John Ganz on the Era When America Was Consumed by Panic With Corporate Japan

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1:45Hello and welcome to another episode of the OddLots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, here's something I've been thinking about with respect to China and all of the tensions with China, which is that it feels very elite, as in people in D.C. talk about it, people in obviously in finance and business talk about it. It does not strike me that in the broad and I could be wrong, my judgment could be off, but it does not strike me that in the broad public that there are a lot of people that it's top of mind for a lot of the public. weirdly i think it was probably more top of mind in the past yeah and the hollowing out of america's manufacturing sector i mean that argument is kind of what has given rise to a lot of the populist politics that we see nowadays right yeah that's true right during the china shock yeah there were a lot of people aware that their factories or the towns that depended on these uh factories were getting hollowed out etc but you know there's so much china china china it's not in the media right it's not like it or sorry it's not in the movies and i'm thinking of like back to the future 2 was it where the main character's dad lost his job and they had this scene when he was getting laid off by his japanese boss etc oh you know what my favorite example of this is yeah die hard yeah of course best christmas movie ever but also the nakatomi corporation yeah right this was like a whole thing in pop culture and it's just not at all maybe that has something to do with the fact that studios still want to, do they still distribute?

3:20Are American movies still getting wide distribution? Like, for a while, in China? Like, because for a while, this was, like, a big story. Oh, are they not going to talk about certain things? This is partially why we have a bunch of superhero movies, by the way. Because they're just anadon. Because they play in international markets. And they're not going to, like, offend anyone too much? Probably. It just doesn't feel to me, from, like, a pop culture standpoint, that the threats from China, whatever they are, are, like, getting that much play. We need a good movie about China developing an AI chat bot that goes rogue and tries to take over the world.

3:53I think there was an AI plot in The Last Mission Impossible or one of the recent ones. I haven't seen it. I don't know who developed the technology. Maybe it was China. Who knows? It could have been. But anyway, like you said, with Die Hard and there were several others. I think Michael Crichton had a book that talked about it. And certainly when I was younger, when I was like 11 or 12 and first became aware of the existence of the world around me. You know, I remember I had a teacher who was like really scoldy about people who drove Japanese cars, for example. And she talked about how anti-American.

4:24Yeah, how awful it was that there were people coming into our high school parking lot or whatever that drove Japanese cars. There is destroying the fabric of America by purchasing a Toyota. Yeah, of course, now, you know, by Toyotas are made in the U.S., et cetera. No one talks like that with respect to Japan. But it is interesting thinking about like similarities and differences between our relationship with China today and our relationship with Japan in the 80s, late 80s, et cetera, when it seemed like that was going to be the economy that really sort of hollowed out. There's a clear parallel here.

4:56There are also some key differences. I'm sure we'll get into all of that. A land of contradiction. Similarities. Anyway, I'm very excited. We have a guest I've wanted to talk to for a long time. The perfect guest because he recently wrote about this. We're going to be speaking with John Gans. He is an author and historian. He is publisher of the Unpopular Front Substack, which I am a paid subscriber to. I'm a big fan. And he's also the author of the recent book, When the Clock Broke, Con Men, Conspiracists, and How America Cracked Up in the Early 1990s. Talk a little history. So, John, thank you so much for coming on Odd Lots.

5:29Thank you so much for having me. I'm a big fan. It's very exciting for me. Very nice of you to say. Does that seem right to you that, like, you pay attention to pop culture? Just today, with the China anxiety, it feels like a D.C. kind of thing more than a general public thing? I think that's true. It does feel sort of an elite project. There's a lot of interest, curiosity about what's going on in China and what they do well, both in D.C. among policymakers and I think also, obviously, in Silicon Valley. A lot of think tanks are studying China, thinking about China. A lot of business people are very interested in China.

