JAPAN: ECHOES OF WORLD WAR II : National Agenda : Economic Miracle Goes ‘Poof ‘ but Firms Adapt : Trade surpluses and a rising yen keep Japan a powerhouse despite the troubled real estate and stock markets.
Toshimi Yoshida’s grimy factory, with its worn concrete floor and sexy pinup calendars on the walls, is the kind of place that created Japan’s post-World War II economic miracle.
A former seaweed-drying shed turned metal workshop, the tiny facility churned out auto parts that fueled Japan’s powerful export drive. The high-quality, low-wage work of Yoshida and his five employees eventually helped humble mighty Detroit.
But now an ever-strengthening yen and Japanese investments in low-cost production overseas are bringing hard times to the small factories at the base of Japan’s industrial pyramid. With the country in its fourth year of near-zero economic growth, people like Yoshida, 50, are bearing the brunt of a painful adjustment.
“If the yen gets any stronger, I’m worried that we can’t survive,” Yoshida said of the currency that’s pricing Japanese products out of overseas markets.
Yet for all the discomfort and fear, Yoshida, like Japan itself, is coping. Convinced that his auto parts work will be gone within five years, he is turning toward new fields. He uses his connections to get orders for products ranging from metal clamps for construction work to protective metal covers for control panels at nuclear power stations. He then subcontracts out the jobs to other small factories.
“Looking toward the 21st Century, it’s necessary to adjust one’s work,” he says.
Yoshida has seen lots of change already. He lost all his employees during the booming 1980s, when they quit for better-paying jobs. Two years ago, he still worked 250 hours a month making auto parts for Mitsubishi Motors Corp. Now those orders provide only 40 hours of work a month-- and his piece-rate pay, already declining, was recently cut another 3%, as part of Mitsubishi’s continued squeezing of cost reductions from its supplier chain.
Fifty years after the end of World War II, the postwar miracle has ended, and it is easy to paint a picture of Japanese economic gloom. The country seems stuck in a never-ending recession. Stock prices, which crashed in 1990, remain at less than half their peak. Commercial real estate values have also plunged.
Deflation of stocks and real estate, coming after the excesses of the late-1980s “bubble economy,” has left a banking system heavily burdened by bad loans, officially acknowledged to be at least $470 billion but estimated by private analysts to run as high as $1 trillion. Cleaning up the banking mess is a prerequisite to restoring Japan to full economic health.
Yet tales of woe are only half the story. The yen’s 40% appreciation since 1990, while creating difficulties for Japanese exporters, has also vastly increased Japan’s economic weight. With only 48% of the population of the United States, Japan’s economic output measured in dollars now equals about 80% of America’s.
And despite the burden of the strong yen, which makes Japanese products more expensive in dollars, the high quality, price competitiveness and, in some cases, near-monopoly market domination of Japanese exports continue to give the country huge global trade surpluses--$129 billion in 1994.
Meanwhile, ever-cheaper imports are surging into Japan, thereby trimming yen-based living costs. Total imports shot up 13.5% last year to $238 billion. Nomura Research Institute predicts that imports will reach $296 billion this year.
These imports are no longer dominated by raw materials and foodstuffs. Manufactured and semi-manufactured goods made up 55% of Japan’s imports last year, up from 30% in 1984, according to the Japan External Trade Organization.
Imports of all kinds of U.S. machinery and equipment soared 23% in 1994. Key imports from the United States included computers, up 25%, integrated circuits, up 26%, and airplanes. up 16%. Imports of American foodstuffs rose 13%. Imports of integrated circuits from South Korea, meanwhile, more than doubled.
Imports of consumer goods--often made in Japanese factories overseas--are creating an outright drop in living expenses, while cheaper raw materials hold down production costs. Deflation may hurt corporate profits and weaken the financial system, but it also means Japanese living standards can rise without wages going up.
Norimichi Suzuki, president and owner of Suzuki Manufacturing Co., whose precision machine tools are used in making gears, is among those struggling to cope with the strong yen. Yet he can see benefits too.
