Getting the Japanese Story Straight
George Bush, The Three Blind Mice (heads of our giant automakers) and friends
are back home from panhandling in Tokyo. With the second dip of a double-dip
recession upon us, "America Firsters" such as Pat Buchanan are exploiting this
country's smoldering isolationist sentiments. And as Russell Baker said in a
recent column, America always needs an enemy. With the Soviet Union a fading
memory, Japan is the obvious target. It all makes for a messy—and potentially
The U.S.-Japanese trade picture is muddy. But we'll both thrive to the extent that we recognize our extraordinary interdependence. The logic boils down to six points.
1. The Japanese never were who we thought they were. To be sure, in the two decades after World War II the Japanese, at our urging, implemented industrial policy. They protected infant industries and provided cheap capital to important manufacturers. Beyond that, we've got the story wrong.
In his magisterial The Competitive Advantage of Nations, Harvard Professor Michael Porter makes clear that the Japanese have succeeded in industries where their domestic competition was most intense. In fact, he's just the latest to observe that in autos, robotics, and consumer electronics, for example, Japan has more competing firms than we do.
Japanese management practice isn't what you've read, either. Consider lifetime employment. It covers about a third of Japan's employees (a declining fraction), mainly males in huge companies. And small suppliers are mostly treated with contempt—i.e., cut off short when demand sags, summoned at a moment's notice when it soars.
2. If Japan was what we thought it was, it isn't anymore. Assume Japan did fit conventional wisdom. Things are changing. The once mighty Ministry of International Trade and Industry (MITI) is not ordering much of anybody around these days. And the Ministry of Finance (MOF) is offering higher-cost capital than our Treasury Department.
Moreover, as wages have soared and the yen skyrocketed, the Japanese have turned from "exporters" to "multinationalists," rapidly building factory capacity throughout Southeast Asia, North America and Europe.
Giant Japanese firms are convulsing. They are as sluggish as their North American and European counterparts. As one antidote, McKinsey & Co.'s Kenichi Ohmae reports that the behemoths are launching thousands of independent, entrepreneurial spin-offs.
3. Even if the Japanese were as we thought, and still are, we could never copy what they've done anyway! Suppose the tight ties between corporations, MITI and MOF and the tight links within the Japanese keiretsu groups really were the whole Japanese story. It's irrelevant to us.
Introducing similar "coordinating" mechanisms into the U.S. would be a disaster. In short, divisive, paralyzing debates over anything are as American as apple pie.
Consider those gray, conservative bureaucrats at MITI and MOF. They're a far cry from the gang in the Harvard economics department who would oversee any major U.S. industrial policy (from the left or right)! As to the keiretsu combines, just imagine the U.S. analog—with each member firm bringing its staff of 100 lawyers to every meeting.
4. Cultures are different, which is legal. There's no doubt that cozy connections count for a lot in Japan. Some of it may be nefarious, but mostly it's a reflection of a culture at the opposite end of the spectrum from ours. Individualism, contention and litigiousness have been our way of doing business since before the Boston Tea Party. Relationships were everything in Japan a couple of millennia before that. That relationships count for so much more in Japan—and in ways that at times would violate our laws, as well as offend our sensibilities—surely doesn't mean that we're "right" and they're "wrong."
5. Nonetheless, the Japanese (like us) ought to wise up. We need to clean up our act (learn to save again, for instance). So does Japan. Isolationism and moral superiority that have marked the Japanese for thousands of years is out of step if the great nation, or the first time, really wants to take a seat at the head global table. For example, the New York Times reports that the U.S. is "host to 29 percent of the world total ... 'inward investment,' while the 12-nation European Community attracts 35 percent. ... Japan, by contrast, receives less than 1 percent of foreign direct investment." That is outrageous.
6. Regardless of the above, the more we accede to the fair traders' shrill demands, the more we wound ourselves. Our headlong rush to protectionism throughout the 1980s (President Reagan's heartfelt free-trade rhetoric notwithstanding) now costs us about $1,200 per family per year. Moreover, the more policy-makers try to "help," the more they hinder. Restrictions on the import of certain Japanese electronic components, for example, have ended up making America's gem, our computer industry, less competitive and have led computer companies to ship production out of the United States! These sorts of unintended consequences are not "anecdotes"—they are partisan trade policy's norm.
(C) 1992 TPG Communications.
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