6:03But yeah, I don't know. It's strange because you would think in an age that has a lot of, one might argue, paranoid thinking going on, it doesn't factor that much into a lot of pop culture. I think the movies thing might be a part of that. That wasn't the case. Just the sheer box office exposure. The box office exposure. But I think in the 80s and 90s, there was definitely more cultural product, which I'm sure we'll discuss more cultural products that brought this kind of fear, curiosity, interest, paranoia to the surface. All right. Well, why don't we get into the Japan panic of the 1980s and where it actually started?

6:41And by the way, I was reading the substack that you wrote on this particular topic, and I fell into a giant rabbit hole reading the emerging Japanese super state and coverage of it. So I didn't know the author of one of the first provocative Japan is going to take over the world type books was a guy called Herman Kahn, I think. And he is the inspiration for Stanley Kubrick's Dr. Strangelove. I didn't know that. Yeah. And if you read some of the coverage of his book that came out in the 1970s, it's really funny because it's just stuff that you would never get away with writing today. the New York Times review actually starts out by saying a bullion to Herman Kahn who boasts that under all these 300 pounds of friendly fat there lies a lean and sinewy intellect I don't think you could start a book review by saying the author is fat talking about the author's weight no that's true yeah Herman Kahn is a really strange and interesting character he is one of the models for Dr.

7:44Strangelove He wrote a book called On Thermonuclear War, which is probably one of the strangest books you'll ever read. And it's extremely cheerful book about thermonuclear war, basically kind of saying it wouldn't be that bad and saying that, you know, yeah. And I think this is where the term, he may have originated the term megadeaths and saying, you know, yeah, we'll get a little messed up, but actually there's so many people in this country who are so productive. How bad would it really be? We'll have some megadeaths. Don't worry about it. We'll have a few megadeaths, but I don't think, and he thought that the United States shouldn't be so fearful about it.

8:16But there's another weird interpretation of the book that this was kind of like some signaling strategy that the United States, because in the book he said, you can't show that you're afraid to actually pull the trigger because then the other side will push you around. So in a way, the book was some kind of signaling strategy in his game theory mind to be like, hey man, we're not worried. We're writing books that say thermonuclear war is not that big of a deal. Very, very bizarre figure. And I think some people consider him very sinister, obviously, but I'm real eccentric. But he was actually worried about Japan.

8:47Yeah, I think he was worried about Japan. And he was a little ahead of the curve, actually, because he wrote his book in the, I think it was in the late 1960s, and it came out in the early 1970s. And he was describing Japan and its institutions and predicted that by the year 2000, that Japan would be the first economy in the world and overtake the United States. This was a little bit before. Now, the later books make a little more sense. This is really before you start to see the economic problems in the United States that would make this kind of interest. And also before the trade deficit with the United States had really exploded.

9:27So he was a kind of visionary, not in that he got it right, but he kind of prefigured a genre of books that would only really hit about a decade or so later. Yeah. Joe, I clipped this, but reading some of the book now, it's kind of quaint. But he says his best estimate is his medium scenario. And the medium scenario is that Japan probably passes the U.S. in per capita income around 1990. And probably equals the U.S. in gross national product by about the year 2000. That's the media. The media. He's being conservative. But it sounds interesting because it's very easy to say, oh, this is going to be a big problem once the trade deficit is gigantic.

10:10It's like, oh, we're really dependent. We're up a creek, et cetera. But he seemed to have some intuition that there was something there in Japan that was like, okay, there's going to be some great out competing in terms of just based on their productivity. Yeah, I think that he observed correctly that Japan had made a miraculous comeback after the war. They had transformed themselves from being totally destroyed in the world and from being kind of a producer of goods that were considered kind of cheap just in the way we used to think made in China or made in Taiwan weren't necessarily signs of quality.

10:41And then Japan becomes a place where it manufactures items that are still not terribly expensive but are known for engineering feats and are quite good. And he also gets into some things we might today call orientalist or centralizing. But he had these what he thought were sociological insights about the solidity of Japanese society, of their education system, of the relationships between the state and businesses. And other writers kind of develop these themes in different directions. Maybe we'll get into this. Peter Navarro's book, Death by China, came out in 2011. He was pretty ahead of the curve in terms of, you know, 2011, certainly not as much as people are talking about today.

