Japan and the International Economic Institutions

Japan and the International Economic Institutions
Marcus Noland (PIIE)
Paper prepared for the Centre for Japanese Economic Studies Fifth Biennial Conference "Can the Japanese Change? Economic Reform in Japan" Macquarie University Sydney, Australia
© Peterson Institute for International Economics
July 6, 2000
Hye Kyung Lee provided helpful research assistance, and Fred Bergsten and Jeff Schott offered useful comments on an earlier draft of this paper.
Introduction
Japan has arguably been the prime beneficiary of the liberal international economic order. In the area of trade, the General Agreement on Tariffs and Trade (GATT), and later, its successor, the World Trade Organization (WTO), have facilitated the reduction in barriers to international trade worldwide and thereby enabled Japan's exploitation of its comparative advantage and contributed to income growth and rising living standards in postwar Japan. The World Bank, along with its Bretton Woods twin, the International Monetary Fund (IMF), contributed even more directly to postwar Japanese economic development, by financing such infrastructural projects as the construction of the Shinkansen ('bullet train') railway system. As the post-war economic reconstruction proceeded, these institutions continued to serve Japan well, as its economic interests broadened from trade and finance, narrowly defined, to encompass a wide range of issues relevant to the expansion of Japanese firms around the world.
Nevertheless, the consensus among both Japanese and non-Japanese observers is that Japan 'punches below its weight.' Despite the efforts of the government of Japan to increase its influence on the multilateral institutions, its influence on the global economic policy architecture remains smaller than one would expect for the world's second largest economy. This paper examines recent Japanese policy initiatives with respect to international institutions in the areas of international trade, finance, and development. To the extent that these initiatives have any rationale beyond pure self-interest, they reflect longstanding intellectual tendencies which, compared to the values embodied in the existing order, place a greater emphasis on the state relative to the market in economic life.
Japan's attempts to project greater influence on the international institutions are limited by three factors: dominance of the United States and Japan's unwillingness to risk a rupture with the world's sole superpower; the historical legacy of suspicion and distrust of Japan in Asia; and Japan's own parochial politics. However, growing disenchantment with the status quo, especially in Asia, may create more propitious conditions for future Japanese initiatives.