IP: CATO Paper on Revisionists

[Dave Farber <farber () cis upenn edu>]

Date: Fri, 31 Jul 1998 14:29:15 -0400
From: "McCullough, Matthew" <MMcCullough () willkie com> 


     Below is the executive summary from a CATO paper released 
     today evaluating the revisionists' prespective and policy 
     prescriptions during the late 80's and early 90's.  I am 
     told the full text of the paper can be found at CATO's 
     Center for Trade Policy Studies' web site -- 
     www.freetrade.org.   
     
     For those, like myself, who tend to agree with the CATO 
     analysis, enjoy.  For the rest of you.....I am sure the mud 
     pies are already being prepared.  I look forward to your 
     reactions.
     
     
     Matt McCullough
     
     
     ------------------------------------------------------------
     
     
     Executive Summary
     
     After the collapse of Soviet-style communism, the
     "Japan, Inc." economic model stood as the world's only real 
     alternative to Western free-market capitalism. Its leading 
     American supporters who became known as "revisionists" 
     argued in the late 1980s and early 1990s that the
     United States could not compete with Japan's unique form of 
     state-directed insider capitalism.  Unless Washington 
     adopted Japanese-style policies and abandoned free markets 
     in favor of "managed trade," they said, America would
     become an economic colony of Japan.
     
     Today, the verdict is in: the revisionists were dead
     wrong, both in their assessment of the Japanese "threat" and 
     in their recommendations for U.S. policy. Japan has not 
     attained worldwide dominance; on the contrary, it has 
     suffered a "lost decade" of economic stagnation. The
     "Japan, Inc." model has not eclipsed Western-style 
     capitalism; instead, there is an emerging consensus on both 
     sides of the Pacific that the Japanese model has failed. 
     Countries up and down the Pacific Rim are embracing  
     market-oriented reforms in the wake of an economic crisis 
     blamed widely on Japanese-style "crony capitalism." 
     Meanwhile, the United States, far from declining, is 
     enjoying record-setting prosperity because it largely
     ignored the revisionists' advice.
     
     Japan's problems are now obvious. To revive its
     fortunes, it must move to a system under which capital is 
     allocated, not according to established relationships or 
     government policy, but in response to clear and undistorted 
     market signals. In sum, Japan needs to abandon the
     very elements of its system that the revisionists singled 
     out as its greatest strengths.
     
     The revisionists' big mistake was to believe that a
     handful of government planners could outthink millions of 
     private decisionmakers-could pick "strategic" industries, 
     allocate capital in defiance of market signals, and prop up 
     the stock market and real estate values. Only a few short 
     years were needed to burst their bubble.