11:21But in a way, it wasn't the real China shock in the auss. Definitely. Yeah, yeah, yeah. That was like the whole WTO thing. I feel like that was really when it kind of peaked. You mentioned the cultural aspects of this. And it is funny reading, again, some of the coverage where everyone's like, I read the Chrysanthemum and the Sword. or I read Mishima and now I've cracked the code of Japanese economic success. But so much of the panic was actually trying to figure out how Japan had done this. Before we get into all those different interpretations, what's your story of the Japanese economic miracle in the 1980s?

11:59You know, I think that there's obviously the actual economic facts and the relationship the United States with Japan. And then there is the discourse about it. I think what happened is you had a situation where you had the beginnings of deindustrialization in the United States. You had a very strong dollar. You had a lot of products that are coming in that were extremely high quality and attractive to American consumers. You also had some policies that are very strange. Caterpillar was a big competitor with Komatsu. They went to the Reagan administration. They brought this economic study to the Reagan administration, and they said, well, we want to open up Japan's financial markets because the difference in our currencies is causing this problem.

12:47Now, this doesn't even make sense in economic theory. What actually happened is Japan is the country with excess savings, so Japanese investments began to flow into the United States, Caterpillar suddenly finds Komatsu with a plant next door to it. So this little scheme to undermine its competitors through currency wizardry didn't work. The Reagan administration was open to it because they were into free trade stuff, so it didn't really break with their ideology, but it was a strange move that backfired. And then also Japanese investors were used to very meager returns. And the United States had very attractive investments going on at that time.

13:30Treasuries, because of the Volcker policies, had very high returns. So Japanese savers were very interested in them. And Japanese investors also started to look at real assets. They started to look at real estate. And the returns on those things were so fantastic compared to the way things were in Japan. Oh, yeah. Mitsubishi bought the Rockefeller Center, right? They bought the Rockefeller Center. There was talk of Nintendo buying the Seattle Mariners. There was a lot of purchasing, a lot of downtown LA. You mentioned the Nakatomi Tower, there was all this idea of Japan investing in American real estate and buying quintessentially American properties.

14:09And this was kind of upsetting to people. So the trade deficit was obviously upsetting people who actually had a skin in the game of the industries, workers, the businesses. Lee Iacocca was not very happy about it. He wrote about it and complained about it on TV. But the actual purchasing of American, like these kind of symbols of Americana, made people kind of get more tense about this nationalistic fervor. So, yeah, the money was just flowing in. And at that time, the United States had a lot of deficit spending. And we were pumping out ships and military equipment. And the interest in Japanese savers and American treasuries just came along at the right time.

14:52Paul Songas, who was, I don't know how many of your listeners are going to remember him. I do. Okay, so he was kind of a centrist, business-friendly, democratic politician who was a candidate for president. Not someone you would expect to kind of like demagogue on populist terms, but he said in a speech to the UAW, the Cold War is over and Japan won. This is obviously a huge exaggeration, but it was more like the Cold War ended and Japan kind of paid for it. So I can understand from the perspective of Japan, when they're seeing these things bumble up and anger bubble up in America, they're like, we thought we were competitors a little bit.

15:31Right. But not this much. Mostly friendly. Mostly friendly, yeah. What was Trump doing this time? Did he have – where was Trump in all this? He was extremely upset about both the trade deficits with Japan and the investment in Japanese real estate. He's been very consistent. He's been extremely consistent. He published ads in the newspaper. He went on TV and complained about it. He said Japan was ripping us off and Japan was buying all these wonderful American things that should belong to us. So that economic nationalism goes way back when. And there might be an argument that his protectionist instincts were really shaped by that encounter with Japan as a potential rival.

