Is Asia America's Friend or Foe?

Two new books offer conflicting answers. The case for peaceable co-prosperity looks stronger than the case for manning the guns.

By JOHN STARRELS — One of the untold stories of this election year is the disappearance of the competitiveness issue -- you remember, the wrangle about the United States losing global market share to more efficient competitors and just maybe losing the store in the long run. A year ago this was widely viewed as likely to be a major theme of the upcoming presidential campaign, and in the spring it built up a bit of steam. But the subject never took off. Why not? An examination of two new books on America's economic ties with Asia helps supply an answer.

If ever a book was designed to play upon our untapped anxieties about competitiveness, that book is Yen! Japan's New Financial Empire and Its Threat to America (Simon & Schuster, $19.95). Written by Daniel Burstein, a New York journalist who covers Asian affairs, the narrative provides us with an extraordinarily gloomy scenario in which Japan, step by cunning step, inexorably takes over the American economy in a series of brilliant strategic moves.

Stripped to its essentials, Burstein's version of the new threat to America shapes up like this: Japan's economic challenge to the United States puts the security of the U.S. at risk. Formally, Tokyo remains our ally; below the cultivated surface, however, the island nation harbors deep-seated desires to revenge itself on the U.S. for the military defeat it suffered 43 years ago. In the area of economic competition and control, Japan is well on its way to achieving its aim.

How much does Burstein think we are losing? Pretty much everything, possibly including the office desk. For example: -- ''The United States depends on Japanese investors to directly finance 30% of the American government's budget deficit. Throughout 1985-1987, the leading Japanese securities firms were almost always among the largest buyers of long- term U.S. Treasury bonds at auction. Several Japanese-owned firms are primary dealers in securities issued by the U.S. government. Without Japanese participation, it is safe to say the Treasury would have an extremely difficult time financing American debt.'' -- ''A quarter million Americans already work for Japanese employers in the United States. Economists expect that number to rise to a million in the 1990s.'' -- ''Japanese financial service companies have not only penetrated but actually monopolized several areas of domestic U.S. finance, such as the letter of credit business guaranteeing bond underwritings . . .''

What to make of all this? On careful examination, not all that much. In advancing his message that surging foreign investment, Japanese and otherwise, threatens the very foundation of America's economic and political system, Burstein delivers plenty of alarming statements but not many substantiated dangers. No doubt he reflects a widely held view when he declaims on that currently hot topic, the dollar's decline: ''The cost of weakening the dollar sufficiently to make American crops and smokestack industrial products 'competitive' again globally has been to strengthen the yen and other foreign currencies to such a point that the very nations we are supposed to be 'competing' with are now able to buy into America's most advanced high- technology companies, own America's choicest real estate, and build the world's most advanced factories for their own purposes inside the United States -- all at prices they consider to be bargains.''

Sounds bad, all right -- the dark reference to ''their own purposes'' seems especially sinister. But what is Burstein really talking about? Answer: direct foreign investment in the U.S., and while there's much more of it than there used to be, its badness is far from apparent. Pursuing their own purposes, the Japanese build the U.S. economy, create jobs, and increase tax revenues. When General Motors lays off thousands of auto workers, as it did earlier this year, it's hard to see the increase in the number of U.S. factories operated by Japanese carmakers as a calamity.

For all the luridness of Burstein's visions -- one of which suggests that Japanese investors are angling to acquire the entire state of California -- the extent of Japanese investment in the U.S. is not all that vast. Most of the U.S. assets directly owned by foreigners are controlled by Canadian and European interests. The Japanese own less than the Dutch. Yes, it seems certain that Japan will soon be the dominant investor in the U.S. But notwithstanding its growing aggressiveness -- the folks from Nippon even have the audacity to hire people directly from our Federal Reserve, Burstein reports -- Japan's threat to American sovereignty remains more apparent than real.

