Can the Japanese Achieve Yet Another Historic Shift?

Twice before the Japanese have demonstrated an awesome capacity to adjust to changing circumstances.

The first occasion, more than a century ago, involved a deliberate decision by a feudal and economically backward Japan to embrace the industrial revolution that had long been under way in the West.

The second came at the end of World War II, when a defeated Japan willingly absorbed democratic reforms prescribed by U.S. occupation authorities.

Now Prime Minister Yasuhiro Nakasone says that a third historic shift is in the making--this time the drastic restructuring of an economic system that has become too successful for Japan’s own good.

Specifically, the Nakasone government vows to reorient the Japanese economy toward a much greater acceptance of foreign goods and services in the home market, while also moving away from an excessive reliance on exports.

At the heart of the strategy is expansion of the domestic side of the economy--housing, public works and services, among other things--in order to pull in more imports from the United States and other countries, ease the Japanese export drive and reduce Japan’s huge trade surplus.

Japanese consumers are to be encouraged to save less and spend more. And, as elaborated by the Ministry of International Trade and Industry, the plan calls for moving more Japanese manufacturing to other countries, including America.

Even if the reforms are carried through, it isn’t clear that U.S. businessmen will seize the opportunity to expand exports and recapture some of the ground lost to Japanese manufacturers in the U.S. market. Past performance suggests otherwise.

Longtime Japan-watchers are skeptical, in any event, that Nakasone and his successors can or will put the sweeping program into effect.

Certainly it is hard to square the promises of structural reforms with Japan’s continued resistance to allowing U.S. tobacco companies a fair shot at the cigarette market, the rigid protectionism afforded Japanese rice growers and the barriers faced by U.S. construction companies that want to bid on a new airport in Osaka Bay.

Then there is the fact that Japanese companies are resisting proposals to make more use of U.S.-made auto parts, although only about 30% of the components that go into Japanese cars assembled in this country are of American manufacture.

Japanese officials, while observing that a basic change in the economic structure cannot be accomplished overnight, nonetheless insist that the reforms will be carried out. Japan has no choice, they say, given the enormous jump in the value of the yen and rising resentment in the United States and elsewhere at the country’s huge trade surplus. To quote a well-placed source in Tokyo, “Nakasone is really making a virtue of necessity.”

A little historical perspective is helpful.

Japan, endowed with too little arable land and skimpy to non-existent fuel and mineral resources, must import large quantities of food, energy and industrial raw materials. To offset the big import bill, Japan’s strategy has been to maximize exports of manufactured goods while keeping its home market resistant to imports.

Postwar Japan actually ran a trade deficit until the mid-1960s; its overall trade balance fell substantially into the red as recently as 1980. So Japan’s lopsided trading practices didn’t bother anybody much until recent years.

What happened then was the election of Ronald Reagan, with his indifference to the emergence of a historically unprecedented federal budget deficit and a soaring dollar.

The strong dollar alone was enough to put U.S. business at an enormous disadvantage in fending off Japanese and European inroads into the American market.

The American competitive position was made worse by lethargic corporate managers and a tax system that discouraged savings, encouraged consumption and did too little to encourage development and marketing of new, high-quality products.

With astonishing rapidity the U.S. trade deficit soared from awful to disastrous. Last year it reached an incredible $148 billion, with Japan the largest single contributor to the imbalance. With some nudging from the banking authorities of major trading nations, the dollar has fallen 40% against the Japanese yen in the past year, and a similar amount against major European currencies.

That was supposed to make U.S. goods competitive again. And indeed the volume of Japanese exports is actually off a shade. Profits of Japanese companies are down. In dollar terms, industrial wages in Japan are now in the same ball park as ours. The economy is growing, but just barely.

But the U.S. trade deficit continues to soar. The experts now figure that it will go close to $200 billion this year.

One reason is that it now takes more dollars to pay for a given quantity of imported goods. Another is that the American consumer’s addiction to Japanese cameras, video recorders and autos has not abated. And many U.S. manufacturers have already moved their own factories abroad or gone out of business.

Clearly the yen-dollar adjustment alone won’t correct the trade imbalance. But it seems to be forcing Japanese businesses to move more production lines to the United States and other countries. The strong yen may also be making Japan more receptive to Nakasone’s structural reform plan.

The unfolding strategy for pumping up consumer spending includes higher wages when justified by productivity gains, fewer working hours, more leisure time, expanded public works and a boost to housing construction.

Architects of the plan insist that a favorable consensus already exists in principle. They admit, however, that the nitty-gritty of implementation won’t be easy.

Take housing. Everyone agrees that it isn’t adequate and that a housing boom would trigger large-scale purchases of home furnishings. But a shortage of suitable land, together with astronomical land values and outmoded legal restraints on developers, poses formidable obstacles.

Japan’s large budget deficit imposes limits on public-works spending--or so the fiscally prudent government believes.

Equally important, the enthusiasm of Japanese businessmen for higher wages, a shorter working week and market-opening measures is likely to be limited as long as the economy is sluggish and cost-cutting is needed to preserve profits.

To the degree that they try to square the circle by moving production overseas, jobs will be eliminated--potentially, hundreds of thousands of jobs. That could create grave political problems for Nakasone’s conservative Liberal Democratic Party.

Well-placed officials in Tokyo insist that such hurdles can and will be overcome, but it will take time. Meanwhile, the U.S. trade deficit continues to mount, and congressional patience wears thinner and thinner.

The Japanese have earned a reputation for masterful procrastination in warding off unwelcome pressures from foreigners. Right now procrastination is not what’s required in U.S. business circles, which need to use their opportunities, or in Japan. Fortunately, Nakasone appears to agree.

Ernest Conine is a Times editorial writer .