16:10So I think that the Japan panic and Trump kind of being of another age in a certain way. Although, again, some of these things apply well to - But it's like left its fingerprints on American society, hasn't it? Absolutely. Absolutely. So I think that weirdly those unconscious impressions or institutional knowledge or just hangups that stick with individuals. Yeah. Definitely. And, you know, he may just still be thinking of Japan, Japan, Japan.

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17:33Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. Did my card go through? Oh, no. Your small business depends on its internet. So switch to Verizon Business. And you could get LTE business internet starting at$39 a month when paired with select business mobile plans. That's unlimited data for unlimited business.

18:11There we go. Get the internet you need at the price you want. Verizon Business. Starting price for LTE business internet, 25 megabits per second, unlimited data plan with select Verizon business smartphone plan savings. Terms apply. It's interesting because with the China anxiety these days, like the fear is right. Some breakthrough is going to happen with semiconductors or something in China and the American companies will just sort of go out of business, etc. But the anxiety with Japan was like, your boss is going to be Japanese, or the name of the office building that you go to will be renamed Japanese, et cetera.

18:47That's very different, because people don't really talk about that we're all going to be working for Chinese international corporations in the future. Right. And if you look at the image of dystopia in the 80s, like in cyberpunk literature or in Blade Runner, it's a lot of Japanese company signage in a city of mixed ethnic makeup that It looks very chaotic. It looks a lot like cities in Japan. So yeah, I think people were really thought, and I think it was just kind of common sense. If you took an airplane ride and you got into a conversation with a businessman next to you, a guy who owned a small business, he had read in magazines, newspapers, books, everyone kind of like, I'm sorry to use this meme, the mid-wind take at the time was sort of like, Japan is going to take over the United States.

19:34Yeah. OK, so clearly that did not happen. No. And the per capita income of Japan is still a lot lower than the U.S. Walk us through, like, I guess the bursting of the bubble and what exactly like why this vision of Japan as a super state or whatever did not come to pass. You know, what's really interesting is that the that the panic coincided not with the peak of Japanese power, but with about the asset bubble bursting. so you see in 1992 Rising Sun the Michael Crichton book come out and that also he top-checked it, huh? has anyone read it? I have seen the movie, I have read the book partially when I was doing research for the book for my book and at the end of the book, in case no one got the very subtle message of the book he included a bibliography of books he had written he had read about Japan that detailed the threat.

20:33The book is not subtle. A group of Japanese businessmen are involved in the murder of a very beautiful blonde woman. And the detective is tasked to find this out. And he has a meeting with the senator. And the senator, they talk about maybe the possibility of dropping another bomb on Japan. That's another thing to remember, is that the United States and Japan, in living memory, had fought a war. And there was Pearl Harbor, which Americans felt very sensitive about. So what happened was there was a credit-fueled bubble in Japan, and it burst. And it was followed by a banking crisis, deflation. And then all of a sudden, everything that everyone believed was so wonderful about Japanese capitalism.

21:20So in 1982, Charles Johnson wrote a book called Midi and the Japanese Miracle. And this said, okay, well, the reason why they did it is because they had this wonderful industrial policy, which coordinated investment, protected industries, guided firms. And it was kind of a mixture of state intervention and private capitalism. That was one theory. That was a little different from the theories that said, oh, the Japanese have some special cultural Confucianism or whatever, Shinto Buddhism that was making them do this. and everyone said oh well Japanese firms are insulated from financial markets right because they have this close relationship with banks they don't have to they don't have to raise funds on capital markets they have these long-standing relationships so they can do these great long-term development projects research and development projects they're not exposed to the quarterly pressures of American companies so on and so forth then after the bubble crashes everyone looks at all this stuff, they say, oh, this was a horrible system of crony capitalism where the government was protecting people and there were bad loans on the books.

22:31And if there had been functioning markets and a lot of these things wouldn't happen. So suddenly all of the things that appeared, most of the things, not all of them, but many of the things that appeared really impressive about Japanese capitalism, all of a sudden people discovered what the downsides were. But this didn't set in in the United States. Japan was, there was an outflow, there was a sudden huge outflow of Japanese funds. They had invested, yeah, I mean, between 1988 to the end of 1990, Japanese investors invested about$52 billion in the United States from, you know, that includes everything from buying companies to real estate to new factories.

