Letting the world in

A SINGLE theme has dominated discussions about the Japanese economy during the Nakasone years: trade frictions arising from Japan's huge surplus with the United States and with the rest of the world. When Yasuhiro Nakasone took office as prime minister in November 1982, Japan's trade surplus with the US was approaching $18 billion - the highest it had ever been until then. That record kept being renewed year after year as Mr. Nakasone promised time and again to diversify markets, to open Japan's own market more widely to foreign goods. All the while he was extolling, along with his great and good friend President Reagan, the principle of free trade, under which Japan had so mightily prospered.

As Nakasone prepares to give way to Noboru Takeshita, Japan's overall trade surplus is in the range of $90 billion ($92.6 billion in 1986) and its surplus with the US is approaching $60 billion. The US, meanwhile, has an overall trade deficit of $156.2 billion (1986). Despite a continuous drop in the dollar's exchange value against other major currencies, including the yen, the situation does not seem to be improving. As one consequence, Japan today has become the world's largest creditor nation, and the US its largest debtor nation.

Neither Nakasone nor Mr. Reagan expected such a state when they came to power - Reagan in January 1981 and Nakasone in November of the following year. But today, as the American presidential campaign intensifies and a new prime minister prepares to take office in Tokyo, Japan's surplus and America's deficit cast a lowering shadow across the horizon of the world's economy.

For much of this year, a heated discussion has been going on in this country as to why there is so much ``Japan bashing'' taking place in the US, and what changes, if any, the Japanese have to make in their institutions and in their manner of thinking in order to cope with the responsibilities of economic power. Arguments range from the arrogant to the fantastic: For every Japan-bashing article in the US, there seems to be an America-bashing response here. One recent best seller screams, ``Japan isn't at fault - America is!''

Fortunately, light is being generated as well as heat. Commentators point out that Japan is unique: For the first time in history, a country has become an economic superpower with no matching military power and a deeply ingrained aversion to ever acquiring such power. As islanders, the Japanese are much more isolated from the Asian mainland than the British ever were from Europe. Nakasone made ``internationalization'' a buzzword here, but to this day there is great controversy over just what this term means.

INTERNATIONALIZATION, in the years leading up to the Nakasone era, meant basically that the Japanese sallied forth from their island redoubt into the far corners of the earth. With their dream of world empire shattered by World War II, the Japanese worked with grim determination to rebuild their devastated economy, helped by a benevolent American occupation. Their houses were shacks. They didn't have enough food.

``You can hardly believe it now,'' said a man who used to work for a major trading firm, ``but we used to scour the world in search of rice. I remember going not only to the US or to Southeast Asia, but even to Italy and Spain.''

In the 1960s, Japan's typical exports were textiles and transistors, and the ubiquitous Honda and Yamaha motorcycles. As the 1960s progressed into the '70s, Japanese factories began to sprout in Wales and Alabama, Brussels and Singapore. Japan's gross national product overtook that of West Germany and became the third largest in the world, after the US and the Soviet Union.

Then came the successive oil shocks, which this country weathered better than most, because its people had not lost the habit of six-day workweeks and truncated vacations, of scrimping and saving for a rainy day. Or so the Japanese liked to think. Throughout this period, internationalization continued to mean the ability to go out and deal with the ``natives'' in their own countries.

Nakasone came to power, the first premier consciously to try to use his country's economic might as an instrument of foreign policy. As trade frictions mounted, though, he was forced on the defensive. Everything Tokyo did - restraining its own exports or opening its markets or increasing its foreign aid - outsiders took as a response to their criticism of Japan's unrelenting export orientation, or to the resentment roused by Japan's huge trade surpluses.

Gradually the realization dawned that when foreigners spoke of ``internationalization,'' they didn't just mean Japanese who went out and mixed with the natives. They wanted Japanese society itself to become more welcoming of foreign goods and foreign people in their midst.

``From now on,'' Kyoto University professor Masataka Kosaka told a meeting sponsored by the ruling Liberal Democratic Party in the mountain resort of Karuizawa two years ago, ``the most important and difficult aspect of internationalization will be internal, not external. It's what is going to have to happen to our own markets, our own institutions, our own society.''

