The phenomenon of the Japanese investment hub and supranational institutions
An analysis of many processes will be incomplete without a description of the unique economic model that has developed in Japan. The country, which has long been firmly identified as a direct and staunch vassal of the United States, has been one of the world's main suppliers of direct investment and technology for decades.
US vassal
In the early 1990s, when the author was studying, the Japanese model was still described as the “American-Japanese financial system.” There was undoubtedly a significant amount of truth in this at that time, but today this unity is no longer so much American-Japanese as supranational.
Japan has occupied its unique niche not only in the global division of labor, but also in the new supranational investment system. And this niche is worth paying attention to its role and features.
Analysis of the Japanese model allows us to get a good feel for the extent to which projects that can be called geopolitical or, less pretentiously, foreign policy, are secondary in relation to the work of the supranational investment system. And also understand the difference in the very logic of investment management of the new order and foreign policy management.
Japan is a good example when a role in the global investment system and a foreign policy course, imposed depending on the political situation or formed from within, may not only not coincide, but for some time simply have opposite vectors.
And when the discrepancy reaches certain critical values, then the position of the supranational investment system turns out to be primary, and foreign policy is secondary. This can be seen not only in the Japanese example, but in Japan it is expressed quite clearly. And having looked at the example of Japan, we can see where this system allows the foreign policies of countries and groups of countries to clash with ambitions, and where it harshly reins them in and places the players in their places. We, Russia, here, alas, are by no means an exception to the rule.
Economic model
The modern economic model of Japan took shape by the mid-1990s, and the process of its formation took about 12 years. It is not a revelation that from the mid-1980s to 2010, Japan occupied a leading position in the so-called manufacturing sectors. "high technology".
Another thing is that this is not the sphere of the IT segment familiar to today, but rather the production of high-tech hardware. However, a very important nuance of the Japanese model was that it was not only and not so much the production of the latest, for example, electronics, but a kind of international (mainly American) testing ground for testing and adapting technologies to increase labor productivity.
In fact, the United States brought to Japan some of the patents and conceptual solutions, which were then processed into electronic components and adapted for production management in a broad sense. This is how, in fact, not only the Japanese automobile industry took shape, but also, for example, technologies for drilling, filtration, and pumping oil and gas raw materials were developed.
Some of them went back to the markets of the USA and Europe, some were turned into production in Japan and into finished products for export. Actually, the advanced “electronic comfort” that the Japanese product provided to the consumer was an organic consequence of the role assigned to Japan as a testing ground for productivity growth.
The United States has not developed such a symbiosis with any other country. A similar niche was not occupied by Germany, Great Britain, South Korea, which came in second, and especially China.
The level of trust between the United States and Japan has always been very high. It took shape over many decades and was largely based on the fact that Tokyo was a reliable supplier for the US military-industrial complex in all military conflicts with American participation. The Japanese provided the States not only with sites for military bases, but directly with military products or their components. The states provided orders and patents.
This cooperation expanded, especially since during the Cold War Japan was a weak source of technology for the USSR. We took more through military intelligence and espionage in the United States itself than from its hardworking and cautious satellite, although sometimes Moscow managed to obtain masterpieces of Japanese machine tool construction.
The merging of the American military-industrial complex and the Japanese industrial base was not the only factor, but it was one of the main factors, and when cooperation reached full speed by the early 1980s, this required the inclusion of Japan in the American investment cycle. This set in motion major financial reform in Japan that continued throughout the 1980s.
It is generally accepted that the United States is highly dependent on external financial resources. It is already a kind of axiom that the United States collects from all over the world a kind of “dollar tax” on which it builds its economy. In reality the situation is more complicated.
The main source of industrial development is capital investment, including foreign direct investment. However, it is precisely in terms of the volume of imports of foreign direct investment that the United States has never been a world leader, preferring to raise funds from the domestic market. Even as of 2021, cumulatively since 2000, foreign direct investment attracted by the United States did not exceed 21% of total capital investment - $5,1 trillion. Japan is number one in foreign direct investment in the United States with a share of 15%.
Here, by the way, it will be interesting to compare the American economy with its volumes and the economy of our Fatherland, where the same indicator cumulatively amounted to 2,7 trillion dollars or 65% of total capital investments. This is just another confirmation of the thesis that we are in fact totally dependent on the import of capital. It is clear that we do not print the main reserve currency, but Japan does not print it either. Nevertheless, Japan is a leader in the export of direct investment and one of the outright outsiders in its import.
Japanese corporations received maximum independence in the United States, being only indirectly connected with US financial corporations and banks, which is very rare. On the one hand, the Japanese financial sector regularly funneled funds into American government debt with long maturities, and Tokyo is still the all-time leader in this indicator. However, the peculiarity of Japan's financial model as a result of the reforms of the 1980s allowed Tokyo to take the lead in direct investment not only in the United States.
How is this possible if there is no special involvement in the American printing press, although it is clear that the United States supported the demand for Japanese goods?
Japanese phenomenon
The fact is that the reform was initially aimed at creating national vertically integrated systems. Each of the five “old” family-clan corporations had already been divided into technological niches and subsegments.
Around each of them a complex of almost full-cycle enterprises was built, while the United States not only did not clamp down on patents, but directly helped to lend to Japanese corporations to purchase patents, which the Japanese bought from all over the world. Servicing banks and a superstructure of trust banks were built under the holdings.
The resources of the personnel, whose numbers already resembled a mini-state, were used for the needs of corporatization of companies. If you look at it, at one time the entire country supported the shares of its national corporations with its savings. At the same time, the above-mentioned labor productivity associated with the introduction of advanced electronics and management in the early 1990s was already growing at an incredible +10–13% per year, and the key market niches were the most promising and in demand.