23:09And then in the first few months of 1992, that figure had dropped to$2.3 billion. And they made a net investment of almost$31 billion in securities. And by 1992, they were net sellers of government securities. They took some real baths, like this financier, Minoru Isutani. And this was one of these things that upset Americans. He bought Pebble Beach. He sold it for a loss of about$350 million. Yeah, so by the early 1990s, the tide was kind of going out, but the upset wasn't. And part of why this happened was the United States still had a close economic relationship, but there was an election going on, and a Japanese election in the United States, and a Japanese politician made a very intemperate remark about the appearance and abilities of American workers.

24:06He said that they were not able to read in many cases, that they were overweight. And this caused a massive rage in the United States and a lot of politicians going into the election year. Obviously, gin this up. We talk about 92 here. This is this is in 1992. Oh, is this the whole Atari Democrat thing? The Atari Democrats are a little different. They wanted they were among the people who are really curious about, I think, state industrial policy in Japan. I miss this whole era of American history, by the way, firstly, because I was like eight years old. But secondly, because I was in Japan. We didn't hear a lot about it.

24:43Well, you were there as the bubble popped. Yeah. So I never I have no memories of experiencing this feeling of Japanese supremacy. I have a lot of memories of feeling like the economy was very downbeat. Oh, wow. In the sort of early 2000s when I came back and when I was actually a teenager and sort of aware of my surroundings. Yeah. Did you ever get the sense that they felt like it was a lost golden era, a missed opportunity? I mean, I think there was a little bit of nostalgia, certainly, in the finance community. You know, people could remember what the deal-making days were actually like. But beyond that, I'm not entirely sure.

25:23Got you. This summer, all the bros read Ezra Vogel's Deng Xiaopang biography. But he also wrote, and I think you talk about it, he wrote a Japan book in 1979. Japan is number one lessons for America, which I think you talk about. Does that book hold up? Was it good? I think that that book is one of the more serious books. I mean, you know, he's a real scholar and it was more a real analysis of institutions. It doesn't get into the kind of, there may be a little armchair sociology in there about Japanese cultural mores, but there's definitely much more hard analysis of the relationship between government and business in Japan.

26:00Let's talk a little bit more about actually 1992 and the politics of that time. You mentioned Paul Songas. Yeah. He did win a primary somewhere. Didn't he win New Hampshire or something? Anyway, but more importantly, that was also the year that Ross Perot ran as an independent, and then he dropped out, and then he got back in the race, and he had a pretty good showing. He may have tipped the election to Clinton. I think there's some debate about that. I know his main focus was NAFTA, but was there a Japan element to his populism? There was no one in politics at that time who was worried about the future of American economy, industry, even our political supremacy in the world that was not fixated or focused or had a comment to say about Japan.

26:44And Ross Perot was not an exception. He was both a protectionist, so he thought that the United States' trade policies were leaving us in a bad place with regards to not only Japan, but also at that time West Germany, German unification had just happened, and South Korea. But he also was very curious about the way he believed. He wasn't really much. He was a big capitalist, not much of a free trader. So he was really attracted to the close relationship between business and government in Japan. And he also was very proud of the close-knit nature of his companies. A delegation of Japanese businessmen, I think from Toyota, came to visit Electronic Data Systems, his firm.

27:31and they praised him and they said, of all the companies in the United States, you're the most Japanese. I bet they said that to everyone. Maybe, probably, but he was extremely proud of it. I bet, I bet. He said, every worker is a brother. That's the way Japanese companies run and that's the way I run. So he thought we needed to adopt policies more like Japan between cooperation of business and government. This is something I find so interesting because in the Japan panic at that time, Like one of the thoughts was, well, Japan is very bureaucratic, but in a good way. It's very like consensus driven.