The first and most insistent demand from abroad was that the Japanese open their home market to foreign goods. Explicit barriers such as duties or quotas have been mostly eliminated or reduced to levels similar to those of other Western countries. But a web of regulations and practices continues to hamper access and to jack up the final price of an imported product.

``Access, access, access!'' is what Uncle Sam wants, US Ambassador Mike Mansfield says.

Japan's manufacturing system is probably the most efficient in the world. But its distribution system is a different story. The many tiny mom-and-pop stores that still dot each Tokyo neighborhood are a form of social security, Harvard sociologist Ezra Vogel argues. They are inefficient, but give employment to elderly couples who might otherwise be on the dole. Reforming the distribution system from top to bottom means not only simplifying or doing away with burdensome official and semiofficial controls, but also changing the tax structure and the welfare system.

Similarly, when the US argues for free import of rice, the Japanese know they cannot forever subsidize their rice farmers at prices eight times the world average. But land policy must be tackled before the rice policy can be solved. The exorbitant cost of land also has implications for housing: The Japanese don't prefer to live in ``rabbit hutches''; most of them cannot afford anything else.

In many other fields, one reform inevitably requires another. If the needed reform is seen to be coming only in response to pressure from abroad, the inevitable response is resentment and a tendency to lash out at the meddlesome outsider. And that is what in fact has happened repeatedly during the Nakasone years.

Banks coming into Japan demand the same freedom to operate in Japan that a Japanese bank enjoys in London or Zurich, New York or Frankfurt. Stockbrokers want to be admitted to the Tokyo Stock Exchange. Lawyers want to be allowed to practice in Japan. All these demands are being met, albeit slowly and with many a backward glance.

THE demand extends into the cultural field as well. Why shouldn't Japanese universities hire foreign professors? Doesn't the very word ``university'' mean ``universal''? And shouldn't a university welcome scholars and students from all over the world, not caring whether or not they are Japanese?

These are questions being asked, not by foreigners alone, but by Japanese who feel that the time has come for what they call the ``third opening'' of their land.

The first opening took place in 1854, when US Commodore Matthew Perry anchored off Shimoda with his ``black ships'' and demanded that the long-isolated feudal empire accept trade and travel links with the US and other countries. Perry opened the door through which Japan entered the modern world, jumping from samurai-ruled feudalism to a constitutional monarchy under the Emperor Meiji (1867-1912).

The second opening was the result of World War II and the arrival of the charismatic Gen. Douglas MacArthur at the head of a benevolently authoritarian occupation force.

The Japan of today is a meld of the work wrought by MacArthur with institutions and practices surviving from the prewar Japanese state, along with ways of thinking that in some instances go back to feudal times. For instance, today's system for controlling the sale of rice, one target of American demands for an opening of the rice market, originated in wartime control measures that somehow were never repealed.

The third opening is the one that began during the Nakasone years and that will have to be accelerated in the years to come. According to one enthusiastic advocate, Iwao Nakatani of Osaka University, its purpose must be to make Japan a totally free and transparent country. Selective tariffs and quota restrictions simply will not work, Professor Nakatani contends. Japan must liberalize all the way, or suffer the consequences of a stagnant economy and world opprobrium.

Ambassador Mansfield suggests a common market between the US, Japan, and other Pacific Rim countries. So far, the ambassador says, no one has taken him up on this idea.

Last year, the US gross national product - the sum of all its goods and services - came to 25 percent of the world's GNP, while Japan's was nearly 12 percent. For all its debtor status, the American economy remains not only huge but dynamic.

The US and Japanese economies are already so intricately intertwined that they can be untangled only at the cost of unacceptable damage to both.

Japan's huge trade surplus must be brought down, Japanese and American experts agree. Equally, the US's crushing trade deficit must be substantially reduced or eliminated.

``We are building a new community between the US and Japan,'' James Morley of Columbia University says.

He sees this community, ideally, as one in which goods and people can circulate freely, built on principles yet to be fully enunciated. He sees the task of political leaders in both countries as one of articulating these new principles in a manner attractive enough to make the other want to join. He recognizes that no models exist for such a community, and that both Japan and the US may undergo tremendous strains in their relationship.

``We are moving into an ill-defined area because there's no way to know how to do it,'' he warned in a recent speech here.

``You can be distraught, or think it's the greatest opportunity ever offered. I think it's an opportunity and not a tragedy.''