There are many misconceptions about Japan and its success in the post-war era. While staying in Japan in mid 1992, I tried to look at Japan's seemingly miraculous success with the hope to understand it so that maybe we could apply some of their plan in our own country. "What makes Japan so good?", "How did they get from a third world country to be the richest in the world so quickly?" [Yen! p306] are common questions asked today in America. Today, I will try to answer with examples, at least partially, these questions.
Today, Japan is a major or dominant power in almost every world strategic industry including finance, communications, mass-transit, semi-conductors, motor vehicles, and popular-entertainment. The world's largest banks are all Japanese[Yen! p37]. The largest record company in America is Japanese (CBS records(SONY)). Two of the three biggest movie/entertainment companies in America (Universal/MCA(Matsushita)..makers of "Jurassic Park" and Columbia/Tri-star(SONY)) are Japanese[Wall Street Journal 03/26/93 R16]. Many big companies in the US like Loews Theatres, Firestone Tires and 7/11 stores are Japanese (see appendix for listing). In fact, today 7 of the 10 largest companies in the world are Japanese [(sales)Business Week 07/12/93 p53]. Furthermore, Japan today is the world's biggest manufacturer of autos, having surpassed the United States in the mid 1980's [Information Please! World Almanac 1992 p144]. These all used to be American dominated industries 25 years ago.
Going to Japan, I expected to see a very efficient country from which America could learn in order to regain her former prosperity. During my trip, the reality began to sink in that what is really happening was quite different from expectations and in some ways quite disturbing. The Japanese have a very different approach to doing business than we do. This paper will elaborate, justify and try to show what is happening and why it is important that this be understood here in America.
Don't be afraid to question what you read here as I am confident that if you research the points yourself (hopefully by going to Japan to see for yourself or reading materials (see Appendix) on the topic), you will find the points made in this paper to be truthful.
Some claims echoed in America which are commonly dismissed as "Japan Bashing" statements, upon investigation are in fact truthful. The following statements may seem brash right now, but their meanings will become clearer in the explanations and examples that follow.
Japan is in a kind of economic war against us [Yen! p31]. Their objective is for them to win and for us to lose. Through the use of cartels, price fixing, government-corporate "anti-foreigner" tactics as well as adversarial trade and predation strategies, Japan is greatly weakening much of America's strategic industries, standard of living and national security. These actions are also destroying the jobs of ordinary American people. While America is being complacent with its industries, the greatest transfer of wealth in the history of the world from one country to another is happening right now, from the United States, to Japan [PBS Frontline "Losing the War with Japan"].
Those who study these types of topics know that economic wars can be even more devastating to a country's long term future than conventional wars. Japan is organized to fight, employs a world economic strategy and has a fundamental plan. America's economic strategy is in disarray and there is no plan. As a result, America is losing the economic war by default.
A very famous example of Japanese national government and corporate coordination to take over a foreign industry is that of the Japanese TV cartel, first set up in the 1960's. This is how Japan took the free-world TV industry away from the United States. PBS TV's "Frontline" program did an excellent documentary on this called "Coming From Japan", (see appendix for how to get transcript via Internet).
In the 1960's, the Matsushita Industrial Electric Company, Sanyo, Toshiba and others formed a TV cartel in Japan. They got US TV technology from the giants in the industry (Zenith, RCA, Quasar) in the following way. The Japanese government prohibited US made TVs from being sold in Japan. Instead, they insisted that the technology be licensed to Japanese manufacturing companies rather than importing (still often the case today in Japan). The US companies thinking they could still make money this way, agreed to these terms which enabled the Japanese companies to acquire the technology on how to build TVs.
