Post-war Japan through diligence, co-operative effort, internal stability and US protection developed a deep industrial base in many - but not all - parts of its economy.

The result was a modern export-oriented sector in steel, heavy engineering, autos, shipbuilding, capital goods and electronics - alongside a massively protected domestic sector including agriculture, property development and construction, retail and wholesale trade and financial services.

This model allowed Japan by the mid-eighties, to accumulate a huge trade surplus which dramatically appreciated in 1985 after the Plaza agreement to increase the value of the Yen against the US dollar.

This led to the 1985-1990 bubble in which the Japanese who had been highly successful at accumulating wealth, proved disastrous at investing it.

The bubble had three elements:

A ludicrous property boom in which land prices reached crazy levels (Tokyo's imperial palace was valued at more than the state of California). Japanese financial institutions led by the banks lent for all sorts of developments - golf courses, amusement parks, office blocks - with little regard for return on investment, quite often in league with criminals.

A stockmarket boom, that drove the Nikkei to just under 40,000, with no regard for price:earnings ratios, in the belief that Japan had discovered a new and almost magical system. But the stocks boom was underpinned by share ramping and other illegalities.

A boom in overseas property development as the Japanese construction and finance industries went offshore looking for development opportunities and trophy assets. Australia was particularly affected by this as our eighties property boom showed.

The resulting bad debt problem was never directly confronted in Japan - unlike in the US, the UK and Australia which had smaller bubbles. Japan instead adopted a policy of government bailout by public works spending. Low interest rates were pursued to try to expand the economy out of its debt problem.

A second bubble in Japanese lending took place from 1990 to 1997. These loans went to other Asian economies, for Japanese manufacturing investment and for a regional property boom. Bangkok, Kuala Lumpur, Jakarta, Hong Kong, Shanghai and Singapore all felt the flow of Japanese money looking to recoup the losses of the first bubble - like a desperate gambler doubling up to try to win his money back.

This ended in the 1997-98 Asian financial crisis as panicky Japanese banks pulled money out of Asia - realising too late that the mistakes of the Japanese bubble were being repeated. This added a second round of debt to Japanese banks and their clients.

The third bubble from 1998-2001 has been centered on the high tech industries as part of the bigger US bubble. In Japan this is best symbolised by Maseo Son. The value of his company fell from US$190 billion in February 2000 to under US$25 billion 12 months later. The main backers of this bubble were Japanese insurance companies who squandered their reserves in pursuit of easy money.

Thus Japan in 2001 finds itself in a very dangerous state with a completely unbalanced economy and high debt levels.

Corporate Japan has responded by restructuring and rationalising, moving on three fronts:

Restructuring internally, rationalising across Kiretsus and building new nationally competitive companies. For example, from 13 major banks down to four, and mergers in steel, oil refining, shipbuilding, pulp and paper and electronics to create bigger units.

Giving up some of the weakened sections of business to foreign control - Nissan to Renault, Mitsubishi Motors to DaimlerChrysler, Mazda to Ford, Long Term Credit Bank to Ripplewood, Nippon Securities to Citibank. Foreign competition has been allowed into sectors such as financial services and retailing.

Outsourcing manufacturing to sub-contractors including in low-cost Asia and Latin America or the big markets of the US and Europe. This is breaking up the tied supply chains of the old Japanese sub-contract system. This process still has a long way to go.

Meanwhile the government has run a policy of protecting the vested interests it is indebted to - construction, property developers, small business and agriculture. These traditional sectors of the economy are where the LDP derives most of its support.

Specifically the government has:

Kept interest rates low - down to zero - meaning reduced debt pressure.

Spent on public works and other subsidies to construction and agriculture.

Sealed off some sectors to foreign competition - especially agriculture.

Used public funds to bail out the banks which will have to write off huge bad debts.

These policies cannot continue forever. When will they be forced to face up to the inevitable `cold turkey' of debt rationalisation?

Government debt as a percentage of GDP is well over 120 per cent and could rise to 150 per cent by 2002. Stagnation and deflation are beginning to take hold.

A slowing of the US and world economy is threatening exports, meaning a sharp devaluation of the Yen won't be so successful.

