meant that each part of it could, potentially at least, hope to expand. To the extent that it benefited from the general improvement in economic conditions as a result of the permanent arms economy, Japan gained the same advantages as did all other western capitalist economies. It is, as Rupert Murdoch will tell you, much easier to enter an expanding market than a contracting one. It was thus relatively easy for what was then a small and backward economy to find niches in world trade which it could occupy and in which it could prosper.
The second advantage gained by Japan was general to the defeated side in the Second World War, although it was particularly strongly felt in Japan. The losers, most notably Germany and Japan, were prevented from full scale re-armament. They were, therefore, in the position of enjoying the benefits of the permanent arms economy without having to pick up the tab. For the system as a whole, the scale of expenditure on armaments was colossal: according to Michael Kidron, in the late 1950s it accounted for ‘about one half of gross capital formation throughout the world’.  This meant that there was an overall 50 percent reduction of the amount available to capitalists for reinvestment. But the taxation which shifted that surplus out of the productive cycle and into armaments was borne by capitalists in Detroit, Birmingham and Lille. Capitalists in countries with much lower arms expenditure had available to them a relatively greater proportion of the surplus they appropriated for direct productive reinvestment. Both Germany and Japan were in this position. They were prevented by the settlements imposed upon them by the victors of 1945 from developing large military machines. In the case of Germany, this was relaxed in the 1950s as part of the Cold War, when West Germany was permitted to rearm, although not to the same extent as its former enemies. Japan, though, was constitutionally obliged to renounce militarism and this was enshrined in the convention of not spending more than 1 percent of its Gross National Product (GNP) on the ‘Japanese Self-Defence Forces’. Although this was in practice often slightly exceeded, it was not formally abandoned as a target until 1989. Thus for decades, when some of the other major western capitalist economies were putting between 4 and 10 percent of their GNP into what was, in strict economic terms, pure waste, Japanese capitalists were able to reinvest more or less all of their share of the surplus.
The third beneficial effect of the permanent arms economy on Japan was the result of the geography of the Cold War. Two of the main points at which the global struggle between the US and the USSR turned into open warfare were Korea in the early 1950s and Vietnam in the 1960s. In both wars Japan was an important base and staging area for the US and direct US military expenditure produced a massive stimulus to the Japanese economy. The impact of these expenditures was very considerable, and helped to transform the situation of the Japanese economy. A major bourgeois historian of the Japanese economy wrote:
Most economic historians emphasise the enormous influence of the Korean War on Japan’s economy at this crucial stage, and it is certainly true that the war triggered an unexpected boom just at the point when the economy was suffering the full impact of the stabilisation panic created by the Dodge Line. The Korean War boom proved to be an unexpected shot in the arm and made it possible for Japan to make a complete economic recovery almost at a single stroke ...
The economic boom resulting from the Korean War was the largest and the most important in Japan’s post-war economic history. It was triggered by the special procurements income that derived from US army expenditures and by the sudden rise in exports that accompanied the expansion of world trade after June 1950.
Special procurements, or special Korean War demand, may be defined in two ways. Defined narrowly, the term refers to the enormous order for goods and services for the UN forces in Korea placed with Japan in a very short time by the commander of the Eighth Army and by the supplies department of the American army in Japan. This was largely due to the fact that Japan was the industrialised country nearest the war zone and, therefore, the best source of emergency supplies. Even when considered in this narrow sense, foreign currency income from special procurements reached about $1 billion during the three years of the Korean War, about 70 percent and 30 percent for materials and services, respectively ... The broad definition of special procurements includes this direct procurement by the UN forces and the yen expenditure of military personnel stationed in Japan as well as staff of foreign organisations such as relief and aid programs. In the period from 1950 through 1955, special procurements taken in this broad sense are estimated to have reached $2.4 billion to $3.6 billion ... The temporary foreign currency income from special procurements amounted to between 60 percent to 70 percent of exports, raising the balance of payments ceiling at a single stroke. 
The shape of the economy that emerged from this distinctive set of circumstances had a number of unique features. Despite the existence of an advanced industrial sector, petty agriculture, handicraft industries and small scale distribution still had the greatest weight in the economy, making up 60 percent of the employed population. Japanese capitalism was thus an example of the juxtaposition of very highly developed large scale capitalist production methods alongside other practices which had not yet left the feudal epoch. The industrial companies which dominated the ‘modern’ sector of the economy were not only very large, they were also few in number. A few firms dominated the production of major commodities other than food.
Despite their initial zeal for democratisation and demonopolisation, the US occupiers had quickly changed their views when fighting communism became the national religion. The old structure of highly integrated large scale industrial and financial enterprises like Mitsubishi, Mitsui and Sumitomo remained more or less intact: the former zaibatsu simply became the new keiretsu. There is a very close link between these large conglomerates and the banking system, which provides most of the investment capital. The extent of large companies’ dependence on traded equities is generally regarded as still much lower than in Britain or the US. This is one source of the ‘long-termism’ of Japanese business, which is relatively free of the risk of takeover and able to raise capital without recourse to the stock market. 
Partly because of the small size of the modern sector, Japan developed relatively little of the apparatus of the welfare state which is associated with developed capitalism: private savings and family structures filled the gap. As a consequence, levels of personal savings held in long term deposits in Japan were very high compared to other capitalist countries. This remains the case even today. In the decade 1980–1990 savings on average made up a 32 percent share of GDP in Japan as opposed to 17 percent in Britain, 23 percent in Germany and 16 percent in the US.  It is this saving, channelled through the banking system, which makes up the funding available for investment.
The extreme differences within the economy meant that there was a large internal reserve army of labour which could be sucked into modern industry during periods of expansion and expelled back onto the land, or into the small family business, during recessions. The automobile industry, which is often taken as the purest form of Japanese capitalism, illustrates the process clearly. The trend for auto manufacturers in the US was to attempt to act as ‘vertically integrated’ producers, owning plants producing all of the parts needed for the production process. In Japan, on the other hand, the major car makers subcontracted large parts of production to outside companies. These ‘second and third tier’ companies, which often had their employees working in the car assembly plant itself alongside regular workers, were much smaller in size and provided nothing like the same stability of employment, wages and conditions as Toyota or Nissan. 
As we shall see, the structure of industry in Japan is such that the famous ‘lifetime employment’ policy is the preserve only of a relatively small proportion of workers in the largest companies. The wage differential between workers in large companies and smaller companies is also much higher than it is in other economies. According to one estimate, for companies with between 50 and 99 employees, wages in Japan were 58 percent of those in companies with more than 1,000 employees in the 1980s, as compared with 74 percent in Germany.  As one Japanese economic historian remarked:
Actually, the Japanese labour market was lax throughout the 1950s and 1960s, through having both a plentiful rural latent surplus population in agricultural families, and a surplus stagnant urban population in small and often family businesses. On the basis of such a surplus population, a dual structure of wages and working conditions between big business and small business was formed and much utilised by the former through the subcontracting system. It must be obvious that the greatest contributing factor for the rapid rise of Japanese economic growth was the favourable conditions in the labour market for firms and the resulting relatively cheap labour in comparison with rising productivity or with labour costs in other advanced capitalist countries. 
One direct result of this kind of employment structure is that, in combination with a weakly organised working class, it enables rises in real wages to be kept low relative to productivity gains. Over the 30 years from 1955 to 1985 productivity in Japanese manufacturing rose 1,112 percent, while real wages rose by 360 percent.  The competitive advantage such a situation permits can be grasped by means of international comparison. In the decade 1975–1985 Japanese productivity rose by 217 percent while real wages rose by 106 percent. In the US the comparable figures were 134 percent and a fall of 1 percent. In Britain there were rises of 132 percent and 102 percent. For Germany, the figures are 135 percent and 113 percent. 
Despite these four areas of difference, however, Japanese capitalism remains very clearly a variety of the normal private capitalist model. It is true that the rate of growth has been high, but Japan has displayed the same business cycle characteristic of such economies. These phases of expansion and contraction are much more evident to the Japanese than they are to the casual outside observer. There are even special names for the different events. Thus 1957 saw the ‘Jimmu boom’, 1958 saw the ‘bottom of the pot recession’ and 1961 saw the ‘Iwato boom’. The great boom of the late 1980s is known as the ‘bubble economy’.
The other obvious tendency which Japanese capitalism shares with other countries is that, as the economy matures, the explosive growth rates vanish and are replaced by an expansion closer to the international norms. In the 1960s the annual average rate of GDP growth in Japan was 10.9 percent as opposed to 4.1 in the US. In the 1970s it was 5 percent as opposed to 2.8 in the US. In the 1980s it was 4.1 percent as opposed to 2.7 in the US.  These converging growth rates are one important index of the fact that Japanese capitalism has begun to shed its apparently unique features and resemble more obviously the international norm for an advanced capitalist country. The nature of the current recession is another important piece of evidence.
In considering the contemporary problems of the Japanese economy we have to start from the fact that the mechanisms which played such an important role in its initial successes 45 years ago have had a progressively smaller impact on the world economy for the last 20 years. The long boom was over by the mid-1970s. It has been replaced by a period of booms and slumps which, while not yet historical calamities as in the past, have certainly been much more marked than in the immediate post-war period.
The proportion of the world product spent on arms had been on a downward trend since the end of the Korean War. There was a reversal during the Reagan years, but the end of the Cold War has meant a dramatic fall in expenditure. The overall effect of the process on the world economy has thus been reduced. Japan’s own expenditure has been growing. Although today it is, in absolute terms, the second largest in the world, it is still only a small proportion of a very large GDP. Nevertheless, its growth does mean that Japanese capitalists are now bearing more of the direct costs of armaments production than they were in the past. There has been no new hot war on Japan’s borders to provide an extraordinary stimulus to demand, as the Korean and Vietnam wars did. All three of the advantages that Japan enjoyed as a result of the permanent arms economy thus started to evaporate in the mid-1970s and are of less importance each year.
Secondly, the very success of the advanced industrial sector in Japan meant that it slowly eroded the reserve army of workers on the land and in petty production. At the same time, there has been a rise in the proportion of women entering the workforce, to the current level of 41 percent of the total.  One consequence of this is that there has been a shift from the older reliance upon family structures as the main supplier of social security towards formal public provision. As a consequence, social security expenditure as a proportion of the GNP rose from 4.6 percent in 1970 to 10.3 percent in 1980 and has continued to rise ever since.  The fact that the vast bulk of production in Japan is now fully capitalist means that the overall level of wages is much higher than it was in the past, and compares in real terms with the wage levels elsewhere in advanced capitalism. The comparative advantage conferred by low wages outside of the industrial sectors has passed from Japan to the other ‘Asian tiger’ economies of the region.
The third major change which has undermined the vitality of Japanese capital is the increased importance of the world market. This has had three effects on Japan. In the first place, there has been increasing international controversy about Japanese trading practices. While the modern capitalist sectors of the economy were always internationally oriented, they in fact constituted a relatively small part of Japanese production. Up to the 1970s Japanese capitalism existed within the relatively protected bounds of the state. One direct consequence of this is that Japan has always run a substantial balance of payments surplus. As Japan has become more and more a major force in the world economy, the capitalists of other countries, particularly those of the US, began to demand an end to the ‘unfair’ protection that their rivals enjoyed. Japan began to abandon formal protection in the 1970s and ‘by 1977, Japan only had 27 items on its tariff lists, 22 of them being agricultural products’.  Subsequently the Japanese government has entered the familiar process of deregulating, privatising and ‘liberalising’ the economy.