BURSTEIN'S VIEWS lead to some distinctly odd policy prescriptions. Two require special scrutiny. Burstein urges the U.S. to abandon what remains of its free-trade tradition: ''While continuing to promote the aims of global trade, Washington should cease the hypocrisy inherent in arguing for free trade without fully practicing it. We should admit we need a policy of managed trade and, for the first time, carefully enumerate the areas of business we seek to protect fully, why, and for how long; which areas need only modest forms of protection; and which are crucial to keep completely free and open.''

The point about hypocrisy is well taken -- America is far from a free-trading nation, despite much chest thumping to that effect -- but jumping into ''managed trade'' would merely invite retaliation, higher trade barriers, and a decline in global wealth. Burstein is no more reassuring on the investment front. Decrying the present wave of ''selling off . . . American assets to Japanese and other foreign buyers,'' he calls for the establishment of an investment review board with powers to implement a new industrial policy. ''Granted that foreign investment can play a positive economic role,'' he says, ''a coordinated American policy ought to attempt to steer it in the most beneficial directions.'' One would be hard pressed to devise a more effective means of choking off foreign investment in the U.S. Does the author really want to go that far?

After such muddled thinking, The Third Century (Crown Publishers, $19.95) comes as a welcome relief. Written by Joel Kotkin, a Los Angeles-based editor of Inc. magazine, and Japanese-born Yoriko Kishimoto, a managing principal of the consulting firm Japan Pacific Associates, the book cheerfully rejects forbidding portrayals like Burstein's of America's competitive prospects vis- a-vis Japan and other Asian nations.

The argument is straightforward. ''First and foremost,'' say Kotkin and Kishimoto, ''is the realization that the Atlantic community, long the center of world economic power, is being supplanted by the nations of Asia and the Pacific Rim.'' The authors sensibly refuse to see this shift as a threat to be resisted. To the contrary, they point out that this changing geographic reality offers the U.S. abundant commercial opportunities. What's more, say the authors, the American economy possesses ''unique strengths'' that, properly managed, give the U.S. an important advantage in competing with Asian countries. These strengths prominently include readiness to absorb record numbers of new immigrants, many of whom possess marketing skills America needs to compete effectively in Asia; an openness to technological innovation; and, more broadly, a capitalist system that continues to display far greater flexibility than do systems found in either Europe or Japan.

Far from bewailing foreign investment, as Burstein does, these authors welcome it. They are on target when they say, ''While overdependence on foreign capital could, in the long run, pose some dangers, the enormous influx of foreign capital into the United States during the 1980s was not so much a harbinger of national decline . . . as it was a reaffirmation of the nation's status as, in Max Weber's phrase, 'the area of optimal economic opportunities.' ''

OPPORTUNITIES -- not guaranteed success -- are what confront the U.S. in Asia. Winning there, say Kotkin and Kishimoto, will require major effort, particularly on the cultural front. They call for nothing less than a spiritual revolution in how the U.S. regards its future economic purpose in the global community. If America's foreign commerce is to shift primarily to the nations of the Pacific, cultures will surely have to meld on both sides of the ocean. Considering the importance of the point, a more precise road map of how we move from thinking more about Bonn and Paris to better understanding Tokyo and Seoul would have been helpful. But this is a relatively minor oversight. On the whole, The Third Century provides an uplifting yet plausible vision of what America's leadership role in the global economy should be, along the way explaining why the ''competitiveness problem'' failed to capture the popular imagination in 1988. 

BOX: EXCERPT: Identifying with the fate of Europe, some Americans see the ascendancy of Asia as a harbinger of national decline. Yet the U.S. can assume a preeminent position in the emerging post-European international order.

BOX: EXCERPT: It is not necessary to believe in the cliche of a Japanese conspiracy to win back what was lost in 1945 to recognize that Japan's wealth is regenerating a new nationalism, an ugly arrogance, and a certain imperial swagger.

Link to original: http://money.cnn.com/magazines/fortune/fortune_archive/1988/12/19/71389/index.htm