The above Japanese companies, with tacit approval from the Japanese government, set up a cartel to inflate TV prices in Japan in order to turn around and use the money to sell below cost TVs in America. This was to drive US makers out of the American and world markets. US TV makers went bankrupt or left the industry as they could no longer fund research to continue making improved and high quality TVs. They could not compete with the artificially low Japanese TV prices in America and were forbidden to enter the Japanese market to take advantage of the high prices there. Hence, the US makers could not make money. Furthermore, secret deals to thwart US customs, illegal under US trade law, were set up by Japanese TV makers and US retailers such as Sears and Montgomery Ward to sell Japanese TVs under store brand names. Concurrently, the Japanese mounted an important lobbying effort in Washington to ensure that this scheme was not disrupted by the US government or customs services [Agents of Influence p77]. As a result, once famous brands such as Sylvania, Quasar, Admiral, Philco and RCA have vanished or are foreign/Japanese owned. Zenith is the only remaining US TV maker today. No US companies make VCRs although they were an American invention.
In the 1980's the Japanese applied this same strategy to the computer flat panel display industry (also invented in the US) and now completely dominate that industry as well. Before that was motorcycles, machine tools and computer memory chips (the US tried to retaliate but failed as our companies couldn't organize with each other during the now famous "dram shortages" a few years ago). It will be happening again in the financial services industry [Yen! p32], telecommunications equipment, kitchen/washing appliances and aircraft manufacturing during the 1990s and beyond [Newsweek 1/18/93 p17].
Several misleading claims are made in the media about how the trade situation today with Japan is fine. These will now be dispelled. One claim states that Japan is opening its market because it has increased imports by 9% in 1986-87 and 18% in 1988. This is a half truth because Japanese exports during the same period increased by much more than that. In other words, the trade gap got bigger, not smaller between Japan and its trading partners. Furthermore, the trade deficit with Japan is actually worse than it appears to be. This is because Japanese goods manufactured by Japanese plants in other Asian countries and sold in the US do not appear in the US trade deficit figures with Japan [Wall Street Journal 03/22/93 A11].
Another false claim, most often made by Japanese trade representatives, states that it is naturally expected and ok that Japan has a trade surplus with America. This is because if every Japanese bought $100 of goods from America, and every American bought $100 worth of goods from Japan, an imbalance would occur in Japan's favor as there are twice as many Americans as Japanese in the world.
In the real world though, this is not ok, and cannot happen for very long without serious consequences. To see more clearly this picture, imagine a world with 2 countries, one with 100 citizens, and another with 1 citizen, you. Each person has $200 to their name. Every year you buy $100 of goods from the other country, and each of their citizens buys $100 of goods from your country. If you work out this example, you will see that in a little over 2 years, you will have accumulated all of the money in the world and the other country will be penniless. This is the current state of affairs between Japan and its trading partners. Although things are actually occurring more slowly, this is the trend.
Japanese communicate with each other and the outside world a bit differently than we do. This is often a cause for misunderstanding between our two peoples, so it will be clarified below.
Because Japan was a communal society, a way of speaking in a way not to directly offend the other person (who they still had to live close to after a discussion had finished) has developed over time. There is even a Japanese word, called "Tatemae", which refers to this kind of phrase. These kinds of phrases are a type of "lie" in order to be polite. Often, when Japanese use words like "goal" or "difficult" in reference to a request you make, this is tatemae.
A recent example from the evening news will make this point clear. Recently, George Bush went to Japan to open the Japanese market to US goods and to get the Japanese to use more US made car parts in the cars they sell to America. After he left, the Japanese Prime Minister said the agreement they reached was "a difficult goal". This is Tatemae code for "we won't meet your demand". But of course, the Japanese PM would not say this directly to George Bush, the president of America. This would be extremely impolite and Mr. Miyazawa could never say such a thing directly to an individual of such prestige. The Japanese PM is thus in a difficult position. This is an occasion for tatemae. Foreigners (especially Americans) who aren't used to Tatemae have extreme difficulty to understand its usage. Later, when the "promise" is broken, Americans often end up thinking they were lied to by the Japanese when this was never the case. Really, the Americans were supposed to pick up on the Japanese polite refusal, but failed to because they took what the Japanese said literally. If you know about Tatemae, it is much easier to know what the Japanese really plan on doing when faced with a politically difficult position as well as what they might be trying to say when they talk on television.