The process has been a slow one, and there are still major points of friction between Japan and its trading partners, particularly the US and the European Union (EU). These often focus on so called ‘invisible’ trade barriers which prevent Western firms competing on the same terms as their Japanese rivals in the internal market. Sometimes this is nonsense. The US government complains that the Japanese do not buy US cars. Apart from the fact that quite a lot of Americans prefer Japanese cars, there is an obvious and very visible trade barrier which has nothing whatever to do with protectionism. The Japanese, like the British, drive on the left. The Americans drive on the right. With the exception of two models, US car companies do not produce right hand drive models for sale in Japan. The two right hand drive models sell fairly well, but overall US cars only account for 3 percent of total Japanese sales. Cars produced in the EU, 200 models of which are available with right hand drive, make up 5.8 percent of the Japanese market.  Japanese companies, of course, produce left hand drive models for the US market. It is true that there are some other areas of trade in which there do appear to be some obstacles to imports to Japan, but overall the trend in Japan is very much towards removing trade barriers. In the trade disputes which still take place, it is not at all clear that Japan is always the obstacle to free trade. 
This relaxation of state controls and intervention reduces the ability of the state to sustain that close relationship with big industry which has been such a continuing feature of Japanese economic life.  Japan is not alone in finding that the increasingly global scale of the world economy makes it difficult to continue with the classic state capitalist remedies.
Secondly, the continuing trade surplus has meant that there has been a steady appreciation of the value of the yen, particularly relative to the US dollar. From around 240 to the dollar in 1985, the yen today stands at around 100, and at one point on 19 April 1995 it was as high as 79.75. The US is the largest Japanese export market and the expansion and contraction of the Japanese economy are closely related to the business cycle in the US. Just as in Britain, the sharp boom of the later 1980s, which apparently solved the economic problems of the earlier years of the decade, took place on the back of the ‘military Keynesianism’ of the Reagan years. Adverse exchange rate movements relative to the US dollar are thus extremely serious for Japanese industry. This currency appreciation has placed enormous pressures on Japanese capitalism to remain competitive by cutting costs and raising productivity. In this they have been very successful. Despite the fact that the yen has risen from around 240 to the US dollar in 1985 to about 100 now, Japan continues to enjoy a substantial trade surplus with the US.
The third major effect ties together the consequences of the first two. The result of loosening the close link between state and industry and allowing greater play to the unregulated market is that the movement of capital has itself become internationalised. In the first place, this means that Japan has become a major exporter of capital in its pure money form. The US budget deficit of the 1980s and 1990s has largely been financed by Japanese capitalism’s willingness to buy US Treasury bonds. It has also meant that Japanese industry has increasingly invested abroad in plant and machinery, at first in the US and Europe and today in the rest of Asia. Although the Japanese economy is coming to play a central role in South East Asia, it remains true that the US and, to a lesser extent, Europe are still the most important places for both export and investment. 
This productive investment has immediate advantages for Japanese capitalism in that it bypasses some of the criticisms of Japanese trading practices, and some of the defensive barriers put in place against Japanese import penetration. The investment in developing countries also has the massive advantage that it is in countries which today enjoy the sort of advantages accruing from the uneven development and low wages which Japan itself possessed in an earlier period.  In the case of plants in Asia, the goods produced are often imported back into Japan. The major disadvantage is that this process of ‘hollowing out’ threatens both the relationship of Japanese companies with their home workforce and their relationship with the Japanese state itself.
As a result of all these internationalising factors, it is far more difficult today for the Japanese government to find the means to restart the boom. The aftermath of the financial crisis brought on by the classical processes of speculation in property and the stock exchange in the late 1980s has been to worsen what was already a recognisable response to the patterns of the world economy. It is against this background that the future of Japanese capitalism has to be seen.
The fourth major factor in the current situation facing Japanese capitalism is the nature of the workforce at its disposal. It is, after all, Japanese workers who have made these phenomenal production gains possible and who actually make the very high quality goods for which Japan is famous. It is here that the heart of bourgeois mystification about Japan is to be found. It is argued by outside observers of both right and left, not to mention by many Japanese themselves, that it is in the special nature of Japanese society, the Japanese family, and the Japanese worker that the real key to the success of the country is to be found. Workers in other countries might be alienated: the Japanese love their company and its products. Workers in other countries might skive: the Japanese love to work. Workers in other countries might complain and take industrial action: the Japanese are passive and docile. ‘If only,’ you can almost here the outside observers saying, ‘If only we could distil those attitudes, bottle them and slip them into the canteen tea at home.’
This myth does rest on an element of truth. Japanese workers are very productive and very flexible. The working methods in Japanese factories are the most efficient in the world and they have been emulated more or less successfully by every capitalist anywhere who even thinks about competing on the world market. There is relatively little open class conflict in Japan, few official strikes and even fewer unofficial ones. The mythic nature of the account lies first in supposing that the working methods are uniquely Japanese and secondly in believing that there has always been a high level of passivity amongst Japanese workers.
The first of these is easily dealt with. In fact, parts of the panoply of production methods associated with Toyota and claimed as uniquely Japanese – quality circles, absence of status differentials, etc. – were dreamt up by a US industrial relations expert, William Deming. Ignored in his home country, his ideas about involving workers in production decisions in order to ensure quality and efficiency were taken up enthusiastically in Japan. When he died in 1995, his death was more remarked on there than in the US. It would be wrong to fall for another myth about Japan and claim that these methods were all imported and that therefore this is just more evidence of the uncreative nature of the Japanese compared to Westerners. In fact, the methods were taken up and improved in Japan and the key innovation which is today so admired, ‘just in time’ production, was a uniquely Japanese contribution to capitalism, largely devised by Ono Taiichi.  Like most other advances in capitalism, indeed in the history of humanity, Japanese production methods represent a development of ideas germinated elsewhere and mixed with an original local contribution.
The alleged passivity of the Japanese working class is another myth, but requires slightly greater attention. Like every other working class in the world, the Japanese working class has had its periods of activity and victory and its periods of passivity and defeat. The distinctive feature is that the defeat at the end of the last great outburst of militancy had much more drastic and long lasting consequences than did similar setbacks in other countries.
Trade unions, socialism and communism all made early appearances in Japan.  As was to be expected in a country in which the military elite retained a central place in the political system, they experienced extremely severe repression. An upsurge of militancy following the First World War was crushed and the history of the 1920s and 1930s is one of terrible repression.  Immediately before and during the Second World War workers were forced into semi-fascist corporate ‘unions’ similar to those in Italy and Germany. The working class was comprehensively atomised. This did not mean that they were happy. As Garon puts it:
Deprived of their own organisations, the demoralised workers protested in the only ways possible – absenteeism, job switching, slowed production, and the manufacture of defective goods. Worried police noted numerous cases of disputes or ‘near disputes’ in the final years of the war. 