A political crisis has overtaken the LDP, which cannot decide what to do. Does it take the medicine and contract the economy, hurting its strongest supporters in construction, agriculture and small business and leading to an electoral rout? Or does it stumble on until `something turns up'?

The most likely outcome is that it will try to buy more time in power - but how much time is there? It may gain one, two or even three more years but then must face up to forced debt reduction and the inevitable economic and social dislocation.

As the world's second biggest economy (with a GDP greater than all of the rest of Asia) Japan's predicament is a global issue. The fear that Japan might drag down the whole world is real.

One factor that must be considered is the possibility that Japan could be struck by catastrophic earthquake. Were Tokyo to be devastated then a huge rebuilding program would be needed. This would stimulate construction but more importantly force Japan to withdraw its global reserves including US treasury bonds.

With all its problems, Japan still has a world class industrial base, a high level of personal savings (with a greying population facing retirement) and a united and determined people who historically have moved in a forceful way when pressured.

All eyes should be on Japan over the next few years.

The drifting carmaker Mitsubishi Motors - which took a long period of uncertainty to find a global partner, Daimler Chrysler - has now run aground on the scandal of covering up defective cars.

The cost of coping with this problem as well as covering the gap in its superannuation liability means the company will post a loss of about 60 billion yen in the first half of financial year 2000 at the end of September.

Mitsubishi Motors' report (consolidated base) estimates the cost of the cover-up scandal to be 7.5 billion yen, although some analysts see that as too optimistic.

The annual result of fiscal 2000 seems likely to book a far larger loss than the anticipated 70 billion yen since the second half-year result is expected to be severely damaged by the cover-ups scandal.

On Monday, 28 August, when Mitsubishi Motors President Katsuhiko Kawasoe met leaders of the powerful Mitsubishi group he announced his resignation to take responsibility for the failure to rebuild the company.

This scandal is not the first humiliation for the company and by extension the group.

In 1997 president Kawasoe dubbed "Mr Clean" was installed following a scandal involving pay-offs to corporate racketeers.

In 1996 the US subsidiary was sued by its own workers and the US government for sexual harassment. At the time the carmaker was severely criticised by the group.

These repeated failures of corporate ethics are being attributed to the "DNA" of Mitsubishi Motors by the Japanese media.

Major Japanese manufacturers, who were proud of their technological and quality advantage, are now seen to have significant failings as demonstrated by the Mitsubishi Motors' cover-ups, the massive food poisoning caused by Snow Brand products and a JOC (a radioactive fuel maker of the Sumitomo group) "critical accident" which claimed the nuclear industry's first fatality last year.

What `genetic' causes are responsible for such an incredible lack of corporate ethics, compliance and governance?

If it is permissible to simplify and generalise, the author can point to several typical aspects of Japanese companies:

--The group-oriented mentality in the corporate community tends to create mutual protective reactions including saving each other's face when a critical humiliating incident occurs. In particular in each corporate group this mentality is intensified by interlocking personal relations and group-centred motivation and cohesion.

--In Japanese leadership a certain type of top leader tends to be welcome if he (she) is less bossy and transfers his power to lower managers. So in many cases such a boss, although respected by subordinates as a broad-minded boss, must take responsibility and accountability without having sufficient power. Therefore when information feedback channels to the boss are blocked for some reason, for instance a simple consideration of subordinates not wishing to report uncomfortable information, this may keep the boss in the dark.

--It is true that the well-known Japanese quality control procedures have created trust among consumers worldwide. However these procedures have encouraged the Japanese to develop a critical mind for small detail but not a macro view. As a result many companies have developed a phenomenon of not seeing the wood for the trees.

The incoming three directors from DaimlerChrysler must identify these factors and fight with the tough genes of Mitsubishi Motors.

Nissan's president since last June, Carlos Ghosn, from Renault always told Japanese employees that he wanted to act like a Japanese - even though he introduced revolutionary changes to the crippled carmaker.

No one can change someone's genes. How to orient the original nature of Mitsubishi Motors properly and inject new blood are the crucial tasks for the new management.

Dr Hajime Matsuzaki - August 2000

Two corporate global powers are fighting a battle on Australian soil over rich mineral resources.