Finally, a claim is often made by cornered Japanese officials that "Japan is at a crossroads" and the problems (described in this article) are being resolved today. "The Japanese market is opening, but it takes time and Americans must be patient for Japan to succeed at this difficult task." Japan has been saying this for the last 20 years.
Although the Japanese are individually are very polite people, Japan is a very racist country, maybe even more so than America is. A common name Japanese use for the white European race is "gaijin". Although its literal translation is innocuous, it is a loaded word. "Gaijin" is a racial slur somewhat in the way "colored" used to refer to a black person in America. There is however a polite form of this word, "gaikokujin", which means literally "outsider country person".
When you enter a rental agency to rent an apartment (the only way to get an apartment in Tokyo), some of the rental books say on the cover "no gaijin". If you are a gaijin, you cannot rent anything in these books. There are also a fair number of restaurants and bars in Japan that do not welcome/serve "gaijins" (a point made once you enter or try to get service at the establishment).
Discrimination does not extend only to foreigners. Looking through any major newspaper, you will see ads which ask for Japanese only (no foreigners), men only, young women only, or people of a certain age. Discrimination doesn't seem to be illegal in Japan. A law does exist however stating that it is a Japanese "goal" not to have discrimination (hint:this is Tatemae). This "anti-discrimination" goal/law does not seem to be enforced in any way. Socially, races are ranked in a kind of status order in Japan, first are Japanese, then caucasians, other asians, then all other races besides black people, who are last.
Such racism is sometimes reflected in disturbing comments directed towards America by high ranking Japanese officials: The Speaker of the Lower House of the Japanese Diet states that Americans are lazy, illiterate and that the U.S. is becoming Japan's subcontractor [Time 2/10/92 p17]. Ex-Prime minister Miyazawa states that American servicemen (protecting Japan) can't afford to take shore leave anymore (due to the high yen), so they'll have to stay aboard their ships and give each other Aids. Yasuhiro Nakasone, an ex-Japanese Prime Minister, states that "America's intellectual level is lower than Japan's because American society has too many blacks, Mexicans and Puerto Ricans" [Yen! p73]. A widely quoted study in Japan claims that the Japanese race is superior because Japanese brains develop differently than those of other races [Tadanobu Tsunoda, The Japanese Brain: Uniqueness and Universality, Tokyo Taishukan Publishing Co. 1985].
Such thoughts extend to immigration policy as well. As a result, the number of people accepted as Japanese citizens or as immigrants to Japan is very very small in number each year. It is claimed that Japan sees it as an advantage to maintain a racially pure society as it is less "disruptive" to social order [Yen! p74].
An extensive hierarchy of small distributers and shops exists in Japan which hinders the distribution of foreign goods. When Americans say the Japanese distribution system is "difficult", "byzantine" or "complex", this is what they are referring to. In reality, the Japanese distribution system is fixed [book: "The Enigma of Japanese power"]. This is why it is so difficult and complicated for the foreigner to succeed in the Japanese market.
Japan, being a communal society, follows a strict code of loyalty. Shopkeepers have loyalty to their suppliers and customers. They also have loyalty to the nation, Japan. Undoing this arrangement that brought the country and its companies so much wealth and power via the entry of foreign goods would be disruptive to this system of loyalty. This is one reason it is so difficult for a foreigner to enter the Japanese market. There are higher forces at work too though:
How important this was became very clear when I befriended a Japanese government worker I'll call Hiroshi. He explained to me how the system worked and why a foreigner cannot usually circumvent it. I suggested the following proposal as an example. The discussion went something like this:
I can sell high quality made in USA GE refrigerators and Hoover vacuums at a much cheaper price in Japan that Toshiba and Sanyo can (this is in fact true). I want to start a business. I go to Japan, but no store will carry my products because I am a "gaijin" (foreigner), and my products are foreign. Doing so would anger the domestic suppliers of these distributers who may hold some of the shop's loans or offer them favorable payment plans.