The US came to Japan with the slogan of ‘democratisation’, and Japanese workers believed them. SCAP dissolved the corporate body (Sampo) set up by the military, and General MacArthur told prime minister Shidera that he expected them to encourage ‘the unionisation of labour’.  They launched a phase of what is now known in some circles as ‘overenthusiastic democratisation’. In 1945 just 3 percent of Japanese workers were in trade unions. Twelve months later 46 percent were members. By 1949 this had reached a peak of 56 percent. There was an enormous strike wave. Factories were occupied. Journalists and printers took over bourgeois papers. Demonstrators tried to break into the imperial palace in Tokyo. Soviet type organisations appeared in one or two places. 
Faced with this massive unrest, the US occupation authorities, who had 400,000 troops in the country, changed their position. They dropped their opposition to the old imperial order and announced that they would intervene to ‘preserve order’. On 31 January 1947 General MacArthur personally issued a formal order banning a proposed strike called by the All Japan Joint Struggle Committee of Labour Unions. US policy was increasingly dominated by its fear of communist influence in the unions. The American Federation of Labour sent one James Killen to act as SCAP’s labour adviser and he organised a split in the trade union movement.  The imposition of the Dodge Line led to bankruptcies, closures and big cutbacks in the public sector. Japanese National Railways sacked nearly 100,000 workers and the Post Office and the Telegraph and Telephone Corporation got rid of another 220,000 between them.  These redundancies and others like them were used to purge militants, the more so because they coincided with the onset of the Cold War. In a speech on Constitution Day in 1950 General MacArthur suggested that SCAP would welcome the banning of the Communist Party.
The anti-communist witch hunt which followed in the Korean War was extremely deep. Thousands of leftists were driven out of workplaces. An anti-communist US source records:
By the end of , at least 11,000 labour leftists had been fired from more than 20 industries; more than 1,000 lost jobs in governmental services and enterprises which had experienced the most militant labour activities, while similarly inclined unions in key private industries were also weakened. The process undoubtedly involved widespread disregard of basic civil and human rights.
Not only communists but also other activists on the ‘struggle committees’ of unions were dismissed, and this usually involved the loss of their union membership. After the outbreak of the Korean War in June, ‘security risks’ were fired from companies with ‘special procurement’ contracts. 
Needless to say, the right wing Socialist Party was only too happy to collaborate with SCAP in getting control over the labour movement. Unions were split and company unions were set up. The Japanese working class was comprehensively defeated. 
It is important not to exaggerate the extent of the social peace established in the early Cold War period. It is true that in an atmosphere of intense anti-communism many of the gains that workers had won in the immediate post-war period were either lost again or transformed into their opposite. A good example of the latter process was the system of ‘lifetime employment’ and ‘seniority wages’. Although these were based on older Japanese methods designed to retain skilled workers in periods of acute labour shortage, after the war they had been forced on the managements of the industrial companies by a combination of labour shortages and working class agitation. They were perceived by workers as a step towards establishing stable and secure careers for themselves.  After the collapse of the wave of militancy it was still in the interests of the employers to retain these concessions. The rapid expansion of the economy meant that there was an acute shortage of skilled labour and employers wanted to hold on to what they had got. 
At the same time, the hardening of the control of the bureaucracy of the unions, and sometimes the destruction of genuine unions and their replacement by purely company outfits, meant that this system now became much more of a device for disciplining workers and ensuring that they met productivity targets: the penalty for refusal was to be cast out of secure employment and to enter a world of erratic and badly paid work. The transformation of Japanese trade unionism was clearly illustrated by the aftermath of the Nissan strike of 1953.cIn the middle of a bitter dispute a new scab company union was set up. Among the slogans adopted at its founding meeting were:
In collaboration with this ‘union’, management were able to defeat the strike and sack the leaders of the real union.
Despite these serious defeats Japanese workers continued to press for concessions. The annual Spring Strike (the Shunto) is a ritualised procedure but it is still an expression of the fact that the Japanese working class retains a certain independence from the employers. However corrupt the union bureaucrats may be it is in their interests to demonstrate, both to their members and to the bosses, that they are not merely pawns of management.
Political opposition to Japanese capitalism remained strong. Right up to the present, workers vote for the Japanese Socialist and Communist Parties. Although the latter long ago abandoned revolutionary Marxism and became simply a left reformist party, it is much better supported than the equally craven British CP ever was. It has a strong group of MPs. Labour unions run independent candidates who win seats in both houses of parliament. The student movement of the 1960s was even more radical and bitter than its European and US counterparts, providing many of the militants who, together with local peasants, fought pitched battles with riot police against the plans to build a new airport at Narita, outside Tokyo. Opposition to nuclear weapons, war and imperialism has always been capable of mobilising the Japanese opposition on a large scale. There was widespread opposition to Japan taking sides in the Gulf War. Even today disgust at the behaviour of individual members of the US occupying forces provokes large scale demonstrations in which there is a strong anti-imperialist element. There is a strong strand of discontent and militancy which runs through Japanese politics from the earliest days up to the present. 
Nevertheless, the social peace established by a combination of political repression and rising living standards was real. It is important to remember that living standards of Japanese workers have been transformed in the course of the working life of a generation. The very success of Japanese capitalism enabled it to deflect the class conflict of the post-war period into the kinds of class collaboration which are the envy of their Western rivals. Opposition to Japanese capitalism was and is real, but it has been a minority current since the 1940s.
