High-water mark: police comb a beach near Fukushima for bodies, following the 2011 tsunami. Photo: Jeremy Sutton-Hibbert/Getty Images.
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Staying power: the seemingly exceptional economics of Japan

2013 was the year the world’s financial markets suddenly became interested in Japan again.

Bending Adversity: Japan and the Art of Survival
David Pilling
Allen Lane, 432pp, £20

Until December 2012, Japan was proverbial in the City as the graveyard of global investors. It seemed impossible to get right. How many false dawns on its stock market had the optimists endured over the two “lost decades”, since the collapse of its great bubble in 1990? Then again, how often had the pessimists – warning of imminent default, as Japan’s pile of government debt grew bigger and bigger – turned out to be crying wolf? A frustrated fund manager of my acquaintance summed up the way in which many financial types had come to think of Japan: “I don’t understand what is happening there and I never will: sometimes, I wish it just didn’t exist.”

Yet Japan continued to exist – and despite its lost decades was still the world’s largest creditor nation, its third biggest economy and the undisputed technological leader in a whole host of its most important industries. This apparent paradox has been troubling visitors for years. In the middle of David Pilling’s new book there is a photograph of Tokyo’s dazzlingly futuristic neon cityscape at night. “If this is a recession,” said a visiting politician who witnessed this sight with Pilling, “I want one.” Somehow, Japan has managed to remain both a byword for economic catastrophe and an object of economic emulation. No wonder my friend was so baffled.

The trouble is that Japan resists simplification, and the risk for any book about it is, therefore, that it resorts to caricature. That is a danger for a book about any country, of course. But it is a special risk in the case of Japan, with its confusing economic paradoxes – to say nothing of its white-gloved taxi drivers, its Tamagotchis and its musical loos.

Pilling – a Financial Times journalist who was the paper’s Tokyo bureau chief from 2002-08 – is not just alert to this danger. He turns it to his advantage.

To begin with, he confronts Japan’s supposed exceptionalism head on. It is a notion dear not just to orientalising westerners but, he explains, to many Japanese too. Pilling locks horns with some of the most obsessive proponents of nihonjinron – the study of Japaneseness – whose fanatical claims sound hollow next to his disarming irony. The real ingenuity in Pilling’s approach, however, is not to attempt the impossible task of capturing in a single, seamless portrait the essence of Japan but to assemble instead a highly readable collage of evocative vignettes, drawing on historical episodes and his own experience.

The core of the book consists of four sections. The first explains how Japan’s history before the Meiji restoration and in the early 20th century led to its isolation from the rest of Asia. The second covers the decades of Japan’s economic miracle after the Second World War. The third is an exploration of “Life After Growth” – a series of despatches from the Japan of the 2000s, whose economic and demographic stagnation at high levels of wealth and income have recently begun to haunt the west. The last concerns the important implications for Japan of China’s rise.

The overarching theme is that the puzzling combination of an alleged economic depression with exceptional economic success is just the beginning of Japan’s complexities. The Second World War, for example, left westerners convinced that the Japanese were innately totalitarian, and the seemingly inexorable advance of its monolithic zaibatsu (business conglomerates) confirmed them in this prejudice. Pilling quotes the Meiji-era reformer Yukichi Fukuzawa to remind us that, in reality, Japan had a liberal political tradition as venerable as that of many other countries, even if it could be expressed in apparently self-contradictory terms: “the feudal system is my father’s mortal enemy which I am honour-bound to destroy”.

Pilling might equally have plucked a line or two from the poignant letters written by young Japanese pilots to their families during the war in the Pacific. “I am very proud of being chosen as a kamikaze pilot,” wrote one, but “if I listened only to my reason . . . I would know that freedom is certain to triumph in the end. Perhaps I might be reproached with ‘liberalism’. But freedom is the very essence of human nature and cannot be annihilated.”

Yoshi Imagi, the young man who wrote those words in his last letter, before crash-diving his aeroplane on to an American warship in May 1945, knew that the Japanese are not innately different from anyone else. They just live under different institutions.

In the nationalist era those institutions were murderous. In the postwar period, Japan developed a new set of institutions that were equally unusual but much more benign – most famously, the unique corporate system that served as the basis of its economic miracle. Here, too, western prejudice was quick to chalk up Japanese success to racial difference or “Asian values”. But again the truth is that it was really down to the deliberate choice of different, and more efficient, practices – as their later adoption by western firms confirmed.

Yet there is one aspect of Japanese society that Pilling believes is unique. This is the quality of resilience to which the book’s title, Bending Adversity, alludes. To illustrate this point, the core of the book is bracketed by two sections that describe in compelling detail the catastrophic tsunami that devastated Japan on 11 March 2011, and the extraordinary achievements of the Japanese in overcoming its impact and aftermath.

The hardships that the Japanese endured were awful. Whole communities were wiped out in the north-east. The disaster at the Fukushima nuclear plant prompted the shutdown of Japan’s entire nuclear power industry almost overnight. Yet the country coped. There was no Hurricane Katrina-style breakdown of civil order in Tohoku. Japan’s ultra-modern metropolises instantly adapted to life without lifts and air-conditioning.

The stories have visceral power and are beautifully told. They also give a book that is deliberately fragmentary a satisfying narrative arc. If there is a key to Japan’s history, Pilling argues, it is in its phenomenal ability to turn calamity to advantage.

Pilling’s command of structure is enviable. His sense of timing isn’t bad either. The year 2013 was the year when the world’s financial markets suddenly became interested in Japan again. After 20 years of half measures, the Japanese elected a prime minister in December 2012 – Shinzo Abe – who promised to do things differently. A new governor at the Bank of Japan promptly embarked on the most aggressive programme of monetary easing the world has yet seen.

The Japanese stock market rocketed and the yen collapsed. The consequences for the rest of the world have yet to be fully parsed. But my friend the fund manager is already tearing his hair out at this latest surprise from Japan.

Now I know how to console him: I will give him a copy of David Pilling’s book.

Felix Martin writes the “Real Money” column for the NS. He is the author of “Money: the Unauthorised Biography”

Macroeconomist, bond trader and author of Money

This article first appeared in the 29 January 2014 issue of the New Statesman, The seven per cent problem

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit