21 March 1991 - 24 March 1991

The Impact of the Japanese and German Economies on the Global Economy and the Role that the New Economic Superpowers will Play in the1990s

Chair: The Honourable James R Schlesinger

A joint conference with the Southern Center for International Studies, at Point Clear, near Mobile, Alabama

For this joint conference, the Southern Center for International Studies were the generous hosts to a party recruited by the Foundation, with representation from France and Germany as well as Britain and a strong group from Japan.

From the outset, two things were clear: first that while there are superficial similarities between German and Japanese economic success, the differences are more significant and there is no truly valid comparison between them; and secondly, that the economic circumstances of both Germany and Japan had changed somewhat since the conference had first been conceived, particularly, in the case of Germany, with the cost of re-unification.

There was some fundamental discussion of the nature of economic power as opposed to economic strength: the latter it was argued was an absolute which could be measured (e.g. in GDP) while the former was a relative assessment and included the ability and will to exert influence (not excluding other means besides economic). In terms of absolute strength, the US economy was still pre-dominant over all others by a large margin: in terms of economic power, the US economy was in relative decline, although it was backed by other measures of strength, including military strength, and the necessary will to use them. This led to some discussion of the properties of a super-power. The Gulf war had brought out the fact that the US alone in the world was able and willing to behave as a fully rounded super-power, even though in large measure the financial cost of the war would be borne by Japan, Saudi Arabia, Kuwait and Germany.

In examining the case of Germany, the conference, after looking at the immediate difficulties now facing Germany as a result of unification, concluded, with little dissent it seemed, that these were short-term and would certainly be brought under control in the three and a half years before the next general election. Moreover, although some might regret, as one participant put it, that Germany, with her apparent reluctance to translate economic strength into military power in the wider world, “was not more war-like”, Germany saw her future as part of a deepening and widening European Community in which, while she would be the pre-dominant power, she would not “dominate” in any pejorative sense. An interesting comparison was made between the German, French and British views of the future Europe, the Germans, it was suggested being prepared to accept French ideas on political union provided their own ideas on monetary union prevailed. On the whole it was thought that German influence in the EC would be in the direction of keeping it outward-looking and free-trading. The burden of resuscitating East Germany would be manageable for Germany, though others, especially in the EC, would have to bear their share and to take the lead in reviving Central and Eastern Europe and the Soviet Union. Developments there, however, if they led to any revival of the Soviet threat, might well upset this optimistic scenario.

With Japan the case was different. While there had been hitches, e.g. in the fall of share prices, with the impact of that on the banks, and the high price of land, Japan seemed set for continuing growth of more than 4%. The conference looked briefly at a fairly conventional list of reasons for her economic performance and concluded, perhaps less conventionally, that none of these in themselves constituted unfair practices or justified retaliation: rather they were practices and policies which mutatis mutandis the US and the countries of the EC (whose problems with Japan were similar to but less acute than those of the US) would do well to emulate. This led to a good deal of heart-searching on the part of American participants, with the Europeans and Japanese taking the role of comforters, repeating that, viewed from the outside, the American economy displayed enormous strengths - the US accounted for more than a quarter of the world’s output and income compared with Japan’s 14% and Germany’s 6%.

Nonetheless, the American malaise, it was suggested, could not be dismissed; and, if the response in the Administration and Congress were “irrational”, there was a risk that steps might be taken which would undermine a trading system which had served the world, especially the major exporters such as Japan, exceedingly well. Such a system was inevitably precarious: trade was a zero-sum game: if some countries ran surpluses, others must accept deficits. After the war, the US had been prepared to act as the world’s “economic sucker”, carrying a current account deficit to allow others to run surpluses. Who now was prepared to accept that role? The position was exacerbated by the US fiscal deficit, financed largely from abroad, which had turned the US into the world’s largest debtor, with an annual servicing charge larger than its defence budget, even if in absolute terms, at 2% of GDP, it was a thoroughly manageable figure and much smaller than Germany’s planned deficit for 1991 after unification. Some at least took little comfort from this: the deficit was inversely proportional to the decline in value-added industry, with the result that people were not enjoying as high a standard of living as their forebears; and their successors could look forward to the downward trend continuing. The danger of irrational action in the area of trade was very real.

While Japan had no wish, for a variety of reasons, including the diversity of cultures, to establish a yen zone or an integrated East Asian trading area, there was a danger that the creation of the North and South American free-trade area and the expanding integration of Europe might compel the formation of some such Asian grouping. Trade blocs would tend to produce friction and friction could lead to tension. Moreover, under the pressure of its perceived economic difficulties, the US might tire of acting as the world’s nanny (or policeman?), even if others could often be persuaded to pay the bill (was touting for financial contributions, one participant asked, consistent with being a fully-rounded super-power?) This in itself could be dangerous since it seemed that the world needed some sort of “policeman”, a guarantor both of security and of the trading system. As noted, the US had played that role since World War II but, if it came to feel inadequately compensated, might withdraw.

Japan, though in absolute terms possessed of strong military forces, was not prepared alone to play the part of guarantor of the world’s economy or security, though she might be willing to contribute in a multi-lateral system. The EC might possess the will, but probably lacked the capability, because of institutional and other weaknesses. If the role of guarantor could no longer be performed by one country or bloc, could a world system be created in substitution? We needed to be thinking about how to create multi-lateral institutions to manage the world order, even if nations were not as-yet ready for them. We needed to define the objectives of such an order. For example, would a division of labour be practicable, one country or group performing the role of security guarantor and another of economic guarantor? (Some doubt was expressed about this, since security threats in the future might take the form of terrorism and the decline of governmental authority in the face of increasing individualism.) In short, what system of burden-sharing could be evolved? And what form of institutions could be established to permit Europe and Japan to play a part? If Japan was to be fully engaged, we might have to consider moving from Euro-centric institutional forms, reflecting Anglo-Saxon liberal market thinking based on the Judaeo-Christian culture and ethics, to something new, in which, however, values perceived as essential in that tradition would be preserved but the interests of other major actors (not otherwise discussed) such as India, China and Brazil could be catered for. The conference produced no answers to these questions but served to focus attention on the issues which need to be addressed, inter alia, in Ditchley's next conference on the Uruguay Round and the future development of the GATT.

This Note reflects the Director's personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: The Honourable James R Schlesinger
Senior Advisor, Lehman Brothers; Counsellor, Center for Strategic and International Studies; Chairman of the Board, MITRE Corporation; Director: Riggs National Corporation, Gulf Canada Resources Limited, and BNFL Inc.; Trustee: the Atlantic Council, Center for Global Energy Studies, and the Henry M Jackson Foundation


Mr Christopher Beauman
Group Planning Director, Morgan Grenfell Group pic

Mr Robert F Cooper MVO
Head, Policy Planning Staff, Foreign and Commonwealth Office

Admiral Sir James Eberle GCB
Director, The Royal Institute of International Affairs, Chatham House (1984-90)

Sir John Graham Bt GCMG
Director, The Ditchley Foundation

Sir Reginald Hibbert GCMG
Retired as Director, The Ditchley Foundation (1982-87)

The Hon Peter Jay
Chief Economics Editor, BBC

Mr Christopher Johnson
Chief Economic Adviser, Lloyds Bank pic; Visiting Professor of Economics, Surrey University; Chairman, Executive Committees, Institute for Fiscal Studies and The Employment Institute; Member, Economic Situation & Europe Committees of the Confederation of British Industry (CBI); Member, Council of the Royal Economic Society, The Royal Institute of International Affairs.

Mr Anatole Kaletsky
Economics Editor, The Times, London

Mr David Peretz
Minister (Economic), British Embassy, Washington, and United Kingdom Executive Director of the International Monetary Fund and the World Bank

Dr Christopher Smith MP
Member of Parliament (Labour), Islington South and Finsbury; an Opposition Spokesman on Treasury and Economic Affairs

Mrs Heather Weeks
Deputy Director, The Ditchley Foundation

M Pierre Jacquet
Associate Director and head of economic studies, Institut Français de Relations Internationales (IFRI); Assistant Professor of Economics, Ecole Polytechnique, Paris

Dr Lutz H Görgens
Political Counsellor, Embassy of the Federal Republic of Germany, Washington DC

Ambassador Minoru Endo
Ambassador for International Economic Affairs, responsible in particular for the GATT negotiations

Professor Kazumasa Iwata
University of Tokyo

Mr Kazuo Nukazawa
Managing Director, Keidanren, Tokyo

Dr Robert C Angel
Department of Government and International Studies, University of South Carolina; Academic Fellow for Japan Studies at the Southern Center for International Studies; member of the Presidential Advisory Council on Continuing Education

Mr H Brandt Ayers
Editor and publisher, The Anniston Star, co-owner of 5 newspapers: The Star, The (Talledega) Daily Home, The Jacksonville News, Oxford Midweek and The Piedmont Journal Independent-, writer, weekly syndicated column entitled ‘ ‘Out Here,’ ’ distributed to 30 papers; Board member: The Southern Center for International Studies, The Twentieth Century Fund, Talledega College, and The Center for Excellence in Government; Nieman Fellow, Harvard University; member, Council on Foreign Relations.

Dr William R Boulton
Olan Mills Professor of Strategic Management and Director of The Center for International Commerce, Auburn University

Mr James G Budds
Vice-President and Director of Regional Development, The Southern Center for International Studies

Ambassador Martin J Hillenbrand
Dean Rusk Professor of International Relations and Co-Director of the Center for Global Policy Studies, University of Georgia

Mr Ralph Johnson
Deputy Assistant Secretary, Bureau of European and Canadian Affairs, US Department of State

Dr Robert J Lager
Director, Center for International Trade and Commerce

Mr Denis Lamb
Washington Representative, Organization for Economic Cooperation and Development

Mr William O McCoy
President and CEO, BellSouth Enterprises, Inc; Vice Chairman of the Board, BellSouth Corporation; Director, First American Corporation of Nashville, TN and The Liberty Corporation of Greenville, SC; Chairman, Southern Center for International Studies; Trustee, Henrietta Egleston Hospital for Children; Visitors Board member, Emory University and University of North Carolina Business School; Director, Atlanta Chamber of Commerce; member, Economic Policy Committee for the Chamber of Commerce of the United States and Governor’s Commission on Effectiveness and Economy in Government.

Dr Barbara McLellen
Deputy Assistant Secretary for Trade Information and Analysis, United States Department of Commerce; Head, US delegation to the Industry Committee of the Organization for Economic Cooperation and Development (OECD); Professor of Political Science, Temple University; member, District of Columbia Bar

Dr Cedric L Suzman
Vice President, Educational Program Director, and Trustee, The Southern Center for International Studies; Executive program lecturer in international business: Emory University, Pittsburgh University and Michigan University; Trustee and past Vice President for International Relations of the Atlanta Chapter and member of International Relations Commission, American Jewish Committee; Member of Advisory Boards for AIESEC-Emory and North Fulton High School Center for International Studies.

Ms Julia Johnson White
Co-founder, Vice President, Producer and Director of Public Affairs Programming, Legal Counsel, and Secretary of the Board of Trustees at The Southern Center for International Studies; Member of the Atlanta Bar and the State Bar of Georgia.

Mr Peter C White
Co-founder, President and Trustee, The Southern Center for International Studies (1963); advisor to various governors, university and state government officials and corporations; member, Council on Foreign Relations (New York)