“There’s no reason for people in Japan to do the kind of work that robots can do--work that uses their hands and not their brains,” Suzuki said. “Assembly-line work is surely going to move overseas. That means Japanese consumers can buy cheaper products. I think it’s a good thing. Survivors in Japanese manufacturing will be those who make highly sophisticated products that require skilled labor.”
With the strong yen, overseas investment comes at ever-sweeter bargain prices. But critics fear this will bring a “hollowing out” of Japanese industry, with a loss of much of te country’s assembly-line production to its Pacific Rim neighbors. But this trend also has the corresponding effect of giving Japan a growing regional headquarters role, as Japanese-managed production booms in Southeast Asia and China.
And despite the vast expansion in Japan’s manufacturing presence throughout East Asia, Japanese media report that 91% of Japanese firms’ total global production is still domestic, while American firms have shifted about 30% of their production overseas.
High-technology companies like Hitachi Ltd. and Fujitsu Ltd. continue to pour money and manpower into research in growth fields such as semiconductors, computers and multimedia, laying a basis for the creation of new jobs higher on the technology scale.
Eamonn Fingleton, Tokyo-based author of the book “Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000,” notes that according to statistics from the Organization for Economic Cooperation and Development, Japan’s net savings in 1994 totaled $852 billion, representing 52% of the total for the 24-nation group of industrial nations. The U.S. share of the group’s savings was only 11%.
This translates into big differences in investment. For instance, Canon’s capital spending per worker was twice that of Hewlett-Packard, Fingleton calculated.
“In 1952, when the U.S. dominated the world’s saving flows, American per-capita income was $1,858--[or] 2.5 times Britain’s, . . . and 11 times Japan’s,” Fingleton said. “America’s position then was sustainable , and the American worker was under little competitive pressure from a whole world of cheap labor because he or she was working more machines and better machines than anyone else.
“Today, with wages about 60% higher than America’s, Japan’s position is sustainable for the same reason: The Japanese worker today is working with the best equipment.”
Japanese companies also are trying to cut costs, including trimming work forces through reduced hiring, early retirements and layoffs of temporary workers.
Suzuki’s machine-tool firm is among those companies. While its domestic sales picked up earlier this year, its export orders have fallen in recent months, and the company has been in the red since 1992. Suzuki has cut his work force by 25%, to 45 people, in the past three years.
Like almost all Japanese employers, however, Suzuki has avoided laying off male heads of household below the standard retirement age of 60. Instead, he targeted older workers who had previously retired and then been rehired at reduced pay, a common practice in Japan.
“I hated doing it. They were all people who had worked for me for a long time,” Suzuki said. “They were mostly over 65, so their pensions are enough for an older couple to survive. It would be much harder to fire people under 60.”
Because of such attitudes, unemployment in Japan--now at 3.2%, its highest level in more than 40 years--mainly hits the elderly, married women or young high school or college graduates who have trouble finding their first job. However unfair this may be, it contributes to Japan’s economic and social stability, as most unemployed people have relatives or financial resources to lean on.
Despite the red ink and the cutbacks, Suzuki optimistically recalled a speech he gave in 1986, when the yen hit 180 to the dollar. “People were saying then that Japanese industries couldn’t survive at 180 yen,” he said.
“I gave this talk, comparing the exchange rate to a golf handicap,” he said. “I said, ‘We have to think that we gained power, and the world admitted we have power and it wants us to have a tougher handicap.’ I told them to be proud of the yen’s strength and not be so pessimistic.”
For many years now, he noted, “when the Japanese face a strong yen, they just try harder--and that causes the yen to get stronger still.”
This may be a “vicious circle,” Suzuki said. But like most Japanese exporters, he’s not ready to quit.
“We’re trying to produce more, with fewer people and without loss of quality. We’re trying as hard as we can,” he said. “I have a fighting spirit and would like to export more. I don’t want to be a defeated dog.”
Chiaki Kitada of The Times’ Tokyo Bureau contributed to this article.
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Going Overseas
Japan is doing more manufacturing abroad--although at 9% is still falls fa short of the 30% estimated for the United States.
(Chart) % of Japan’s production conducted outside Japan
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Taking Stock
Prices have fallen more than 50% on the Tokyo stock market since 1989.
(Chart) Nikkei-225 index average