The evolution of Japanese capitalism has not yet produced the conditions that have destroyed this social peace. On the contrary, the recent recession and the slowing down of expansion have led to some symptoms of retreat. Union membership fell as a proportion of the total of employed workers after its peak in 1950. The 1960s saw an expansion both in the total number of union members and in their relative weight in the workforce, but the uncertainties after that slowed down the absolute growth and reversed the rise in union density. Between 1980 and 1990 the absolute number of union members fell very slightly, but the proportion of workers in unions fell from 30.8 percent to 25.2 percent.  The ratio of workers belonging to labour unions hit a post-war low of 23.8 percent in 1995, falling 0.3 of a percentage point from the previous year. An official of the labour ministry attributed the low figure to workforce growth in the service sector where the level of unionisation is low. A survey covering all of Japan’s labour unions as of the end of June found that membership had dropped for the first time in six years to total of 12,614,000, down 85,000 from the previous year, while employment was up 300,000 to 53,090,000. At companies with 1,000 or more employees 59.9 percent of workers belonged to labour unions, up 0.1 point, while the ratio dropped in smaller companies. 
The number of workers engaged in the Spring Offensive has continued to rise, but in recent years the size of the real wage increases they have been able to win has fallen; 1995 also saw a number of unions, for example the Telecom Workers’ Union, announce before entering wage negotiations that they would not be resorting to strike action whatever the outcome.  Not surprisingly, the initial offer and final settlements were smaller than the year before, repeating a trend which has become well established in the 1990s.  Overall, however, management have been able to ensure that wage rises have been paid for in productivity increases. 
It is important to note that this is still a situation in which real wages for employed workers are rising, albeit at a slower rate than in the past. At the same time, unemployment was officially 2.2 percent in 1992 but in reality was probably nearer 4 or 5 percent.  In November 1995 it had reached a record 3.4 percent, the highest since 1953. This represented a true figure of nearer 6 percent. Among young people the rate is much higher, reflecting the standard Japanese strategy of reducing recruitment in difficult periods rather than firing experienced workers. The official rate of 6 percent may translate into 10 or 12 percent in reality. Although all these figures are high by Japanese standards, they are still relatively low by the standards of other developed capitalist countries. As we know from the experience of Britain in the early 1980s, rising real wages combined with the fear of unemployment can lead to bitter isolated struggles but make it very difficult to produce a generalised working class offensive.
It is not true that Japanese workers never go on strike, but they are much less likely to do so than are their sisters and brothers in, for example, Britain. As Table 1 shows, not only was the rate of strikes low in the 1980s but it actually fell rather quickly during that decade.  If one allows for the fact that the working class in Japan is much larger than that in Britain, then the much lower level of strike activity in Japan is even more evident. While the boom of the late 1980s did not follow a series of striking working class defeats in Japan, as it did in Britain, it was nevertheless true that there was a decline in the level of working class militancy.
Table 1: Strike Days in Japan and the UK
Adding to these general problems is the fact that working class organisation is very patchy indeed. In companies with 1,000 workers or more, an average of 58.7 percent are members of unions. In companies in the mid-range, with 100–999 employees, it falls sharply to 23.3 percent. In small companies, with fewer than 100 workers, it is a mere 1.8 percent.  As we saw above, the gap is still widening. Of course, the figure for larger companies includes many workers who are in what are effectively company unions more interested in production targets than representing workers’ interests, but the difference is still very sharp indeed. The problem is compounded by the continuation of the subcontracting system described above. The sharp difference between permanent workers in full time employment in large industries and the mass of workers in smaller industries and services has not disappeared as a result of this. In terms of wages, some estimates even suggest that the gap between rewards in large and small companies has got wider over the last decade.  The internal divisions inside the Japanese working class remain as great as they ever were.
Neither the rapid past growth of the Japanese economy nor its current slowing down are mysterious phenomena only to be explained by the unique properties of the Japanese themselves. On the contrary, the trajectory of Japanese capitalism involves four of the most general features of 20th century capitalism: a measure of state capitalism; combined and uneven development; the permanent arms economy; a divided and defeated working class. These elements have been present separately elsewhere in world capitalism. What was unique about Japan in the epoch of extremely rapid growth was the way in which they were combined together.
This combination gave Japanese capitalism a powerful competitive advantage, particularly as compared with US capitalism, which bore the direct cost of the permanent arms economy, had a state that was relatively reluctant to intervene in the detailed running of the economy, and was already a fully developed capitalist economy. On the back of those comparative advantages Japanese capitalism was able to develop modern industry, to transform the social structure of the country, and to build up a substantial export surplus.
Today Japanese capitalism is paying the price for its earlier successes. World expenditure on armaments has fallen dramatically just as Japan’s own has begun to rise a little beyond the 1 percent limit. While there are still massive unevennesses in the labour market, there is no longer a ready supply of cheap labour that can be sucked in from the land in times of boom and expelled back to the family in the slump. The internationalisation of the economy has tended to make strong state action both less effective and less defensible internationally. The export success of Japanese capitalism has driven up the value of the yen relative to the dollar and forced business to try to find ways of increasing the rate of exploitation. At the same time, Japan has started to export capital and build manufacturing plants elsewhere. These in turn threaten the delicate social peace of Japan as industry is hollowed out in favour of lower cost economies and the threat of unemployment becomes ever more real.
This is the historic crisis which Japanese capitalism faces. It lies behind the headlines of endangered banks and reflationary packages. The current slump is deeper and longer than its predecessors precisely because the resources which enabled Japan to avoid the worst effects of the business cycle in the past no longer operate to the same extent. On top of that historic crisis, there are the consequences of the speculative boom in property prices that marked Japan in the late 1980s. The difficult business of liquidating the bad debts inherited from that period is as much of a problem for regenerating economic growth in Japan as it is in Britain.
It is this history that lies behind the political and social upheavals that occupy so much space in Western newspapers. Again, the doings of strange religious sects, government corruption and incompetence in the face of natural disasters, waves of social panic and continuous political crises are not uniquely Japanese phenomena. On the contrary, they are symptoms of the very real psychic price which must be paid for a successful and integrated capitalism economy. They are evidence of the human cost of the Japanese miracle every bit as much as murderously decaying cities, bomb planting militiamen and wild Christian extremists are evidence of the cost of the American Dream.
In neither case, of course, do these symptoms of social crisis amount to the same thing as class based opposition to the system. There is a long history of such opposition in Japan as much as in the US or anywhere else but, apart from great crises like the aftermath of military defeat, it has always been a minority current.