The battle for control of iron ore produced by North Ltd. in Pilbara, Western Australia, is seen as a cartel war between a supplier cartel led by Rio Tinto, a giant resource multinational, and a buyer cartel of Japanese steel makers involving Mitsui, a large Japanese trading company, and Anglo American Corp., a resource company of South Africa.

The battle can also be viewed as a war between two different types of capitalism.

The Australian Financial Review (31 July 2000) characterises Japan's steel cartel as a `family'. On the positive side, it points out that the long-term keiretsu grouping treats one another "like siblings." On the negative side, it states that this family relationship persists "even when economics would dictate otherwise."

This old Japanese economy was seen as `humane capitalism' until the late 1980s and early 1990s. It was argued that managers and workers function as though they, not the stockholders, own the firm. And that companies form an alliance to compete strategically with other groups of companies, participating in what must be described as an organised market rather than a free market.

One can hardly believe such arguments, however, when looking at recent problems in Japan: the mass poisoning by Snow Brand milk, the largest dairy products maker; the hiding of recall cases by Mitsubishi Motors; and even the prolonged economic recession itself. All of these incidents suggest the necessity of structural change rather than reactionary or cyclical responses.

The Wall Street Journal (17 July 2000) takes a dim view of the Japanese economy. In relation to the bankruptcy of Sogo, the biggest department store group, the "deconstruction of Japan's curious form of free-market socialism just passed the point of no return" it says.

The WSJ argues, "Lifetime employment is already a thing of the past." "Restructuring is no longer so terrifying that it must be stopped at all costs." "But in the long run efficiency gains will increase Japanese workers' real income."

Restructuring of the economy is undoubtedly a pressing need. Further, it is necessary to overcome its opacity and cronyism.

Nonetheless do not throw the baby out with the bathwater. A humane and long-term orientation must be indispensable to any successful economy.

Weakening cross shareholdings within business groups, increasing citizens' investment in the stock markets and eroding electoral support for the largest ruling party, the Liberal Democratic Party, are key factors to propel structural change of the society.

In the steel industry too, the structural shift has began. The five Japanese steel makers have withdrawn from the long-standing "cooperative production adjustment". Also major steel makers are seeking international partnerships.

Nippon Steel and Pohang Iron & Steel (Posco) are in the final stage of negotiations on a comprehensive alliance (Nikkei, 31 July 2000). The two largest steel-makers hope the tie-up will give them the strength to survive fierce global competition. The partnership will include overseas joint ventures, online sales of steel products, joint procurement of raw materials and basic research and development.

The Australian public seems unwilling to support Rio Tinto on the iron ore issue. For instance "the WA Government has opposed Rio's bid for North, claiming it would lead to job losses and prevent the construction of a $500 million third railway in the Pilbara" (AFR, 26 July 2000).

Is Australia's national interest best served by a takeover that consolidates and strengthens local producers (Rio's bid for North), or by one that puts power into the hands of Japanese consumers, while leading to new investment and overcapacity?,

Which capitalist is friendliest for Australia: Rio Tinto or the Japanese steel mills?

The old Japan makes the Japanese society sick.

The old Japanese election system, as I discussed in the June extra report, delays the change of the country giving lesser worth of a vote to urban people than that of rural people. City men sicken of those politicians came from rural constituencies.

Some fourteen thousand people were laid low by tainted milk products of Snow Brand Milk Products Co. which is one of the oldest and largest companies in the industry.

These two examples have a number of commonality in terms of the old Japan.

Firstly, the two have depended upon a rural nature.

At the last general election of 25 June, the leading party of the coalition government, the Liberal Democratic Party was suffered a severe blow in city constituencies. Now the LDP is sarcastically called a "country party".

Snow Brand started in 1925 by a cooperative founded by dairy farmers in Hokkaido, the most northern island of Japan. Its major bank is the Central Bank for Agriculture and Forestry.

Secondly, both are dinosaurs.

The party has enjoyed for decades as a biggest and richest party. In the most of the period it has come to power. Its corrupt nature is its another nature.

The largest company with the strongest brand in the industry has made constantly nearly a double profit of competitors'. It is also known as virtually a non-dept company.

Thirdly, the two are too slow in responding a crisis.

