The Rise and Fall of the Great Powers (92 page)

The second, even more worrying blade of the scissors has been the increasingly hostile reaction of Americans and Europeans to the seemingly inexorable penetration of their domestic markets by Japanese products. Year after year, the populations of these prosperous markets have bought Japanese steel, machine tools, motorcycles, automobiles, and TV sets and other electrical goods. Year after year, Japan’s trading surpluses with the EEC and the United States have widened. The European reaction has been the tougher one, ranging from import quotas to bureaucratic obstructionism (such as the French requirement that Japanese electrical goods be admitted only via an understaffed customs house in Poitiers).
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Because of its own belief in an open world trading system, American administrations have hesitated to ban or otherwise restrict Japanese imports apart from dubious “voluntary” limits. But even the staunchest American advocates of laissez-faire have grown uneasy at a situation in which, essentially, the United States supplies Japan with foodstuffs and raw materials and receives Japanese manufactures in return—a sort of “colonial” or “underdevelopment” trading status it has not known for a century and a half. Moreover, the growing U.S. trade deficits with Japan—$62 billion in the fiscal year ending March 31, 1986—and the pressures from beleaguered American industries which have felt the brunt of this transpacific competition have increased Washington’s demand for measures to reduce the imbalance—e.g., to encourage a rise in the exchange value of the yen, a substantial increase in American imports
into Japan, and so on. As the western world drifts toward quasi-protectionism, moreover, its tendency to put limits upon the
total
amount of textiles or televisions imported implies that Japan will have to divide that shrunken market with its Asian rivals.

It is scarcely surprising, therefore, that some Japanese spokesmen deny that things are good, and point to an alarming conjunction of threats to their present market shares and prosperity: the increasing challenge by Asian NICs in so many industries; the restrictions upon Japanese exports by western governments; the pressures to change Japan’s tax laws, divert monies from savings to consumption, and ensure a large increase in imports; finally, the swift rise in the value of the yen. All of these, it is claimed, could mean the end of Japan’s export-led boom, a decline in its payments surpluses, a slowing-down in its growth rate (which has already been decelerating as its economy becomes more “mature” and its potential for spectacular expansion diminishes). In that connection, Japan worries that it is not only its economy which is maturing: because of the age structure of its population, by 2010 it will have “the lowest ratio of working-age people (those 15 to 64 years old) among the leading industrial nations,” which will require high social security outlays and could lead to a loss of dynamism.
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Moreover, all the attempts to get the Japanese consumer to buy foreign-made manufactures (except those with a certain prestige, like Mercedes cars) lead to domestic political controversy,
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which might in turn cause a possible breakdown in the consensus politics which has been an integral part of Japan’s sustained export-led expansion in the past.

Yet while it may be true that Japan’s economic growth is slowing down as it enters a more mature phase, and while it is certainly true that other countries are unwilling to permit Japan to keep the economic advantages which aided its previous explosion of exports, there nevertheless remain considerable substantive reasons why it is likely to expand faster than the other
major
Powers in the future. In the first place, as a country so incredibly dependent upon imported raw materials (99 percent of its oil, 92 percent of its iron, 100 percent of its copper), it benefits enormously from the changing terms of trade which have reduced the prices of so many ores, fuels, and foodstuffs; the drop in world oil prices after 1980–1981, which saves Japan billions of dollars of foreign currency each year, is only the most spectacular of the falls in raw-materials and foodstuffs prices.
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Furthermore, while a rapid appreciation in the value of the yen is likely to cut some of the country’s exports overseas (depending always upon the elasticity of demand), it also greatly reduces the cost of imports—and thus helps industry to stay competitive and inflation to remain low. In addition, the 1973 oil crisis stimulated the Japanese into searching for all sorts of energy economies, which contribute to the still greater efficiency of
its industry; in the past decade alone, Japan has reduced its dependence on oil by 25 percent. In addition, that same crisis impelled Japan into a sustained search for new sources of raw materials and a heavy investment in such areas (somewhat akin to Britain’s investments overseas in the nineteenth century). None of this makes it
absolutely
certain that Japan can rely upon a continued flow of low-priced raw materials; but the auguries for that are good.

More significant still is the continued surge of Japanese industry toward the most promising (and, ultimately, most profitable) sectors of the economy for the early twenty-first century: that is, high technology. In other words, as Japan steadily pulls out of the production of textiles, shipbuilding, basic steel—leaving them to countries with lower labor costs—it clearly intends to be a (if not
the)
leading force in those scientifically advanced manufactures which have a much higher added value. Its achievements in the computing field are already so well known as to be legendary. Borrowing heavily from American technology in the first instance, Japanese companies were able to exploit all their native advantages (a protected home market, MITI support, better quality control, a favorable yen-to-dollar ratio) as well as—most probably—“dumping” at below-cost prices to drive most American companies out of the production of semiconductors, whether of the 16k RAM, the 64k RAM, or the later 256k RAM.
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Even more worrying to the American computer industry is the evidence of Japan’s determined move into two fresh (and much more profitable) fields. The first is the production of advanced computers themselves, particularly the sophisticated and extremely expensive “fifth generation” supercomputers, which can work hundreds of times faster than the largest existing machines and promise to give their owners enormous benefits in everything from codebreaking to designing aircraft shapes. Already American experts are stunned by the speed at which Japan has moved into this area, and at the amount of research capital which MITI and large companies like Hitachi and Fujitsu are pouring into it.
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Yet the same is also happening in the field of computer
software
, where again American firms (and a few European firms) were unchallenged until the early 1980s.
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To be sure, the successful production both of supercomputers and of software is a much larger task than making semiconductors, and will test Japan’s designers to the utmost; and in the meantime both American and European companies (the latter strongly supported by their governments) are preparing to meet the commercial challenge, while the U.S. Department of Defense will give its massive backing to ensuring that its national firms remain ahead in the development of supercomputers. Nonetheless, those bodies would be very sanguine to assume that Japan can be permanently held off in these fields.

Since respected journals like
The Economist
, the
Wall Street Journal
,
the
New York Times
, and many others frequently carry articles about Japan’s move into further areas of high technology, it would be superfluous to repeat the details here. Mitsubishi’s link-up with Westinghouse has been seen as evidence of Japan’s increasing interest in the nuclear-power industry.
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Biotechnology is also a large Japanese concern, especially with its implications for enhancing crop yields. So, too, is ceramics. The reports that the Japanese Aircraft Development Corporation has joined up with Boeing to produce a new generation of fuel-efficient aircraft for the 1990s—denounced by one American expert as a “Faustian bargain” whereby Japan will provide cheap finance and acquire U.S. technology and expertise
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—may be even more significant for the future. But perhaps the most important (in terms of sheer output) will be the already impressive lead which Japan has in the field of industrial robots and its development of (experimental) entire factories virtually controlled by computers, lasers, and robots: the ultimate solution to the country’s decreasing labor force! The latest figures show that “Japan continued to introduce about as many industrial robots as the rest of the world combined, several times the rate of introduction in the United States.” Another survey indicates that the Japanese use their robots much more efficiently than Americans do.
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Behind all of these high-technology ventures are a cluster of broader, structural factors which continue to give Japan marked advantages over its chief rivals. The role of MITI as a sort of economic equivalent to the famous Prussian General Staff may have been exaggerated by foreigners,
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but there seems little doubt that the broad direction which it gives to Japanese economic development by arranging research and funding for growth industries and a gentle euthanasia for declining ones has worked better to date than the uncoordinated laissez-faire approach of the United States. The second strength—one of the most important of all in explaining the rise and fall of particular firms and industries—is the large (and increasing) amount of money which is allocated to research and development in Japan. “The proportion of GNP devoted to R&D will virtually double this decade, rising from 2 percent of GNP in 1980 to an expected 3.5 percent by 1990. The United States has stabilized R&D expenses at about 2.7 percent of GNP. However, if military research is excluded, Japan is already devoting about as many man-hours to R&D as the United States and will soon be spending about as much for it. If present trends continue, Japan will take the lead in nonmilitary R&D spending by the early 1990s.”
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Even more interesting, perhaps, is the fact that a far higher proportion of Japanese R&D is paid for and done by industry itself than in Europe and the United States (where so much is done by governments or universities). In other words, it is aimed directly at the marketplace
and is expected to pay its way quickly. “Pure” science is left to others, and tapped only when its commercial relevance becomes clear.

