A Loyal Retainer? Japan, Capitalism, and the Perpetuation of American Hegemony

R. Taggart Murphy


Sixty five years ago, the United States emerged from the Second World War as the undisputed hegemon of world capitalism. But within a generation, neither the American will nor the American ability to continue managing the global capitalist order could be taken for granted. This essay will argue that the key to understanding the repair and continued re-enforcement of American hegemony since the system-shaking tremors of the 1970s can be found in the postwar experience of Japan and its neighbours. Within that experience lies a paradox: it was precisely Japan’s deviations from orthodox capitalist methods – the distinctive marks that characterize its political economy – that help explain the continuation of an American-centred world capitalist system long after one might have expected its manifest contradictions to bring it down.

The era of American hegemony has added another contradiction of capitalism to those already identified by Marx, such as tendencies towards overcapacity and a declining rate of profit, as capitalists attempt to defend and enlarge market share. Since the emergence of the dollar as capitalism’s dominant currency, we have seen a secular decline in its relative value. Unlike sterling, which maintained its purchasing power through most of the 19th century and was disseminated via British capital exports, the global supply of dollars originates in American current account deficits − raising the possibility of an erosion of confidence in the dollar that ultimately could lead to a crisis of confidence in capitalism itself. This contradiction – first noted by the economist Robert Triffin in 1956 (he called it a ‘dilemma’) – was resolved or postponed by a Japan that had adopted an export-led growth model partly to forestall the full transforming power of capitalist relations. Among other things, relying on export proceeds and domestic savings rather than foreign direct investment to finance development helped ensure that economic and political outcomes were determined by domestic power holders rather than impersonal market forces. But the export-led growth model brought with it its own contradictions in the form of a build-up of dollars that were not adequately translated into domestic purchasing power. To resolve this contradiction, the authorities deliberately created and fostered asset bubbles. The bubbles, once ended, could not be re-inflated, but the attempts to jolt the economy back into growth with waves of credit creation supplied much of the credit that fuelled bubbles abroad – first in Southeast Asia, and then in the United States itself. And it has also been this Japanese credit that provided the crucial support the dollar needed to survive the bursting of those bubbles and maintain its position as the dominant world currency.

The very market-thwarting mechanisms that the Japanese put in place domestically have repeatedly been pressed into service in managing the biggest contradiction of them all: the rescue of a global capitalist order by a country that had attained wealth and power at least in part through non-capitalist means. But while the methods Japan employed may not have been fully capitalist, they depended for their success on their embedding within a global capitalist order pivoting around the financial hegemony of the United States. And when Japan’s methods began to threaten that order, Japan would move to preserve it while doing its best – not always successfully – to limit capitalist liberalization at home. Japan’s very resistance to the full transforming power of capitalist relations forms a crucial explanation for both Japan’s willingness and its ability to support the global capitalist order.

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