Fallacies and Facts About Japan and America

Tom Peters

The hour is approaching when the administration, under severe protectionist pressure from Congress, must decide whether to again certify Japan as an unfair trader under the Super 301 clause to the 1988 Omnibus Trade Act. I hope that before yielding to the arguments of demagogues like Lee Iacocca and escalating the war of nerves with our most important ally and economic partner, our friends along the Potomac will consider the following fallacies—and facts.

Conventional Wisdom: Japanese productivity leads the world.

Fact: American productivity leads the world, and is a third higher than Japan's. Canada is a close second to the U.S. Japan is back in the pack, tied with Britain. (Japan is very good at a few things, muddled overall. We're pretty good at most things.)

CW: Average income in Japan towers above ours.

Fact: After adjustments for relative "purchasing power" (how much can you buy with your bucks?), American income tops the standings and is about 40 percent above Japan's.

CW: Japan's positive trade balance is the highest in the world.

Fact: West Germany, just half Japan's size, is comfortably ahead of Japan in total exports and also has the world's highest positive trade balance. (We're first in total exports by a hair's breadth, Japan is third. Japan's positive trade balance is plummeting.

CW: America is getting whipped in technology-based exports.

Fact: The three technology-export leaders are the U.S., Japan and West Germany. The U.S. has a 78 percent share of the three nations' combined technology exports, Japan is second with 14 percent, Germany trails at 8 percent.

CW: Japan is clobbering us in electronics and other high-tech arenas.

Fact: The U.S. has a yawning lead in computers, software and bio-technology among other areas and is ahead in leading-edge microprocessor and semiconductor technology too.

CW: America has lost its basic-science edge.

Fact: We hold a tidy advantage over Japan in Nobel prizes 188 to 5, and also have a comfortable lead—in absolute and per capita terms—in published theses and basic-research spending.

CW: Research and production consortia and centrally planned market strategies are Japan's keys to success. We suffer from fragmentation, lack of focus.

Fact: Japan's key to success is fierce rivalry between firms in its big domestic market. It's never had a production consortium and the results of its research consortia are problematic. Government-led market coordination in Japan, always overrated in importance, is today in eclipse.

CW: Japanese employees are loyal, thanks mainly to guaranteed employment. Ours aren't.

Fact: Surveys reveal that American workers are more loyal to their employers than Japanese workers. Only a third of Japanese workers were ever covered by lifetime employment and the fraction is shrinking. Promotion based on seniority, another long-time Japanese habit, is now
giving way to American-style promotion based on merit.

CW: We are a service economy. Japan is a manufacturer.

Fact: Indeed we are a service economy. But so is Japan. About two-thirds of Japan's GNP is in services, with anemic productivity compared to the U.S. (Incidentally, America's share of GNP generated by manufacturing has been steady since 1925.)

CW: America's top college grads—computers, engineering, science—go to work in banks rather than factories. Japan's best and brightest go to work in factories.

Fact: Most American graduates do go to work in banks and other service-sector areas. But so do most Japanese grads; over two-thirds of the new engineering and science slots in Japan went unfilled last year.

CW: Japan's workers toil more hours than we do.

Fact: True, the average Japanese worker puts in 250 hours per year more than his or her American counterpart. But the Japanese worker works 450 hours a year less than the German worker, who produces many more exportable goods on average.

CW: Japan's global market share is soaring. America's is plummeting.

Fact: Japan's and America's share of world output are both going up, at the expense of the Europeans.

CW: Japanese auto companies build plants in America, then make the sophisticated parts in Japan and relegate the mundane assembly chores to us.

Fact: Domestic (U.S.) content in Japanese-run U.S. car plants is 67 percent and rising. Domestic content in American-run plants in the U.S. is falling, as we outsource more from Mexico (and sometimes Japan).

Are the Japanese fair or unfair traders? How about the U.S.? Are our hands as clean as we claim? Is the Japanese society changing? Or stuck in millennia-old ruts? Next week, I will continue with this list of surprises and discuss the dangers of yielding to the paranoia now
clouding our view of Japan.