Money Angles

By Andrew Tobias

Are the Japanese smarter than we Americans are? Will our children be working mostly in Japanese-owned companies and paying rent to Japanese landlords? It's hard to look at recent economic history -- or at a self-focusing Sony combination video camera/VCR no bigger than a grapefruit -- without wondering just that. (JAPAN NOW AHEAD IN NUCLEAR POWER, TOO, read last Tuesday's New York Times.) But one needn't look to genetic superiority to account for Japan's remarkable and mostly well-deserved success.

What's more, last month's crack in the highly overvalued Tokyo stock market makes the Japanese seem a little less superhuman. The even wilder overvaluation in Japanese real estate could one day make them look downright mortal, sending shocks around the world. And America's new goals for education by the year 2000, which the nation's Governors unveiled last week, aim in exactly the right competitive direction. The goals may seem fanciful -- one is to make American kids first in the world in math and science -- but are they that much more fanciful than the goal of an earlier era: to land a man on the moon within ten years?

Still, there's no denying Japan's current competitive edge. It stems from many factors, beginning with the involuntary "restructuring" that occurred in 1944 and 1945. Today's LBOs are nothing compared with the old B-29s. But perhaps most important has been the willingness of the Japanese to postpone gratification: to work hard and save.

Although accounting practices overstate the gap, the Japanese have saved a far higher proportion of their income than we have. We've been living better and having more fun; our Japanese friends have for 45 years been sacrificing current pleasures to invest in a brighter future.

Welcome to the future.

Many factors account for our having saved so much less than the Japanese. But the most obvious may be simply that, having won the war and until recently having dominated the world economy, we've felt secure and thus under relatively little pressure to save. Never mind that our sense of security has become increasingly false. It's when you're worried that you save (for example, when you have few natural resources and you've lost a world war) and when you're always working that you have no time to spend money.

The other aspect of the savings differential isn't our lavish personal spending but what we've spent on defense: 5% or 6% of the U.S. gross national product each year, vs. 1% or so for the Japanese (and perhaps 15% for the Soviets). Is it coincidence that the Japanese economy is doing so well and that the Soviet economy has collapsed?

Economically speaking, money spent on arms is largely wasted, siphoned off from the precious pool of capital like a big leak. (In the old days, swords could at least be beaten into plowshares. Try beating a tank into a tractor.) And though the annual difference between what we and the Japanese have spent on defense -- a gap of 4 percentage points -- seems small, small numbers compound. An economy growing 3% a year for 45 years quadruples. Not bad. But an economy growing 4 points faster, at 7%, grows 21-fold! This is, very roughly, the difference in the way the Japanese and U.S. economies have expanded since 1945. And it has nothing to do with IQ scores.

With perfect hindsight, Japan might have been obligated, after a 30-year grace period, to devote 5% of its GNP to foreign aid. Beginning in 1975, under such a scenario, Japan would have had a 5% annual handicap like our defense budget, to the great benefit of the Third World. It is obviously no longer our place to impose terms on Japan -- witness President George Bush's respectful talks with Prime Minister Toshiki Kaifu last week. And Japan has begun to step up its foreign aid. But it would have to quintuple its level of giving for it to approach 5% of GNP.

Other factors have contributed to Japan's success -- skillful management and a dearth of lawyers, prime among them -- but the biggest may be its willingness to forgo current gratification for future reward. In the Soviet Union, where the prospects for profit are distant at best (Moscow's McDonald's notwithstanding), the Japanese are already burrowing in for the long haul. "I wish I could take Americans to see the Mezh," an American entrepreneur told Forbes columnist Esther Dyson, referring to Moscow's Mezhdunarodnaya hotel. "The Japanese are taking whole floors. Not suites. Floors."

We're buying videocassette recorders; they're buying San Francisco. We're buying $20,000 cars on easy terms; they're paying cash for Columbia Pictures Entertainment. We're flying to Aspen to heli-ski; they're flying to Moscow to plant seeds. For now, we live better than the Japanese and have more fun. And our kids don't have to spend nearly so many days a year in school. Isn't that great? But if you haven't yet contributed $2,000 to your IRA for 1989 (and another $2,000 for 1990), take a hint from the Japanese and do so. Tax deduction or no, it's hard to go wrong saving for the future.

The Japanese are not smarter than we are, but in some respects they may be a little wiser.