The consequence was an avalanche-like growth of the stock market in Japan, and by the early 1990s, dozens of Japanese corporations, which were immediately formed as industrial and financial structures, firmly entered the world TOP. Simply put, half of the world stock market at that time was occupied by Japanese corporations.
The government responded by raising taxes, the total rates of which exceeded 60%, which triggered a rise in living standards and social reforms. Lending requirements have been revised.
The problem of rush demand from investors has traditionally been an inflating bubble, which deflated within a few years by 1995. This greatly shook the entire Japanese economy, created major problems with the public sector, but in turn released accumulated private investment resources onto foreign markets.
Despite all the problems with public debt, budget deficits, and the difficulties of subsequent borrowings, the Japanese corporate sector has been and remains one of the leaders in the export of not only high-tech products, but also direct investment. In order to use accumulated reserves in this way on a deflating stock market, one really had to have some kind of special Japanese thinking and worldview.
It is clear that the state in Japan in such a situation became, if not an antagonist for corporations, then certainly not a close comrade, but the peculiar corporate culture allowed the private sector of Japan to quickly return to its high standard of living.
For example, the standard of living between the richest and poorest regions in Japan differs by only 2 times. Or by the level of wealth stratification: rich and super-rich - 8%, middle class... 90%. For example, in our country: the rich and super-rich - 0,6%, the middle class - 19%, everyone else - “somewhere there”.
The result for Japan was that corporations became, firstly, the largest direct investors in the world economy after the United States, with an accumulated investment volume of $5,1 trillion.
Secondly, they still retain significant reserves due to an extremely conservative dividend policy and support from the population working for them.
Thirdly, they are constantly in a certain opposition to government spending, but at the same time they themselves maintain a fairly high standard of living in society. More importantly, corporations are now an integral part of what can be called the supranational investment and financial system, since Japanese investment is one of the pillars of the investment cycle as a whole.
What is the difference between the Japanese investment base, the current volume of which, according to various estimates, today is 750-760 billion dollars, from the base, for example, the Arabian one, which is located in their sovereign funds? The fact that the Arabian resource is less flexible in use, in many ways still lies unopened and is replenished from surplus oil exports, and accordingly is spent on permanent budget deficits.
And the Japanese investment base is a factor in launching economic activity where the international investment and financial system requires it. Who was the first to launch investments in the USA and China after Covid? Japanese corporations. Who immediately picks up urgent investments in hydrocarbon production? Japanese corporations. Who will urgently reinvigorate the tech sector after financial turmoil? They are.
The Japanese model is not independent of the international system, but it is quite independent and fulfills its role. Japanese corporations were among the first to reach the supranational level and merge with a system where the determining factors are no longer monetary authorities, but transnational investment holdings. Transnationals reciprocate the Japanese by allowing them to take over large shares in such areas as biotech, neural networks, data processing, and artificial intelligence.
This was the transformation of the concept of the so-called. The “Washington Consensus” since the mid-2010s - investment funds have come to the fore ahead of monetary institutions, and the Japanese have been ahead here for objective reasons. They lost their share of the stock market as a whole, but occupied their niches in the industrial and information sectors, and received their own special functionality as a driver of economic activity in the regions and areas needed by the system. Accordingly, they acquired actual political and sanction immunity.
Here you can trace how the management of international finance has grown into the management of the cost and structure of the economy, and has already acquired a completely supranational character. We mainly hear about the various steps of our financial authorities, whose frontmen are the heads of the Central Bank and the Ministry of Finance.
But if you look at it, at the top of the economic pyramid there are now investment giants who manage the value of share capital and actually rewrite the value in different sectors. It is necessary, they transfer value to the biotechnology sector and accelerate it, it is necessary - to the IT sector, it is necessary - to support the raw materials industries.
It is clear and visible to the naked eye that all these methods, approaches and solutions are only being developed, and this system cannot yet fully balance the costs between regions and economic sectors. But it does this more and more persistently and wider in scope, while often coming into conflict with political projects, national elites and the interests of states. And the further it goes, the more effectively it puts restrictions on them.
Private central banks
The IMF and Central Banks, which are now either private or public-private, in fact, already act as institutions that primarily support and ensure demand. They already have a very indirect relationship to investment activity. This is not only here, it is like this everywhere. But for now, out of inertia, we continue to talk about world financiers, monetary authorities, the dollar system, although this is already de facto management of investors, it’s just that management is also supranational.
Therefore, we are surprised to hear again and again in Russia that “economic development is impossible” without foreign direct investment. In their paradigm, this is indeed the case, since the investment cycle in this model is launched not by financial authorities, but by investment funds. Central banks and their head office, represented by the IMF, support demand and control inflation. There is no investment, which means that injections into demand in this model for central banks only result in inflation.
In this regard, it is possible to scold the financial authorities both in the world and here, because they are part of the supranational system and therefore do not belong to national groups in politics (try scolding someone other than the financial authorities), but do it according to the same reason is completely useless.
It is unlikely that the national elites of Japan and political circles associated with US geopolitics expected that they would have to be at the forefront of the transformation of the monetary system into an investment-financial system with its strict distribution and accrual of value across industries.
As a result, the Japanese elite, who sometimes also want to play in foreign policy, are thrown back quite harshly by the system. But the population as a whole feels relatively good.
We, like many other countries with still expressed national interests, have yet to decide how we will coexist with this system. So far everything looks as if we are trying to imitate a fight, and even here it’s somehow not very successful.
Information