It is important, however, to be clear about the depth of the crisis facing Japanese capitalism today. There are signs of a modest recovery in the economy, but these come only after six years of deep recession which has persisted in the face of four massive government attempts to restart economic growth. There is every indication that this faltering recovery has come too late. The experience of the longest slump since the Second World War has marked a major change in Japanese life and its effects are felt at all levels.
At the political level the ruling class remains deeply divided. Despite the fact that the government is dominated by one wing of the old Liberal Democratic Party, deputies from another one of the splinters, the Shinshinto, together with deputies from the Communist Party, occupied the Budget Committee Room in the Diet for nearly a month in an effort to prevent the passage of the 1996 Finance Bill. They were responding to popular protests against the plan to bail out the heavily indebted jusen finance houses which are the main casualties of the collapse of property prices after the 1980s boom. On one estimate, the total debts of the jusen amount to $US100 per head for every man, woman and child in Japan.
This political unravelling echoes through all the parties and, similarly to the situation in Italy, is the root cause which has led to the exposure of the illegal activities of the former governing party. The trials and jailings reach right to the heart of the business and political elite. For example, in March 1996, Hiroyasu Watanabe, the former president of Tokyo Sagawa Kyubin Co, was jailed for seven years for his part in a 402,000,000 yen fraud. He had been engaged in illegal dealing with the leaders of the Inagawa-kai crime syndicate, at the behest of Shin Kanemaru, formerly vice-president of the LDP. He wanted the crime syndicate to call off a harassment campaign run by Nihon Kominto, an extreme right wing political grouping closely linked to them, against former prime minister Noboru Takeshita. In return for this political favour, the gangsters got huge illegal payouts. 
The economic effects of the crisis continue to be widely felt. Quite apart from the problems of the jusen, the rest of the banking sector is still in serious trouble.  The jusen themselves are closely linked to the main commercial banks, who continue to carry liability for their debts. The best that banks with huge portfolios of bad debts tied to land speculation can hope for is that the rate of fall in land prices will continue to slow down. Land prices have been falling continuously in the main industrial centres for the last five years. In 1995, in Tokyo itself, residential land prices fell 14 percent and commercial land prices fell 20.3 percent. The Ginza district of Tokyo, a bit like Bond Street and Fifth Avenue rolled into one, remains the most expensive real estate in the world, but even there land prices fell more than 20 percent in 1995. Land there is worth roughly one third of what it could command in 1991. Residential land in Chiyoda-ku, the most expensive in Japan, has fallen from 12,300,000 yen per square metre in 1991 to a current value of 3,300,000 yen per square metre.  The owners (in this particular case former LDP prime minister Toshiki Kaifu), and the banks who funded their speculation, have problems of negative equity which make those in London look negligible. Faced with these problems, banks continue to merge and even to collapse. The closure of the Taiheiyo Bank at the end of March 1996 was the sixth within 12 months. It sent even larger shivers through the financial world because it was a listed bank closely tied to some of the largest of Japanese finance houses.
Of course, none of this spells the end of Japanese capitalism. The long years of accumulation have meant that some sectors of industry, particularly engineering and consumer electronics, are the most productive in the world. The state may no longer enjoy the same close relationship with big business, but it is still in a position to bail out financial institutions which find themselves in difficulties. Above all, Japanese capitalism continues to enjoy the benefits of a divided workforce in which many of the best rewarded sections are organised into tightly controlled company unions who see their main task as improving the competitive position of their firm.
These phenomena will not vanish overnight, although the competitive advantage is being visibly eroded on a daily basis. There is every sign that the Japanese ruling class is preparing to mount an attack on the working class as part of its recovery plan. Contrary to the trend in the 1990s, the 1996 Shunto resulted in a settlement higher than that for 1995. Toyota, the strongest of the car companies, offered 8,700 yen on monthly wages against a union demand for 9,000 yen, but refused to move towards a shorter working week by cutting 20 minutes from the daily hours. This will set the going rate throughout the motor industry, and there will be similar settlements in other major sectors. 
The tradition in Japan is that wage rises are set by sector rather than by company. This works reasonably well in periods of economic growth, but in recessions the weaker companies find themselves under pressure to make lower offers. As one commentator wrote:
Though the metals industries (including steel and autos) quadrupled their productivity between 1970 and 1992, the productivity of other industries only doubled during the same period ... Despite the disparity in productivity, real hourly wages doubled in both the metals industry and the other industries. In fact, the rate of increase was slightly higher in the other industries. 
The public response to this year’s settlement suggests that there will be attempts by the employers to break with the tradition of the Shunto. In the future, there will be attempts to settle wage disputes on a company basis, taking into account the trading position of each firm.
Another major target will be the ‘life-time employment system’. As we have seen, this was always restricted to permanent employees of large companies, and did not include the mass of workers outside this privileged layer. However, even this is proving a burden in the recession. In particular, the fact that wage rates are tied to seniority rather than productivity is now seen as an increasing problem for companies facing increasing international competition. There have already been one or two well publicised attacks on this practice. For example, JAL, the flag carrying national airline, sacked all its permanent cabin staff and rehired them on temporary contracts. It is likely that these sorts of attacks will become more frequent in the future, and attempts will be made to tie wage levels more directly to productivity gains.
It is against this background that we have to consider the prospects for socialist ideas. The tiny handful of revolutionaries in Japan face an extremely difficult task. Socialists still face quite high levels of official repression in both workplace and society. Isolation and persecution together can produce political currents which veer sharply to the ultra-left. In the past this has been one of the problems facing the Japanese left, which has found itself isolated even from the quite large numbers of workers who are disillusioned with the system. Avoiding those traps while still providing a clear pole of attraction to militants looking for alternatives to the relentless grind of increasing productivity will be a very difficult task to undertake successfully.
There are some small signs that the deadening consensus of the past is starting to break up under the pressures of the long recession. Groups who in the past have been silent have begun to make their voices heard. In 1994, for the first time ever, there were Gay Pride demonstrations in Tokyo and Osaka. They were fairly small and not repeated in 1995, but they were a sign that the ideological prison is beginning to crumble. A similar example of the challenge to the central values of Japanese society were a number of small demonstrations by women. Unemployment amongst new female graduates is running at around 50 percent and women are being forced out of the workforce. The demonstrations, protesting against the high levels of sexual harassment at work and in job interviews, represented an unprecedented revolt against an entrenched subordinate status.
