Platt Perspective on Business and Technology

Open markets, captive markets and the assumptions of supply and demand dynamics 10

Posted in macroeconomics by Timothy Platt on March 17, 2016

This is the tenth installment to a brief series on underlying assumptions as they arise and play out in economic systems, and in production and marketplace systems (see Macroeconomics and Business 2, postings 230 and loosely following for Parts 1-9.)

I began explicitly discussing the role of politics in economic thought and policy making in Part 8 and Part 9 of this series. And in the course of that, I began discussing an economic systems phenomenon that I have come to refer to as politically grounded economic friction (see Part 8.)

• Economic friction and business systems friction are the consequential outcomes of miscommunication and communications delays, and of failures in acquiring and acting upon essential business intelligence in a sufficiently timely manner.
• And politically grounded economic friction is economic friction that arises as a result of adherence to preconceived ideologically driven vision, and even when that means acting in denial of direct empirical evidence to the contrary. Politically grounded economic friction arises and flourishes when politically driven ideological purity overwhelms empirical reality as a source of guiding principle.

I am not claiming that all of politics is driven by ideologically driven friction, but it would be hard to deny that this has been an historically significant force. And the early years of the 21st century have been significantly shaped by it so the issues that I write of here are of current and ongoing relevance.

I focused on a more historical example of this phenomenon in Part 9, with a brief and very selective discussion of how politically driven economic decisions made coming out of the First World War, at the very least made a Second World War more likely – at least as this could arise in Europe. Political ideologically driven economic decisions were not by any means the only drivers leading post-World War I Europe into repeating that trauma. But they did play a very significant, and even a decisive role there.

I said at the end of Part 9 that I would continue that narrative here, with further discussion of how politically motivated economic decisions and actions led the world into a Second World War. And I added that after addressing that, I would step back to more directly consider some of the factors that lead to the Great Depression and its global spread, and more recently to the Great Recession. And I added in anticipation of that, that I would revisit the Smoot–Hawley Tariff Act as only briefly noted in Part 9, as a stunningly flawed political economic decision. I will at least begin addressing all of these issues here with a brief consideration of how Japan ignited World War Two in the Pacific.

I began my discussion of the origins of World War Two in Europe with a foundation-building note on how World War One began and ended. And I go back even further here in this brief and selective narrative. Japan was a virtually completely isolated nation at least as far as the West was concerned, and for centuries leading up to July 8, 1853 when Commodore Matthew C. Perry led his expeditionary force of American naval vessels into Edo Bay, and the mouth of what is now known as Tokyo Harbor. Perry in effect forced Japan’s closed doors open. But even after that, Japan and the Japanese remained insular for the most part, as a highly caste and class divided but still largely culturally homogeneous society. True, there have been minority populations in Japan, each with its own separate culture and its own separate ethnic identity, and for longer than there has been a Japan at all as a distinct nation state. But they for the most part have fit into and existed as elements in Japan’s single overarching culture and society.

And as can be found in other more insular societies and cultures, the Japanese came to see themselves as fundamentally separate and superior to all others. The stress of embittering repression that Germans faced from their fellow Europeans coming out of World War One led many and even most of them to see claims of their Aryan superiority as an attractive positive, when Hitler and his political movement began promulgating that as Germany’s new truth. Many Japanese saw themselves as having been ill-treated and even defiled by incursions from the West as began with Perry. Earlier trading visits from the Dutch had been much easier to contain and limit for their culture challenging import. This was different and it, if anything simply deepened the resolve of local Japanese superiority among wide swaths of their people. Members of Japan’s military even came to see themselves as the true heirs to their part-historic and part-mythic vision of the Samurai and their code of bushido.

Japan became economically and I add militarily expansionist and certainly going into the 20th century and in the post-World War One years. Their leadership saw this as necessary if they were to effectively compete with the West, and hold its economic and culturally incursive pressures at bay. And their Zaibatsu : their military industrial complex, came to reach out more and more forcefully for the raw material commodities and other resources that they saw as essential to their success and to Japan as a whole, that could best be secured from neighboring nations. And in support of this, Japan and their government established what they saw as their Greater East Asia Co-Prosperity Sphere, as a larger multinational region over which they claimed hegemony and control.

I greatly oversimplify here, but Japan came to see both military and industrial expansion as essential, and as fundamentally deserved and regardless of the interests or requirements, or the national claims of other nations of the South and East China Seas and adjacent areas that they sought to dominate. And they acted upon that through both trade and military action. Think of this as a summary statement of Japan’s ideologically driven economic decisions and their actions. But it took two sides to bring Japan to launch attacks against the United States at Pearl Harbor, and across the sweep of the Pacific in December, 1941.

I am not trying to argue a case against the United States attempting to contain Japan and its expansionism through trade sanctions. But the United States did very explicitly seek to limit if not entirely block Japan’s incursions into British Malaya and the Dutch East Indies, significantly blocking their access to petroleum and natural rubber from there and as a direct challenge to Japan’s expansionism. And these are only two areas where Japan came to feel hemmed in by competing and antagonistic foreign powers. And Japan, feeling directly challenged and threatened by all of this responded militarily towards the nations that it saw as aggressors acting against them and their interests.

It is important to note that the attack on Pearl Harbor was not the first confrontational incident, in which Japanese forces struck out at American interests. In December, 1937 Japanese forces attacked the USS Panay while it was on the Yangtze River in an area of China that Japan was laying claim to as part of its de facto empire in the making. And on January 26, 1938, in an affair that came to be known as the Allison Incident, John Moore Allison, council at the US embassy in Nanking was publically struck in the face by a Japanese soldier, knocking him down. This was widely seen as an indication of contempt on the part of Japan and its military against foreign influence, and against Americans in particular in that, and even when the people expressing this influence were functioning under what should be full diplomatic immunity. So tensions between Washington and Tokyo were already very high leading up to December, 1941 and Pearl Harbor. And in a fundamental sense the attack there marked more of a dramatic escalation in conflict on the part of Japan and not strictly speaking a start of conflict and confrontation as if from a vacuum.

American and Japanese diplomats and their governments talked past each other, each driven by the imperatives of their own understanding and their own ideologically based goals – and their own understandings of the economic and other forces at play. And I raise all of this here because of the way that trade and access to essential raw materials, and economics drove so much of this progression of events.

Essentially all of the history that I write of here, transpired while the world as a whole was still laboring to find a path out from under the Great Depression. I noted in Part 9 and then again at the start of this posting that I would return to that unfolding series of events after finishing my discussion here, of the Second World War and its beginnings. I will do so in my next series installment, and as part of that discussion I will also at least briefly touch on the more recent Great Recession and how that arose. And after delving at least selectively into that, I will turn to more directly consider the economics of a narrative that I have already been discussing in some detail: China, but from the specific perspective of this series.

Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation.


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