I decide then, I will set up my own company in Japan, open a shop and sell the appliances myself since no Japanese store will do so for me. Hiroshi said "You can't because you are a foreigner. Foreigners typically cannot own companies in Japan". This is in fact true. It is this government practice which keeps foreign business ventures in the control of the Japanese (and hence why they tend not to threaten Japanese industry seriously). It is also the reason there are so many "joint ventures" between a Japanese company and a foreign one to enter the Japanese market. Otherwise, the foreigner is prevented from entering, or is later set up to fail.
So, anyway to get around this law, I told Hiroshi that I will open the business in my Japanese wife's name (I told Hiroshi to imagine I was married), so now a Japanese owns the company. Hiroshi said "you will still fail because as you find success in the market with your inexpensive American goods, the other vendors will get angry at you. They will politely ask you to raise your prices to that of the Japanese made goods so the system doesn't get disrupted". I, of course, replied that I would refuse to do this as its not in the interest of my customers. Hiroshi replied "then the vendors and the Japanese companies (such as Toshiba, Mitsubishi and other appliance makers) will complain to the government. The government will then prevent you (subtly though as free competition is "the law" in Japan) from operating your business successfully or profitably. New building permits for your stores will be delayed for months for no reason. Business license paperwork will get misfiled or lost without explanation causing you legal hardship. Goods will be delayed unloading off your ships for "too busy customs officials" or "lost somewhere on the pier for 6 weeks" making you miss delivery deadlines and angering your customers... Such "subtle" persuasion is how you are brought into line in Japan. The consequences of the above example (which is true) are seen in the US and Japan today: Hoover and GE make very few sales in Japan while Sanyo, Toshiba and others sell many vacuums and appliances here in America. Ultimately, this weakens US firms like Hoover and GE and may one day cause them to leave these industries entirely.
Other true-life examples of this abound. Here are a few:
Let us go now to a primer on Japanese business organization. Almost all the significant companies in Japan are aligned into one of about 6 keiretsu or business "groupings". These are loosely linked "super-corporations" for lack of a better term. Most of the Japanese companies whose brands we know and love here in North America are in these keiretsus. Several of these keiretsus have been around a very long time (before WWII) dating back to feudal-like family run trading houses. Mitsubishi and Mitsui are two of the more famous ones. Famous companies like Nissan, Toshiba, Sumitomo Bank are all in keiretsus.
Here is why this is so important. Each of these keiretsus have under them, member companies who operate in each of the major critical business areas. These are: banking, distribution, steel making, heavy manufacturing and electronics/high technology/chemicals. Mitsubishi Bank, Mitsubishi Electric Corp, Mitsubishi Heavy Industries and a wide array of other Mitsubishi companies (several hundred) making all kinds of other things are in a keiretsu. (Mitsubishi is unusual as most of their operations have the same name). Each of the companies in the keiretsu are independent and very specialized in what they do in all senses of the word except for loyalty. Imagine a keiretsu is something like a college fraternity, but for companies. Their individual independence is what keeps things from getting too big and out of control, yet they can make a united front for issues important to the national or keiretsu effort.
To make the point, a car company and electronics company in the same keiretsu have a long term relationship to help each other, for example to make a really fancy computer control system for cars, or to make special lift-loaders for the computer company's factory. If you walk into a Japanese transplant auto assembly plant in the United States, you will find that the equipment from the stamping presses, to the forklifts, to the parts used to assemble the cars are Japanese brands, even if it is more expensive (in the short run) to do this. Japanese companies located in America tend to overlook high quality low price U.S. suppliers and buy parts directly from Japan, or from Japanese suppliers located in America, again, even if it is more expensive, or troublesome to do so ["PBS Frontline-Coming From Japan/PBS Frontline-Losing the War with Japan]. This is national and keiretsu loyalty at work.