The LDP has spent for near a decade after the serious economic depression emerged. The 1990s would be called an "empty decade" by future historians.

Since the first food poisoning was reported the company reacted too slowly and too improperly. The real problem of the company is its insensible nature which cannot sense own critical nature which has created by its strength.

Fourthly, both are too much family member oriented.

LDP's nature is likened to a family. One of its unwritten rules is seniority which is measured by times of electoral win.

Great possibility of change in the framework of international relationships in the North-east Asia has been created by the North-South summit meeting from 13th to 15th June.

The two state leaders of countries in the Korean peninsular which have been divided for half a century made historical progress with the magnitude which no one could have foreseen.

The author himself had a great surprise when watching results of the meeting. This was particularly true in regard to the personality of the North Korean leader Kim Jong Il. It was difficult for me to found any hint of the hard-line communist dictator in what was virtually his first exposure to the international media.

"Big gap from what we have heard about him", a Korean newspaper reports. A New York Times article commented "how normal and personable (he was)."

In the past there were two similar agreements about unification: the so-called 7.4 Joint Statement in 1972 and the North-South Agreement in 1991. But neither was fruitful because there emerged huge gap between the claims of each state which hampered real progress.

Even witnessing the latest agreement, many South Korean people remain strongly sceptical about not only the appearance of Kim Jong Il because of his performance but also the agreement itself because of two leaders' political road show.

Nonetheless an editorial of the Daily Korea, a conservative newspaper, said, "We want to very much believe the North this time." If this holds, Kim Jong Il might become another Gorbachev or cultural Zhu Rongji in North Korea.

As reported Kim Jong Il is a movie lover. He seems to have a huge collection of movies from all over the world. Such an artistically sensitive man must not be unaware of the deep problems of his own country.

Whatever the case, the Japanese government's attitude is purely reactive in response to the potentially historical agreement which might change the international security framework in the East Asia region.

When the agreement was announced to the world, the first response of the Japanese government was a worry about whether the issues of North Korean missiles and kidnapped Japanese were actually discussed in the talks.

Yet the Japanese ambassador to the US said in Washington that the Japanese security policy would never change simply because of a single summit meeting.

Actually in Okinawa there is emerging in the local people a hope that the agreement might make the huge US bases useless or at least less important. The presence of the US bases in the tiny island really hampers the growth of local economy.

It is hoped that the confirmed stiffening attitude of the Japanese government might not make its reaction be too reactive or too late.

On 15 June the Japanese government had an urgent meeting about the Okinawa Summit, which will be held in July, following the agreement of the North-South Korean talks. This meeting made a decision that Japan will propose the summit talk to decide about a special statement on the `humanitarian issue' in North Korea. The `humanitarian issue' means that of kidnapped Japanese.

Prime Minister Yoshiro Mori, on 17 May, officially decided that the oncoming general election will be held on 25 June 2000.

The general election will be done in one of the toughest time for the ruling tripartite coalition of Liberal Democratic Party, Komeito and Conservatives.

Although the economy began to show some signs of recovery, they are patchy and not strong enough. Consumption that accounts for some 60 per cent of GDP has shrank for four consecutive years and highly likely still is.

Credibility for the administration of the government is in the worst level due to endless shameful scandals involving the police. Also the record high unemployment rate is seen to continue at least another year.

Another record high statistical figure is the number of suicide which is characterised by the worst increase among male 50s who have become victims of restructuring business.

This seemingly totally icy situation for the ruling coalition might bring a big fortune to the opposition parties to come into power.

In my view, however, the power shift is unlikely, although not totally impossible, mainly because of immature rivalry between opposition parties, particularly of Democratic Party, the biggest opposition, against Communists.

Communist Party, the second largest opposition, has call to form a coalition when the ruling coalition loose the majority in the next election.

However Secretary Shii of CP on 16 May announced that there is no condition to aim at the coalition of the opposition in the next election. Because Democrats have refused this proposal repeatedly saying it is a "demagogue".

This discord is an exact manipulated outcome of LDP in particular of Secretary General, Hiromu Nonaka, to antagonise the two major opposition parties. He has agitated Democrats saying that there is high possibility to form DP-CP coalition. Why can be this an effective agitation for Democrats? Because forming a coalition with CP may threat its hegemony since Communists have simple and easier understanding policy for ordinary voters especially women.

