U.S. Can’t Afford to Snicker
Japanese banks stagger under the weight of hundreds of billions of dollars in bad loans. Mitsubishi Real Estate takes a $1-billion loss on its investment in Rockefeller Center. Sony Corp. and Matsushita Electric Corp., the famed consumer electronics giants, take a bath on multibillion-dollar investments in Columbia Pictures and MCA Inc.
Bad news. Yes. And you can almost hear the collective snickering.
Admit it. After years of watching American companies run scared from the Japanese threat, it feels good to watch U.S. companies sweep up. We’re getting sadistic pleasure in the portrait of Japan as a nation of deadbeats.
But this pleasure is likely to be very short-lived, as British journalist Eamonn Fingleton points out in his new book, “Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000.” Though it sometimes overreaches, the book provides an important corrective to some of the euphoria about America’s competitiveness comeback, especially in high-tech.
If American companies like Motorola Inc., Intel Corp. and Compaq Computer Corp. so clearly dominate the global markets, how come we had a $65-billion trade deficit with Japan last year, a third of it in telecommunications, computers and semiconductors? While American brands like Apple are recognized globally, Fingleton points out, the sophisticated components that go into their printers and computers are built by Japanese factories. And whenever factories are built, more likely than not they are stuffed with Japanese production equipment.
If we are so healthy and Japan is so sick, how come Japanese companies continue to invest two to three times as much in new plants and equipment per employee as American companies--even in the midst of a deep slump? Why is Japan’s annual net savings of $852 billion five times higher than America’s? And how come Japanese companies are outspending American companies in research and development?
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American companies may be making record profits, but jobs and technical know-how keep flowing rapidly into Japan and its subcontractor economies around the Pacific Rim.
Japan’s bureaucrats, the nation’s real managers, seem as confident as ever of their power. Earlier this year, President Clinton threatened to tax Japanese luxury auto imports if Japan didn’t set concrete targets for boosting imports of American autos and auto parts. Japan refused, figuring Clinton would buckle. A face-saving deal notwithstanding, he did.
The real source of America’s growing trade deficit with Japan is not autos anyway, but high technology, Japanese Finance Ministry officials recently reminded us. And this, they insist, is an area where the United States has few options. American industry can’t grow without critical Japanese components and production equipment.
Take the disk drives that go into personal computers. The Wall Street Journal recently ran a feature describing America’s prowess in the field by pointing to rapidly growing companies like Quantum Corp. But Quantum’s drives, Fingleton reminds us, are built by Matsushita Electric. Digital Equipment’s new ultra-thin notebook is not an example of American technological sophistication. It is made by Citizen Watch, a Japanese company that also makes nearly a fourth of all the world’s watch movements.
Japan’s continued economic success in the face of recent challenges, including the rapid rise in the value of the yen, is based on well-known litany of institutional advantages that show no signs of going away. The absence of strong antitrust policies, for example, make it easier for Japanese companies to develop monopoly positions in many markets: Companies are actually encouraged to specialize in niches where that they can dominate global markets.
Cartels, considered anti-consumer in America, allow Japanese companies to coordinate investments and to avoid damaging price wars. The consumer pays. But the corporation is ultimately strengthened as it competes based on quality rather than price.
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The financial system may seem backward. But it serves its purpose of sopping up the nation’s savings, which are then channeled by smart elite bureaucrats into strategic industries. The system for encouraging savings also discourages consumption and holds down imports.
Labor policies that make it difficult for Japanese companies to lay off workers force companies to make extraordinary efforts to develop new products to keep their workers employed. American companies in search of short-term profits, by contrast, will fire workers without hesitation to get a slight cost advantage by buying even the most strategic high-tech components offshore.
America does remains the leader in frontier computer and communications technologies. But it’s unclear how much that innovation is helping the nation produce jobs and improve national competitiveness when so many basic components come from Japan.
“As Britain long ago learned to its cost,” says Fingleton, “unless a creative nation can manufacture its inventions, it rapidly loses control of them to efficient manufacturers overseas.”
Fingleton sometimes goes too far, as when he suggests that the current banking crisis was concocted by Japanese officials to squeeze out speculators and shift national wealth to corporations.
At a minimum, Fingleton reminds us that we ought to stop snickering. Japanese companies were getting ready to compete at 80 yen to the dollar, and now that the yen is 20% weaker, a wide range of Japanese products are again going to look competitive, not just on quality but on price as well.
Leslie Helm was a Tokyo correspondent for The Times before assuming his current post as a technology writer based in Seattle.
