One More Time: Resist Protectionism

The condescension has been unbearable. In the week since Sony appointed Sir Howard Stringer as its new boss, the U.S. media have not missed a chance to sound superior. How clever of those insular Japanese to have worked out that Western managers are the bee’s knees! How “mature” of those quaint Tokyoites to embrace modern management in the shape of a globe-trotting Welshman!

This condescension is misplaced on two levels. First: It is always a mistake to underestimate the Japanese. The most striking thing about Japanese companies is how well they have done, given the economy’s severe structural problems and the government’s complete inability to deal with them. Japan still boasts the world’s second-largest economy and many of the world’s most impressive manufacturers. Second: The appointment of Stringer reminds us of a salutary tale on the perils of xenophobia and protectionism, one that is relevant to another Asian debate today: China.

The tale also begins with Sony -- this time with its acquisition of Columbia Pictures in 1989. Akio Morita’s grand plan to combine Hollywood software with Japanese hardware caused a cultural tremor in the U.S. far worse than anything happening in Tokyo last week. “Japan Invades Hollywood,” howled the domestic cover of Newsweek (its Asian edition changed it to “Japan Moves Into Hollywood”). Members of Congress drew up a list of all the American icons seized by the Japanese horde: Rockefeller Center, Pebble Beach Golf Course, Firestone Tire. And things did not get any better when Sony’s great rival, Matsushita, bought another Hollywood studio, MCA/Universal, in 1990.

The Japanese naturally crowed about their success. “There is no hope for the United States,” proclaimed one Japanese member of parliament in 1989. But the Americans were just as willing to buy into the myth of the “invincible Japan.” Michael Crichton’s “Rising Sun” in 1992, a thriller about corporate skulduggery in Los Angeles, painted a picture of America gradually being taken over by the dastardly Japanese keiretsu -- a system of affiliated companies -- backed by their inscrutable government, which understood that “business was war.” Writers like Clyde V. Prestowitz (“Trading Places: How We Allowed Japan to Take the Lead”) and James Fallows (“Looking at the Sun”) argued that Japan challenged the very premises of Anglo-Saxon capitalism. The Harvard Business Review even hailed Japan’s “unsurpassed” financial regulators.

This was all guff. The scaremongers wildly exaggerated the Japanese threat. Yes, Japanese investment in the U.S. rose dramatically in the 1980s. But it never caught up with British investment. Yes, Japanese companies were better than their U.S. rivals at some things, particularly manufacturing. But this had less to do with industrial planning or superior financial regulations than with the fact that, well, Japanese companies were better at making things like cars and televisions.

But for a while it looked as if this hot air might distort U.S. policy. The 1988 trade bill introduced the so-called “Super 301” provision allowing retaliatory tariffs against unfair traders, largely to deal with Japanese companies “dumping” their products. A Silicon Valley chip cartel got public backing. President George H.W. Bush went to Tokyo to demand that the Japanese open their markets (and famously threw up at a banquet).

In the end, remarkably little damage was done, thanks in large part to the Clinton administration’s willingness to embrace the trade policies of the Uruguay trade round in 1994. But imagine what might have happened if Washington had continued the Japan-bashing. U.S. companies would have found it harder to buy cheap, fuel-efficient cars and would have been under less pressure to learn from clever Japanese management such techniques as “just in time” production -- which reduces costs by having supplies delivered on an as-needed basis. U.S. markets would have shrunk. And today’s trade spats, such as the row about mad cow disease and U.S. beef exports, would be in a context of rival trade blocs taking part in a global game of beggar-thy-neighbor.

This seems particularly relevant given the current fuss about China. There is more reason for U.S. politicians to worry about China because, unlike Japan, it packs a mighty military threat. All the same, much of the congressional posturing about the trade deficit with Beijing carries a familiar echo: a new group of wicked Asian companies are exporting cheap reliable goods that U.S. consumers want to buy.

Ignore these protectionist sirens. As long as the U.S. keeps borders open and trade flowing, it can be confident that, within 20 years, the Chinese dragons it fears will be turning to another Welshman for help.