Liberal Democratic Party		267seats
Conservative Party		20
Komeito		48
Ruling Parties		335
Democratic Party		96
Communist Party		26
Liberal Party		19
Social Democratic Party		14
Independent		9
Vacant		1
Total		500 seats

A professor thinks the party could attract over 10 million votes. He estimates Communists could win more than 50 Lower-House seats.

The power of Komeito may not weaken even by the severe political situation. Rather Komeito might increase total votes. That's why Prime Minister Mori has consulted closely with Komeito even about the voting day.

It is undoubted that LDP may loose massive votes in the election. Nonetheless helped by its large margin with additional seats of two coalition parties the LDP centred coalition is likely to keep power with a thin margin.

It is highly unlikely that Komeito withdraws from the coalition with LDP and joins a coalition with Democrats.

Yes, it may be, in particular compared with US's.

The recovery of US economy in the early 90s was called "recovery without employment". On the other hand Japan's could be called "recovery with wage down".

Japanese unemployment rate keeps a record high level. But it is less than 5 per cent which is comparatively lower than the western standard. Also many unemployed are created in a near retirement age with an increased redundancy payment.

Shunto, spring labour offensive, of this year is ending with the worst record. Many unions accepted a wage reduction and many others kept quiet rather than accepting wage or job cut. Although unions of IT related industry won an unusually mini wage hike compared with its good business.

So the result of this shunto may average a near zero wage rise. This is because employers insisted their micro necessity; restructuring their business rather than macro recovery of consumption as a whole. Yet most unions were so worried about employment of their members.

Ministry of Labour has recommended keeping employment as possible as employers can. The government has poured a tremendous amount of money into public investment to rebound the economy at the risk of huge government debt which totals 130 per cent as large as the nation's GDP.

There has been a debate about public spending or deregulation over an effective way to recover the economy. But the government has kept an interventionist policy despite US government criticism although it has introduced a moderate liberalisation into the market so far.

Thus Japanese economy has not being shifted its structure too much towards a deregulated economy and stuck to maintain the tradition.

Some see this unique recovery, if successfully, as Japanese style `work sharing' at a critical time. It minimises producing unemployed people and shares the burden of the crisis in monetary terms among far larger number of people.

There are some defects, of course. Since the recovery is one supported heavily by government spending, the policy itself creates a contradictory effect to rise long-term interest rate which might nip the weak recovery in the bud.

Yet the switch of economic engine for recovery from public investment to private sectors must be smoothly done. If this timing goes wrong, the reviving economy may go back to the past dark period. Since the recovery of private sector has not strong enough and it is patchy, the fall of US's stock prices may affect severely. This may disturb Japanese and other Asian economies. This can be another critical factor to the recovery.

Southern Africa has the combination of race and class developed by the colonial empires led by the British. This combination has been extremely profitable in extracting a huge economic surplus.

Huge profits have come from accessing minerals - gold, diamonds, coal, copper etc - and prime agricultural land, combined with a displaced cheap local labour force.

This is particularly true of most of the former British colonies - Kenya, Zambia, Zimbabwe and South Africa.

Even after independence a white settler population in league with foreign capital (still largely British) has perpetuated this structure.

Mugabe in Zimbabwe is now threatening this structure with his farm seizures.

Zimbabwe's rich agricultural land (excellent for growing tobacco, maize, coffee and cattle) was annexed by settlers and absentee landlords led by the Oppenheimer group. Displaced black farmers were used as wage labourers.

By breaking this structure Mugabe is setting the precedent for redistributing control and wealth throughout the region. If successful, other parts of Africa, especially South Africa will follow.

That's why there has been such an outcry and effort to destroy the Mugabe government.

The self-interest of the indigenous elite has not helped Mugabe's cause. Tribalism and corrupt and anti-democratic behaviour are rife throughout Africa.

This still does not detract from the issue of ownership, control over and benefit from the valuable resources gained by colonial conquest. The colonial structure simply cannot be replicated in the 21st Century.

What will the consequences be of Mugabe's action?