Every Keiretsu has a bank. This is the heart of the keiretsu and is like a national central bank, but for the keiretsu. The bank takes money and foreign cash from winning companies in the keiretsu and gives it to new ventures in the keiretsu for investment without the red tape that a bank would usually give before lending to a new start up venture. Having a bank who is in fact a part of your company means they will be fiercely loyal, understand your business and not call your loans for silly reasons like US banks do. The keiretsu banking system is what enables Japanese companies to make very long term investments which US firms cannot make (as US investors are usually more averse to risk and are not as patient for returns as Japanese keiretsu banks are).
In upcoming high technologies like HDTV, or data-telecommunications, such long term (several years or decades) investment before any payoff is crucial. In such technologies, Japanese firms, due to keiretsu banking, have enormous financial advantage over western companies which are not allied with each other. As a result, keiretsu-grouped Japanese firms are much more likely than non-keiretsu grouped US firms to invest large sums of money in long term projects. This is because the collective risk to the keiretsu is lower than it is to any given independent company. Furthermore, short term stock performance is unimportant, and the keiretsu has the cash flows (from its profitable industries such as automobiles and consumer electronics) to finance investment in the new industries. This is much more efficient than the way America does banking and lets companies join forces to use their capital much more effectively than the US can.
As a result, Japanese firms ultimately defeat foreign competitors and win in the market. Ironically, many US banks and investors, aware of what happens to industries targeted by the Japanese, act oppositely, avoiding to loan money to a US company in (or trying to enter) an industry targeted by the Japanese (ie. video, home electronics) [PBS Frontline-"Losing the war with Japan]. US investors know that it is almost impossible for independent US companies to survive against organized Japanese keiretsus and cartels and hence, tend to abandon such US firms. This fact puts US companies at a severe disadvantage against Japan. This is also why you often see US firms "not trying" to enter or strongly compete in a given market today dominated by the Japanese such as consumer electronics. Using their keiretsu financial strategy, Japanese companies are able to out finance all other foreign competitors and ultimately take over almost any industry they choose (which is what they have been doing).
The above reasons are why buying a Japanese product, even in an industry unrelated to the one a person works in, can cause that person to lose their job. This is much more likely than one may think. Many otherwise smart people do not understand this so it will be explained: Japanese keiretsus use the profits from a product such a person bought (ie. a car or stereo), then shift the money through the keiretsu bank to develop, invest in and dump products into the industry or market that person now works in (ie. telecommunications manufacturing, the latest Japanese targeted industry), and later puts that person out of a job. Federal, state and municipal governments in America which buy Japanese products, also accomplish the same thing, putting their own (or each other's) constituents (and tax base) out of jobs.
Japan's business effort is directed with the aid of the Ministry of International Technology and Industry (MITI). It decides national strategic industrial policy and determines with the corporations, which industries to target, enter, exit, take over...etc. This is one reason you often see several Japanese companies entering a particular market at the same time (ie. TVs, and more recently, luxury cars). By acting in unison, Japanese companies, banks and government can attack and overrun a foreign industry with a much bigger "punch" than had they done so separately. It also enables strategic moves which countries like America cannot do as American business efforts are not co-ordinated in any kind of way.
In fact, such moves are illegal for US companies under antitrust laws from the 1930s. This puts us at an enormous disadvantage against US Japanese rivals as it is legal for example for Ford and Mazda to join forces, but not for Ford and GM to do so. The US antitrust laws were written at a time when US companies were the most powerful in the world. This is not true anymore and hurts America greatly as US firms struggle in the world marketplace against large foreign firms who are able to join their forces to defeat America's companies.
Japan has a protected home market which serves a very important purpose to the country and the national business effort. The home market is for trying out new products, copying and improving foreign designs, getting capital (through price gouging) without fear of foreign companies entering and ruining the game.
An unwritten rule is that there is no real price competition in the Japanese home market between Japanese companies which are also strategic exporters. Real competition occurs in foreign markets outside Japan. The home market is a "safe" market where Japanese companies can experiment with their products, improve upon them, and fix problems with out fear of any real foreign competition capitalizing on their blunders (a luxury our own companies do not have in America). The scheme works as follows and is the critical reason why a Japanese company can enter almost any world market or industry from scratch and overrun it so quickly:
Imagine Sony comes out with a new type cassette player which is very small. It breaks often because the small plastic gears inside are of low quality and wear out (this was true, actually). This machine though, is only sold within Japan. Only in the future when it is perfected will it be sold to the outside world. Now lets imagine GE is the dominant manufacturer in this market worldwide. They want to sell their player in Japan (which is better than SONY's) but can't because they are forbidden for all the reasons mentioned in this article. Sony fixes their gear problems, tests it in the home market (this is one reason why the latest Japanese products hit the Japanese market at least 6 months before anywhere else) and later exports it abroad. Sony maintains its good reputation in America as their player works well (the US customer never receives a machine with the defective gears). Sony sells this player at 3/4's the cost to make it in order to increase their market share and drive GE out of the cassette player business. Sony doesn't go bankrupt doing this because they can sell players in Japan at twice the cost to make them and hence cover their losses in America. Because GE is forbidden to sell in Japan, and can't make money at home in America because Japanese players sold there are too cheap, they surrender and lose market share. GE asks the US government for help but is refused. Later when this is exposed, GE is accused of "whining" and "not trying hard enough to enter the Japanese market" by the Japanese Prime Minister.
Now, imagine the reverse situation. GE also makes a machine that is poor quality in its home market of America (this was also true for a time). The Japanese then enter unimpeded, dump their perfected goods here at below cost prices and drive GE out of the market. As you can see, whenever a US company makes a mistake in the home market, it suffers greatly, but when a Japanese company does in their home market, they don't suffer so much. Hence, even if the American company is more efficient and generally of higher quality, the Japanese companies will ultimately defeat the US competition. This is true even if the US companies make fewer and smaller mistakes over the same period of time because the US company gets hurt for a mistake in the home market, but the Japanese one does not. For example, Japanese car companies have also come out with disasters comparable to the "exploding Ford Pinto". But, by using their protected market for experimentation and improvement, they are able to resolve problems like this before they arrive on our shores. Our car companies have no such luxury and hence suffer the consequences each time they make a mistake.
The non-competitive home market serves another important function to Japanese industry. Smaller/weaker Japanese companies (ie. Mazda) are allowed to survive because it is possible they may some day have a "winner" which would be good for Japan (this actually happened to Mazda with the Miata and other recent offerings in their foreign markets). If the company were bankrupt though, they could not come up with "winners" sometime in the future. It's better to let the weak competitors survive in Japanese market in the hopes they become strong someday. Because of laws restricting foreign ownership as well as "cross-holding" agreements between the Japanese companies, there is very little risk a non-Japanese company could take over these weaker players and enter the Japanese market. Unfortunately, the same protection is not bestowed among America's promising small companies who are easily taken over by major Japanese players who want their technology.
The no-home-competition point is ironic, because some newspaper reporters who don't understand the Japanese economy write quotes like "there are 7 car companies in Japan (a country with 1/2 the population of America) therefore the car industry must be extremely competitive in Japan". The truth is that there are 7 car companies in Japan because there is almost *NO* price competition in the home market. This is why their market shares in Japan are stable. They are basically fixed. If there were competition, the strong players like Toyota and Nissan would have absorbed or bankrupted their less powerful rivals like Mazda and Daihatsu long ago.
Many Americans think that Japanese companies are foolish because they practice "dumping" (selling their products here for a price lower than it costs to make them), and hope Japan continues as it benefits the American consumer. Such thinking is misguided and shows how it is very difficult to understand why Japanese business practices are so dangerous to America.
Some Americans think buying dumped products is good. This happens because they don't see the real costs to themselves which are not on the low sticker price. These costs turn out to be higher to the buyer than the savings on the product price (otherwise the Japanese would not be dumping... ...there's no such thing as the deal that's too good to be true). The key is that this cost is indirect but very real nevertheless. It turns up somewhere else than at the checkout counter and is how Japan profits by "dumping".
The cost to America (and the benefit to Japan) turns up in the long term. This is why it is not seen so easily. It turns up in America as unemployment, closed factories and reduced national strength as US companies cannot compete against this practice and hence go bankrupt. Japan's factories run, their people get jobs and later on Japan makes much more profit than it originally cost to do the dumping once the non Japanese competition has been wiped out by the practice. Japan can do dumping by raising prices in the protected home Japanese market to pay for dumping in America. US companies don't have this luxury as the US market is open to the outside world and prices cannot be artificially raised to pay for dumping elsewhere.
Many people ask, what is a national industrial strategy. Some people claim it is a form of socialism or communism. Nothing could be further from the truth. Again, the best explanation is by example, in this case, the successful Japanese takeover of the very strategic world LCD screen industry.
LCD screens are the special "flat" viewscreens which are found in almost every laptop and portable computer on the market today. For a portable computer to be light in weight, they must have this type of screen (opposed to a conventional TV screen which is quite heavy and uses too much electricity).
A few years ago Japanese industry co-ordinated a successful attack to take over the entire world commercial supply of LCD computer screens by selling them at 1/3 the price to make them, [PBS Frontline-"Losing the war with Japan] and waiting for the small US upstarts who invented them to go bankrupt. As a result, today almost all LCD screens in any non military computer in the world are made in Japan. This is a very strategic component because it will be used in portable computers, medical imaging equipment, videophones, HDTV, touch sensitive visual programmable refrigerators and stereos..etc.
If you are a non Japanese maker of any of the above items, this is very bad for you, because you will have to go to the Japanese to buy these screens to put into your product (say a portable PC computer). However, the Japanese companies also want to make these products too (entering your industry is part of their long term strategic plan (which is 200 years long)) [PBS Frontline- "Coming From Japan]. As a result, they want to make you uncompetitive. They do this by selling these screens to you at a price higher than they sell the same screens to Japanese PC makers (which might even be the same company as the screen maker). They can do this because they have destroyed the US competition. You are forced to go to them if you want these screens.
You need these screens though so your PCs can compete with the Japanese PCs which will be in the US market soon, so you must buy them as there is no other supply. This means though, that your PCs are more expensive then the Japanese ones because you are paying more for your critical components than the Japanese companies are paying. ...You lose...
Besides offering to sell you the screen at some ridiculously high price, the Japanese may offer to manufacture your entire product at a reasonable price and put your name on it. For example, some of the Apple Mac Powerbook portable computers are not Macs at all, but really SONYs. Most portable PC computers today (even those with "American" brand names on them like Tandy and Compaq) are made in Japan or have their major components made in Japan for the above reasons [PBS Frontline-"Losing the War with Japan].
This type of deal is really nice for Japan because it gives the Japanese companies the rest of the technology to make your product (besides the strategic component). This also makes you dependant on them for all your manufacturing (because your factory is now closed, your workers unemployed and new ones too hard to train quickly). Finally, your Japanese supplier can bypass you entirely at a future date and sell the computers they make for you, but with their own name on them. They do this in the factory your sales helped them to build in the first place. Mitsubishi did this to Chrysler with cars, first it was the Eagle Talon, then later the Mitsubishi Eclipse....both cars are identical, but really Mitsubishi's.
