Globalization and Regional Dynamics

In April 1997, the Japanese economy, which had suffered from a depression that had dragged on since since March 1991, was struck by a new crisis. At the end of 1997 Korea too was hit by a currency and financial crisis. This simultaneity is the primary phenomenon in the bilateral economic relationship between Japan and Korea since the end of the Second World War, i.e., since the founding of the Republic of Korea in 1948. When we consider this remarkable circumstance, the question immediately arises as to whether the simultaneity should be seen as a coincidence or a determined event.

For a long time the opinion was expressed both in Germany and in Europe as a whole that the Pacific Basin was developing into the center of gravity of the world economy. It was said that this region was about to replace in part the North Atlantic region (western Europe and North America), dominant for the past two centuries, as the driving force of technical progress and world economic development (See Willy Kraus, Wilfried Lütkenhorst, “Atlantische Gegenwart— Pazifische Zukunft? Anmerkungen zur wirtschafts- und außenpolitischen Orientierung der USA”, in: Asien, Deutsche Zeitschrift für Politik, Wirtschaft und Kultur, January 1984, No. 10, pp. 5–21; Wilfried Lütkenhorst, Konzepte einer wirtschaftlichen Kooperation zwischen Industrie- und Entwicklungsländern im pazifischen Raum, Bochum: Institut für Entwicklungsforschung und Entwicklungspolitik, Materialien und kleine Schriften, Nr. 92, 1982). The Pacific region was said to be in any event on the point of overtaking Europe, to the extent that in certain areas this had not already occurred. The potent phrase about the coming of a Pacific Century was also repeatedly expressed, not infrequently with reference to Arnold Toynbee’s prediction that from the twenty-first century on, a flourishing Asian civilization would arise.

Globalization has various aspects, including the social, economic, and historical. Human and social history is in general the history of the globalization of human and social activities in the world. Because of the fall of the system in Eastern Europe, the abolition of the East-West barrier throughout the world, and the liberalization of economic activities, the globalization of humankind has reached a new height. But if we want to be precise, the collapse of the centralized Soviet regime has merely created a new set of basic conditions for globalization. One of the most recent aspects of so-called globalization is the globalization of the financial world. This financial globalization has been too quickly and too one-sidedly promoted by technological advances, particularly in the area of the microelectronic revolution. One consequence of market fundamentalism and of the euphoria of the Western world was the Japanese “bubble”. The peak year of the “bubble” was 1991. Two years after the fall of the Berlin Wall and immediately after the collapse of the Soviet Union, the Japanese overinvested. An overcapacity was produced in Japan, because the collapse itself created no large, adequate markets. This unilateral type of globalization is not successful. The victory of so-called global capitalism has lost its aura over the past several years. The collapse of the so-called “emerging markets” (arising or entering markets) and their repellant effect on advanced economies does not of course mean the end of globalization. But it is certainly the end of an era. Now it is necessary to steer the present type of globalization in a rational direction through international cooperation.

During the entire post-World War II period the international monetary and financial system has been shaped to a significant degree by the United States of America having the status of the leading economic power. An impressive indication of this superiority is the fact that the US dollar is acting as the only currency of outstanding international importance. Despite the fact that the Deutsche mark and the Japanese yen internationally gained ground in the course of the last two decades, the US dollar was ahead by a wide margin, and the US acted as the only economy that had to a considerable degree to cope with both the beneficial and the disadvantageous effects emanating from the issuance of an international currency. The process of European integration and especially the introduction of the euro as the single currency for the 12 present member countries of the EU in 1999 may alter this clear currency hierarchy. The euro area is comparable in size to the US with respect to GDP and even exceeds the US regarding the share in world trade. Thus questions arise of whether the international monetary system will turn out to be bipolar in the long run or whether the yen can also play its part.

It is my task to report on the “Effects of Globalization and Crisis upon Competitive and Cooperative Relationships in Asia” from the Japanese perspective. Since I find this topic far too broad, I should like to limit myself to one example, the electronics industries in Japan and in East Asia. By East Asia I mean not only Northeast but also Southeast Asia. The electronics industry, one of the main driving forces behind the “East Asian Miracle,” is playing the leading role in the revival of productivity after the recovery from the Asian Crisis. In other words, it is functioning as one of the most important factors in the recovery from the crisis and the stabilization of the economy. Within the framework of the globalization of this industry up to the 1990s, an international system for the division of labour in East Asia arose, which had its centre in Japan, and which is closely involved with the competitive and cooperative relationships of the electronics industry in this region. The Asian Crisis and the long–lasting weakness in the business cycle of the Japanese economy are also having severe effects as destabilizing elements within this system of division of labour upon the structure hitherto found in the electronics industries of Japan and East Asia. Thus viewed, the electronics industry offers some helpful illustrations for our topic.

China, as well as Japan, is increasingly regarded as one of the dominant national economies in the East and Southeast Asian region. Japan, which produces about 70% of the entire GDP of Asia (computed in U.S. dollars), possesses the highest savings in the world, and stands at the pinnacle of technology, tends, to be sure, to exercise restraint and prefer subtle methods in extending its influence beyond its borders. China, on the other hand, has adopted an ambitious posture, considering its present economic power, and is unmistakably pressing its claim to be a leader. In any case, both these national economies belong to countries which have the basic ability, in their own opinion and that of their partners and competitors around the world, to position themselves to their best economic advantage and to take on important economic leadership functions. To what extent this will actually happen depends not least upon how they come to terms with the symptoms of crisis of recent years and with the challenges of increasing globalization processes. The following comments will deal with these questions.

Japan’s economy has now begun to a certain extent to rise out of the low point in the business cycle. But its unemployment rate at the beginning of 1999 has already surpassed that of the USA and is still rising. Japan was long famous for its low unemployment rate, and the “Japanese employment system” was often praised in connection with it. If one surveys Japanese unemployment in a longer temporal context, it is easy to see that the unemployment rate, given the modest fluctuations in the business cycle, stayed below 3% through the first half of the 1990s, but in the second half of the 1990s showed a rising trend of from 3% to 4% (see Table 1). Now it has reached its highest point since historically comparable figures for unemployment were first recorded in Japan, in 1953. It can be presumed that along with this rising unemployment rate, significant changes in the employment market or the employment structure will occur in Japan. Let us start with a look at the various aspects of this experience—for us, the first—with high unemployment.

In the May 1997 issue of the “World Economic Outlook” from the International Monetary Fund, the phenomenon of globalization is accurately describe as an increasingly international integration of markets for goods, services and capital. The globalization processes are presented as a reoccurence of developments in the world economy, which have been observed for more than the past hundred years.

During the last few decades, Japan has often been called one of the “economic great powers.” This was a source of much satisfaction to many Japanese. However, they were usually indifferent to the implications of the term. It would be too snobbish to take satisfaction in an epithet like “great power” if it were based only a country’s fulfilment of some limited criteria of modern economics. Nowadays, the basic framework of modern business and employment is drastically expanding beyond the confines of national borders, but the basic concepts of modern economics have been established within the boundaries of the national economy. These days, an economy which is unable to take such matters into consideration could not be called a driving force within the world economy. If Japan had not prepared adequate human resources and multinational systems, as required for its multinational activities in the process of its economic growth, it would merely have deserved to be called a pseudo-great power.

Most publications on the Asian financial crisis have considered this period as an isolated event without acknowledging that it is embedded in a wider set of developments that can be summarised under the terms of globalization, technological and economic development and restructuring of institutions.

The 1990s have been difficult years for the Japanese economy, especially in the light of the collapse which began in 1997. In this paper, I shall attempt to survey recent economic trends in Japan since 1997. In order to do this, however, it will also be necessary to reflect upon processes ongoing since 1990.¹

The traditional definition of a national financial system is one subordinated to state regulation, in a state comprising a unified currency zone and with no restrictions upon the movement of capital within its borders. However, such a definition is no longer consistent with current realities. Nowadays the free movement of capital is no longer confined by national borders. Among the nations of the European Union, the movement of capital is completely free. Furthermore, among all the developed industrial nations of the world, and increasingly even among threshold nations and transforming nations, there presently exist hardly any restrictions upon capital movements. Moreover, in Europe the equivalence of currency zone and national territory has also ceased to be a practical reality.

Professor Hiromi Arisawa was my father figure in academic life and my mentor on my path through life. I became his student in 1949 and have been his disciple ever since. All my academic work is based on the instruction I received from Professor Arisawa in my student days. It is deeply gratifying for me to speak about the Professor’s life and work, with special emphasis on his relationship to Germany, at this meeting before so many of his old friends. Professor Arisawa was born in 1896 in the city of Kochi on Shikoku and passed away in March 1988 at the age of ninety-two. During the first half of his life he experienced many ups and downs, but the second half was an unbroken success. He served as the President of the Japan Academy for six years after 1980. Throughout his long life, he maintained strong ties to Germany. Professor Arisawa completed his studies in the Department of Economics at Tokyo Imperial University and was then appointed as a research assistant in the area of the theory of political economy. The following year, Professor Emil Lederer arrived in Tokyo as a guest professor at the university. Professor Arisawa served as a research assistant to Professor Lederer, who recommended that his young assistant, who had become a friend as well, should come to study at his own university, in Heidelberg. Professor Lederer accompanied his assistant on a trip to Kyoto and Nara, where Professor Arisawa stayed in a western-style hotel for the first time.