The third advantage is the very high level of national savings in Japan, which is especially marked compared with that in the United States. This is partly explained by the differences in tax systems, which in the United States have traditionally encouraged personal borrowing and consumer spending—and in Japan encourage private savings. On average, too, the individual in Japan has to save much more for his or her old age, since the pension schemes are usually less generous. What all this means is that Japanese banks and insurance companies are awash with funds and can provide industry with masses of low-interest capital. The share of GNP which is collected in Japan both as income tax
and
social security payments is much lower than in the other major capitalist-cum-“welfare state” societies, and the Japanese evidently intend to keep it that way, in order to free the money for investment capital.
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Europeans who would like to imitate “the Japanese way” would first of all have to massively reduce their social welfare spending. Americans enamored of Japan’s system would have to slash both defense and social expenditures,
and
to alter their taxation laws even more drastically than they have done so far.

The fourth strength is that Japanese firms have a virtually guaranteed home market in all except prestige and specialized manufactures—a situation no longer enjoyed by most American firms or (despite their protectionist efforts) by the majority of European companies. While much of this was aided by in-built bureaucratic practices and regulations designed to favor Japanese producers in their home market, even the abolition of such mercantilistic devices is unlikely to persuade Japan’s consumers to “buy foreign,” other than raw materials and basic foodstuffs; the high quality and familiarity of Japanese products, a strong cultural pride, and the complex structure of domestic distribution and sales will ensure that.

Finally, there is the very high quality of the Japanese work force—at least as measured by various mathematical and scientific aptitude tests—which is not only groomed in an intensely competitive public education system but also systematically trained by the companies themselves. Even fifteen-year-olds in Japan show a marked superiority in testable subjects (e.g., mathematics) over most of their western counterparts. In the higher reaches of learning, the balance is different: Japan has a dearth of Nobel Prize scientists, but it produces many more engineers than any western country (about 50 percent more than the United States itself). It also has nearly 700,000 R&D workers, which is more than Britain, France, and West Germany have combined.
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No statistically quantifiable assessment can be made of the combined effects of the above five factors, compared with conditions in other leading nations; but, taken together, they obviously give Japanese
industry an immensely strong bedrock. So, too, does the docility and diligence of the Japanese work force and the harmony which seems to prevail in the industrial-relations system, where there are only company unions, a search for consensus, and virtually no strikes. There are, clearly, unattractive features here as well: longer hours of work, the all-pervading conformism to the company ethos (from the early-morning physical exercises onward), the absence of truly independent trade unions, the cramped housing conditions, the emphasis upon hierarchy and deference. Moreover, Japan also contains, outside the factory gates, a radicalized student body. Such facts, and other disturbing traits in Japanese society, have been commented on by many western observers
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—some of whom appear to view the country with the same sort of horror and awe that continental Europeans manifested toward the “factory system” of early-nineteenth-century Britain. In other words, what is clearly a more effective arrangement of workers, and of society, in terms of
output
(and thus wealth creation) involves a disturbing challenge to traditional norms and individualist ways of behavior. And it is because the emulation of the Japanese industrial miracle would involve not merely the copying of this or that piece of technology or management but the imitation of much of the Japanese social system that observers such as David Halberstam argue, “This is America’s newest and … most difficult challenge for the rest of the century … a much harder and more intense competition than … the political-military competition with the Soviet Union.… ”
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