As some wealth is expropriated, an indigenous African capitalist class linked to the State will grow. How evenly this wealth is redistributed will depend on the ideology and strength of class organisations as against traditional tribal elitist cultures.

Some whites will come to terms with the new reality and become partners within the framework of black majority societies. New, international players may replace those that do not come to terms with the new situation. In the case of Zimbabwe, Chinese economic and political interests will fill the gaps.

Some white economic interests will depart, possibly led by the Openheimers who are involved in a series of industries including gold and diamond mining. Small white farmers and other business people will leave, causing a flight of capital and people. Australia will be a main beneficiary (see the mining industry article).

This process is unstoppable. We are seeing the last phase of the death of old style colonialism being played out in the 21st Century.

The key to understanding current Latin American problems is the flawed nature of the continent's development. For the indigenous people of South America, and imported labourers - both African slave and European immigrant - Latin America's bountiful treasures made it a major victim of the expansive West: Portuguese and Spanish conquistador colonialism; British, Dutch and French imperialism; and into the twentieth century US neo-imperialism.

The conquistadors destroyed the ancient Aztec and Inca civilisations for gold and silver, which gave an infusion of wealth into the veins of European development - decorating Spanish and Portuguese churches and supplying the capital for UK and Dutch colonial expansion and industrialisation.

Low-cost plantation agriculture was established in the fertile soils of northeast Brazil and the Caribbean - sugar, tobacco, cotton, coffee, cocoa, rubber, citrus, soy beans and beef. This, together with the treasures below the ground (gold, silver, copper, tin, lead, phosphate, oil, iron ore) made possible the industrialisation of Europe and North America.

Cheap labour provided by African slaves, conquered Indians and then migrants from industrialising Europe, worked in the mines and plantations creating wealth beyond imagination - unlike North America which was run by free settlers. Latin America did not develop an independent capitalist class that could realise true independence by developing their own economic power and therefore political power.

Latin America's elites remained clients linked to the major metropolitan powers - Spain, Portugal, Britain, France, and North America. They remained concentrated in the coastal cities such as Buenos Aires, Montevideo, Rio de Janeiro, Salvador, Santiago, Lima. Instead of investing surpluses in industry they squandered wealth on opulent life styles, pomp and ceremony, and sent money back to the metropolis. (Today the rich of Latin America are said to have more money in foreign banks than is owed to the West.)

Thus when industrialisation did come it was driven not by a local industrial class such as the Japanese who could take their place on the world stage, but by branches of TNCs. These sought access to resources and internal markets which especially in Brazil, never lived up to their potential - uneven income distribution meant the Henry Ford-style mass market never emerged. The domestic market was characterised by underconsumption. Nevertheless industrial development did occur due to the sheer size of the market and because of state intervention during periods when nationalistic governments sought to develop a broader based economy, especially in Brazil and Argentina.

Autos,

White goods,

Capital goods,

Consumer goods,

are global companies and brands dominate.

Thus Latin America's old economic activities - resources and plantations geared to world markets - was joined by a TNC-dominated manufacturing tied to national and regional markets.

Few global South American companies or brands emerged that could play an independent national role. No Sonys or Goldstars from Latin America.

With deep inequality in all parts of Latin America, social and political struggle has been inevitable. But with the major exception of Cuba there have been very few successful revolts leading to economic transformations.

South American history is full of slave revolts and rural and urban industrial unrest but the elites allied to foreign interests Spanish / Portuguese / UK / US have always stayed pretty much in control.

Military interventions to roll back and physically destroy popular movements litter South American history. In the 1960s and 1970s, Brazil, Uruguay, Chile and Argentina, all had oppressive pro-free market and pro-western dictatorships foisted upon them. The local elites co-operated with US power to destroy all forms of opposition - unions, political parties, and peasant organizations - and allow free market anti nationalist policies to flourish.

In the 1980s US banks and others poured huge petro dollar surpluses into Latin America, encouraging huge loans. Mexico, Brazil and Argentina ran up enormous debt, resulting in the IMF-led push to privatise national assets in the 1990s - a process that is still going on - and a huge push to export to gain income for debt repayment. However the debts remain and privatisation and export are still touted as the answer to all problems.

Allied to these policies is an attack on domestic economies led by Argentina and involving.