Even more significant, although very small in scale, has been a recent revolt against the class collaboration of Japanese unions. A group of workers in Shizwaka Prefecture, disgusted with the supine position of the official trade unions, have recently set up a new ‘General Workers’ Union’. It is tiny, and may yet face the fate of other breakaway unions unable to win large scale support. It is, however, very much a sign of the times. Some sections of the Japanese working class are starting to question the very basics of the system under which they have lived all their working lives and which, until recently, appeared to be unstoppably successful, but is now revealed as vulnerable. Those sorts of developments, although far from challenging the core of Japanese capitalism, constitute real and fresh opportunities for revolutionary ideas to begin to win an audience in the Japanese working class.
1. S. Moffett, Press to Start, Far Eastern Economic Review, 21 December 1995, p. 16.
2. Y. Kobayashi, Japan’s 1996/1997 Draft Budget Aims to Spur Recovery, Reuters News Service, 20 December 1995.
3. H. Sender, On the Chin, Far Eastern Economic Review, 8 June 1995, pp. 40–42.
4. H. Macgregor, Japan to use controversial Cold War law to disband cult, Los Angeles Times, 15 December 1995.
5. R. Skelton, Japan: The Battle on Japan’s Streets, Sydney Morning Herald, 27 December 1995.
6. M. Ishizuka, Japan: Nature’s power – Man’s terror struck amid economic, political chaos, The Nikkei Weekly, 25 December 1995.
7. The Economist is particularly prone to this. Tying itself in knots, it abandons its usual stress on hard money and calls for Keynesian measures to end the recession while at the same time giving regular dire warnings that the collapse of the Japanese banking system is almost upon us.
8. In The Guardian, 17 January 1995.
9. The most developed version of this thesis is the widespread body of writing and thought in Japan called ‘nihonjinron’. In some versions, adherents of this school argue, for example, that there are differences in the functioning of Western and Japanese brains, and even that there are Western and Japanese types of honey bees (P.N. Dale, The Myth of Japanese Uniqueness, Routledge 1990).
10. The Economist, The Shape of the World Today (Hutchinson, 1989), p. 234.
11. M. Ito, The World Economic Crisis and Japanese Capitalism (Macmillan 1990), p. 140.
12. Ibid., pp. 145–46.
13. Whether or not the Meiji restoration was a bourgeois revolution was an important political debate for the Japanese left in the 1920s, particularly for the Communist Party. In the prevailing, Stalinist, atmosphere it followed that if the Meiji restoration had been a bourgeois revolution, then the next ‘stage’ was a proletarian revolution. If, on the other hand, it had been something else, and Japan was still ‘feudal’, it followed that the next ‘stage’ would be a bourgeois revolution. If this was the case, it was logical to find a revolutionary bourgeoisie to ally with and to subordinate the interests of the working class to that end. See G. Hoston, Marxism and the Crisis of Development in Pre-war Japan (Princeton University Press 1986). The same issue also became important for the US, although in rather a different way. The occupation government (SCAP) started its reign with a commitment to democratising Japanese society. In this it was partly influenced by the leftist academic E.H. Norman, who argued that the Meiji restoration had been fundamentally authoritarian and undemocratic. The policy which followed from that was a radical break with the old order. Under the pressures of working class militancy, and later the Cold War, SCAP started to look for local allies. An alternative theory, most associated with E.O. Reischauer, stressed the democratic elements in the pre-war period, thus sanitising a section of the Japanese ruling class with whom it would be possible to collaborate. See J Dowers’ introduction to the extremely interesting collection of essays by Norman in J. Dower (ed.), Origins of the Modern Japanese State: Selected Writings of E.H. Norman (Random House 1975). For a summary of the main debates from a Marxist viewpoint, see Colin Barker’s unpublished paper, Japan: Background and Significance of the Meiji Restoration of 1868.
14. This argument about the nature of a revolution being determined by the historical problems that it carried out was best developed by T. Cliff in a classic article which is regrettably long out of print. In it, he argued that the classic tasks of the bourgeois revolution, including national development, had in practice been carried out by a number of different social forces, particularly by the Stalinist parties that came to power in developing countries. It followed that one of the main functions of state capitalism was to carry out precisely the historical tasks undertaken by the bourgeoisie in earlier revolutions. Notably, the forced industrialisation so characteristic of state capitalist regimes had as its closest historical parallel the primitive accumulation of capital by the classic bourgeoisies in Britain and elsewhere. The parallel between the development of capitalism in Japan and the trajectory of state capitalism proper is a suggestive one which will recur at various points in this article. Although it is useful both to help understand the nature and dynamics of Japanese capitalism, it is important not to push the analogy too far. Japan is a quite different kind of historical formation than, say, China or North Korea. Japanese capital and the Japanese state are very heavily intertwined, but they are not identical.
15. S. Vlastos, Opposition Movements in early Meiji, 1868–1885 in M. Jensen (ed.), The Cambridge History of Japan: Volume 5, The Nineteenth Century (Cambridge University Press 1989), p. 382.
16. J. Halliday, A Political History of Japanese Capitalism (Monthly Review Press 1975).
17. Ibid., p. 82–96.
18. Ibid., pp. 116–140.
19. N. Bukharin, Imperialism and the World Economy (Merlin Press, 1972). He wrote: ‘A successful war requires that factories and plants, mines and agriculture, banks and stock exchanges – everything should “work” for the war ... The exigencies of war, and of imperialist preparations for war, force the bourgeoisie to adopt a new form of capitalism, to place production and distribution under state power, to destroy completely the old bourgeois individualism’ (p. 155).
20. To be convinced of that one only has to consider the most elementary figures. The key weapon in the Pacific war was the fleet aircraft carrier. Between Pearl Harbour and surrender, Japanese industry completed none of these complex and expensive ships. United States industry completed 32.
21. Still the best account of this, in our opinion, is that provided by M. Kidron in Western Capitalism Since the War (Weidenfeld and Nicholson 1968).
22. Kidron’s elegant statement of the case runs thus: ‘In so far as capital is taxed to sustain expenditure on arms it is deprived of resources that might otherwise go towards further investment; in so far as expenditure on arms is expenditure on a fast wasting end product it constitutes a net addition to the market for “end” goods. Since one obvious result of such expenditure is high employment and, as a direct consequence of that, rates of growth amongst the highest ever, the dampening effect of such taxation is not readily apparent. But it is not absent. Were capital left alone to invest its entire pre-tax profit, the state creating demand as and when necessary, growth rates would be very much higher. Finally, since arms are a “luxury” in the sense that they are not used, either as instruments of production or as means of subsistence, in the production of other commodities, their production has no effect on profit rates overall’ (Ibid., p. 39).
23. Ibid., p. 40.
24. T. Uchino, Japan’s Postwar Economy (Kodansha International 1983), pp. 56–57. The ‘Dodge Line’ or ‘Dodge Plan’ was a policy of severe deflation imposed on the Japanese economy by US ambassador Joseph Dodge. Among his notes on his objectives was one of those phrases which ring with the irony of history: ‘Get the country into hard condition for the struggle in the export market ...’
25. C.D. Elston, The financing of Japanese industry, Bank of England Quarterly Bulletin (vol. 21, no. 4, December 1981), pp. 510–518.
26. W. Eltis, The Lessons for the UK and for Europe from Asian Hyper-Growth, Gresham College lecture, London, 29 April 1994, chart 1.
27. M. Cusumano, The Japanese Automobile Industry (Harvard University Press 1985), pp. 241–261.
28. A. Ernst, The Changing Nature and Persistence of Dualism in the Japanese Labour Market, IFO Digest, 3/92, p. 30.
29. M. Ito, op. cit., p. 151.
30. Ibid., p. 149.
31. Ibid., p. 182.
32. Figures for the 1960s and 1970s taken from Fuji Bank Bulletin, March–April 1988, p. 2. Figures for the 1980s taken from W. Eltis, op. cit., chart 1.
33. Y Sasajima, Labor in Japan (Foreign Press Centre, 1993), p. 19.
34. S. Cockerill, The Japanese miracle explodes, Socialist Review, Issue 54, May 1983, p. 22.
35. J. Woronoff, Japan: the Coming Economic Crisis (The Lotus Press 1981), p. 240.
36. Brittan Urges Cooperation With Japan: US trade approach said dated, The Japan Times, 22 March 1996, p. 7.
37. J. Choy, Japan Economic Institute Report (Japan Economic Institute of America, October 6 1995). One dispute, for example, has the US government protesting that ships are not unloaded in Japanese ports on weekends. This scandalous interference with free trade arises from the fact that Japanese dockworkers had won a contract which gave them weekends off.
38. See C. Kossis, A miracle without end? Japanese capitalism and the world system, International Socialism 2:54, pp. 106–110.
39. E. Graham and N. Anzai, The myth of a de facto Asian economic bloc: Japan’s foreign direct investment in East Asia, Columbia Journal of World Business, Fall 1994, vol. 29, number 3, pp. 16–21.
40. H. Sender, Nippon’s Choice, Far Eastern Economic Review, 8 June 1995, pp. 38–40.
41. M. Cusumano, op. cit., pp. 267ff.
42. J. Crump, The Origins of Socialist Thought in Japan (Croom Helm 1983).
43. S. Garon, The State and Labor in Modern Japan (University of California Press 1987), pp. 39ff.
44. Ibid., p. 225.
45. M. Farley, Labor Policy in Occupied Japan, excerpted in J. Livingston, J. Moore and F. Oldfather (eds.), Postwar Japan: 1945 to the Present (Random House 1973), p. 141.
46. J. Moore, Japanese Workers and the Struggle for Power: 1945–47 (University of Wisconsin Press 1983). This is a book well worth reading.
47. H. Bix, American Labor and Japanese Unionists, Livingston et al. (eds.), op. cit., pp. 172–173.
48. T. Uchino, op. cit., p. 52.
49. A. Cole, G. Totten, and C. Uyehara, Labor and the Red Purge, Livingston et al. (eds.), op. cit., p. 175.
50. J. Halliday, op. cit., pp. 217–220.
51. A. Gordon, The Evolution of Labor Relations in Japan (Harvard University Press 1985), pp. 339–366.
52. Ibid., pp. 367–411.
53. M. Cusumano, op. cit., p. 156.
54. See R. Mouer and Y. Sugimoto, Images of Japanese Society (KPI 1986), pp. 106–115.
55. Y .Sasajima, op. cit., p. 56.
56. JIJI Newswire, 26 December 1995.
57. H. Kato, Unions take no-strike vow before wages talks, Nikkei Weekly, 25 February 1995.
58. F. Sumio, Record low wage hikes expected in key industries, Nikkei Weekly, 27 March 1995.
59. M. Greiner, C. Kask, C. Sparks, Comparative manufacturing productivity and unit labor costs, Monthly Labor Review, February 1995, vol 118, number 2, pp. 26–39. [C. Sparks is no relation to one of the current authors] .
60. Y. Sasajima, op. cit., p. 16.
61. Figures from a private communication from Mark Baxendale.
62. Y. Sasajima, op. cit., p. 56.
63. Y. Sasajima, op. cit., p. 47.
64. Ex-Tokyo Sagawa chief gets seven years in prison, The Japan Times, 23 March 1996, p. 1.
65. G. Barker, Humbling of the giants in Financial Times Survey: Japanese Financial Markets, The Financial Times, 28 March 1996, pIII.
66. Commercial Plots Plummet: Land prices in main urban areas fall for fifth year, The Japan Times, 22 March 1996, p. 2.
67. Wage talks reach climax as key sectors offer raises, The Japan Times, 22 March 1996, p. 1.
68. T. Tsuyoshi, It’s time to change the shunto system, The Nikkei Weekly, 11 March 1996, p. 7.
Last updated on 7.4.2012