Japan as #1

Slim Pickens in the Land of the Rising Sun

Japan is now the leading manufacturing nation in the world. In the list of the worlds largest corporations Japan and the United States both have about 350. Of the largest, however, Japan has the most in the first 50. Japan's success is credited to saving they have a lot of investment capital from savings; long range planning the Japanese will work for a decade to bring a new product to the market; and efficient, high quality production. The Japanese are the Scots of the Orient.

Japan owns some 10% of the installed manufacturing base of the United States. She has six major automobile assembly plants in the United States. Japan owns about half the real estate in Los Angeles and perhaps more of Hawaii. Some American economists credit Japan's success with her free market economy.

The United States played a passive role while most of this was happening. We argued with the Japanese to open their markets to our beef and citrus, while they entered and devastated our consumer electronics industry. We were content with quotas for automobiles and steel, which assured the Japanese of market share in the United States. When representatives of the United States machine tool industry complained that the Japanese were pirating their designs and selling the counterfeit copies in the United States our government officials said the machine tool industry was Japan bashing.

The Japanese as Yankee Traders

Japan got into electronics, machine tools, and steel with American technology. It was a simple deal. The Japanese would allow the importation of these items into Japan in exchange for the right to use the technology. They learned how to make computer chips, machine tools and steel from the United States.

What surprised the American producers was the vengeance with which those products came back to the United States markets.

It was obvious that Japan had targeted certain U.S. industries and went for them with a passion. Japan became so good at targeting, that they boasted they could target and out produce the United States in any area of production. All the while our domestic propaganda machine said the United States was going into the post industrial world. We would no longer be a manufacturing nation ours would be an information society. Manufacturing was passe. We heard a lot about structural unemployment. Society was changing. There were certain things we would never do again and the people unfortunate to have these unneeded skills would be structurally unemployed until they were retrained.

Teflon Coated Japan

There were critics of Japan's trade methods, but nobody of authority or stature in the government or the economic community raised their voice in concern. The people of the United States were simply told we were no longer in those businesses. We were in information. U. S. industry was told it would have to do better. If the United States was in decline it was because our business leaders had been asleep at the switch. Top management did not know how to be competitive and if Japan was outcompeting us it was our fault. Besides the American consumer was getting a bargain because the Japanese products were high quality but as important they were cheap.

In Pursuit of the Evil Empire

While all this was going on, the trillion dollar defense buildup was going on, social programs including education were being cut, labor relations were thrown into a shambles, beginning with the annihilation of the air traffic controllers union and American industry was told it was on its own. President Carter had proposed an industrial policy, but that came quickly to be identified as a crutch. What was needed was tax reduction to spur investment, which in turn would increase productivity and thereby would increase tax revenues. Candidate Bush called it Voodoo economics and everyone else has since called it supply side economics. It was accompanied by the Laffer curve.

Reducing taxes and increasing spending caused unprecedented budget deficits. Deficits so large they eclipsed the indebtedness of the nation during its entire history. President Reagan once described the Carter debt as a stack of 1000 dollar bills miles high. His debt has since gone to the moon. After the debt got going it was strange nobody seemed to care. We now have Gramm-Rudman to reduce the debt, but with that mechanism it will take decades to restore the nations debt structure, both national and international, to the levels it was in 1980.

In retrospect we shot ourselves in the leg and Japan became the beneficiary, (along with West Germany et al).

Was it really a case of the good guys and the bad guys — Japan as the thrifty, diligent, entrepreneur and the United States as the slothful wastrel? That is the image the Japanese would like us to accept. We should feel rightfully guilty for our sins and the Japanese can enjoy the luxury of their virtue.

Illusion's End

T. Boone Pickens seems to be bursting that simplistic bubble. He had the temerity to buy 20% of a Japanese steel company. In a free market economy such a transaction would go unnoticed except on the pages of the business section of the newspaper. In Japan it caused an explosion. It seems the Japanese did not want a corporate raider on their turf under any pretext. Pickens claims he was not interested in a takeover, he just wanted some seats on the board so he could see how Japanese Corporations operate on the inside. He did not get any seats on the board and it is unlikely that he will. Toyota which also owns about 20% of the stock of the same company has three seats. That is what Pickens wants, three seats.

The Japanese claim they do not want Pickens style of capitalism. They maintain they work by consensus and there are no hostile takeovers in Japan. Pickens is seen as being too disruptive to Japanese industry. Some free economy. In a TV interview Pickens likens the Japanese economy to the days in the United States before the anti-trust laws. The Japanese correspondent who was on the program with him did admit that Japanese companies own each others stock. It is also obvious they have interlocking directorates. Which means simply that an oligarchical industrial community with the aid of the Japanese government directs the Japanese economy. If the whole lot were transferred to the United States they would all be in court on anti-trust charges of one sort of another. The Japanese deserve the credit for taking a war ravaged country and turning it into the world's largest manufacturing nation, no matter by what means fair or foul. We, however, should stop feeling guilty because we are having trouble staying abreast of a monopolistic economy.

Markets

Japan can not afford to open its markets to the United States. Not because we would blow them out of the water with efficiency and low prices, but because the local Japanese economy is the vital proving ground for producing the economies of scale with which Japan clobbers the rest of the world. Any serious competition in the Japanese home market seriously interferes with Japan's ability to prove the product and use it as an effective weapon in international trade.

In 1976 we allowed the Japanese to dump televisions onto the U.S. market. Our government invoked no sanctions. Not one cent was assessed when in fact some $400,000,000 was due in penalties. We allowed the Japanese to repeat this phenomenon until the U.S. electronics industry was in shambles and what's more, we allowed the Japanese, in true monopolistic fashion, to come into the U.S. and buy the ravished companies. What one can see in terms of savings accounts, and manufacturing efficiencies in this activity is beyond me. I see it as the simple activity of cartel and monopoly-like industry practicing restraint of trade and several other calamitous practices, no U.S. industry would be permitted to practice in the U.S. This is what the machine tool people complained about to the government. Why should the Japanese be permitted to behave in ways for which U.S. managers would be put in jail? They were called Japan bashers.

Presidents Roosevelt and Truman won World War II. They did it by defeating Japan and Germany, occupying their lands and administrating them. In the economic wars, Japan has conquered the United States. She occupys and administers a significant part of our land which our debt, domestic and international is allowing her to buy. How can we afford the debt? We are selling the capital assets of the nation. As long as we have things to sell we can borrow as much money as we want to.

The tragedy of our time is that we exhausted ourselves with our military budget, we divided our nation racially, politically and economically and we have brought ourselves to premeditated bankruptcy just at the time when a Marshall Plan for Eastern Europe could turn the tide toward democracy forever. Stalin forbade the Warsaw Pact nations from participating in the original Marshall Plan since he knew those countries would be lost to the West. Piling up huge unneeded debt using the "Evil Empire" as the excuse, and giving away the store to Japan has seriously weakened our international position. We may find ourselves, in the future, facing Japan and Russia as allies (Japan can provide the Marshall Plan) and Japan in the position to exploit the Chinese market we opened to the west.

What Goes Up Must Come Down

Since we got into this mess by increasing government spending and lowering taxes, it seems logical that we should increase taxes and lower government spending. The increase in government spending was for the military; it seems logical the military should be cut. We can start with SDI, the stealth bomber, and the home porting of obsolete battle ships. We should not plunge headlong into disarmament, but we should be alert to the notion that even the communistic nations smell the coffee and are shifting to the pursuit of economic hegemony. We need to trade in our cold warriors for some hot industrialists.

. . . Ted Sudia . . .

© Copyright 1989
Institute for domestic Tranquility