The LCD screen monopoly is what enables Japanese companies to have such a large market share in portable PCs (which need these LCD screens) yet almost no market share in desktop PC computers (which don't need these screens). Japan hasn't been able to take over the desktop PC market because its still advancing too quickly and they have no monopoly on any critical components in these machines. As a result, this industry can still belong to America. America is able to hold on rapidly advancing industries through innovation, but Japan cannot. This is because by the time Japan copies a foreign design innovation, it is already obsolete. Japan has poor luck trying to hit a moving industrial target and will usually miss. So long as an industry moves fast enough, and the Japanese don't succeed in taking hold of some critical component of that industry, the US will be able to hang on to it until it slows down or matures, then the Japanese can successfully take it over.
By focusing on taking over markets like LCD screens, critical computer chips, high precision machining, and auto manufacturing, Japan has significantly reduced America's ability to make these things in time of national need. Japan lost World War II because they had a poor manufacturing base (they had to stockpile for 4 years before starting World War II). They have learned very well from that mistake, which now America is making.
This example shows why something like LCD screens are a strategic component and why Japan needs to dominate this industry. If one pauses to look, one will notice that Japan is the dominant or a very major player in practically every strategic world industry today. This is what is meant by a well known Japanese phrase: "Business is War". Key markets overlooking industries are like peaks overlooking cities. The national strategy in a business war and economic war is the same, and the outcome is the same. Domestic factories are gone because the industry has been killed economically (rather than being bombed), workers are out of a job, and the target country has much less power and safety in the world. It is like a real war, but less bloody.
Some may think that only America is having trade problems with Japan right now. This is not true. Most other industrial countries in the world are in the same predicament. Today, Japan has a huge trade surplus not only with America, but with almost every other country in the world it trades with. This happens when Japan buys less in products from other countries than the other countries buy from Japan. This is bad because it means Japan takes money out of America's economy and uses it for their own purposes (such as buying our real estate, or companies).
It is said that Japan has a national strategy to control economically, what it could not get militarily 50 years ago. An impulsive claim perhaps. But, today, I am not so sure.
Japan's trade surplus is no accident. It is not the result of Japanese efficiency, American laziness or anything else the Japanese government officials may tell you on TV. The real cause is this: Japan trade patterns are not bi-directional in the common sense where two countries buy each others exports and a happy state of affairs results. Japanese policy is to intentionally use foreign cash profits not to buy a foreign country's exportable products, but rather its capital assets like companies and real-estate, while preventing the other countries from doing the same thing in Japan. This enables Japan to get wealthy and powerful extremely quickly while still being more inefficient and averse to business risk than its trading partners. Today, Japan and America have basically a one-way trade relationship. Japan closes their market towards us, but we don't towards them [Wall Street Journal 04/01/93 A2, 04/02/93 A6]. When "whiners and Japan bashers" claim Japan is cheating, the following is what they are trying to say. Here is an explanation of how it works:
There is a three tier economic defense which the Japanese use. First is a set of laws which severely restrict/prevent foreign ownership and control of Japanese companies and assets in Japan. As a consequence, GM must sell their cars through Isuzu and Ford through Mazda (Autorama). Chrysler doesn't sell many cars in Japan. Long ago, Ford used to have a large market share [Yen p112] (around 70%) in Japan but the Japanese government closed their operations and forced them out of the country.
Today, foreigners typically cannot own Japanese companies, especially those in strategic industries such as manufacturing and technology. This is because of many "structural" laws and regulations which are really designed to prevent/restrict foreign ownership. As an example, one such regulation states that foreign businesses must have a Japanese guarantor "to insure that their debts will be paid". For various reasons, it is very "difficult" for a foreign company (particularly a small or medium sized growing one) trying to enter Japan to get such a guarantor. Conversely, Japanese companies of any size entering America face very few such restrictions and are allowed to enter the US market quite freely.
These types of Japanese laws are also the reason why you hear about so many "joint" ventures between US and Japanese companies, where the venture is intended to help the US company penetrate the "difficult" Japanese market [Agents of Influence p156]. These joint ventures really enable the Japanese companies to get foreign technology without having to invent it themselves. The foreign company receives only a token market share in the Japanese market in return.
It was in this way Japan learned from the US companies how to make TV's in the 1960's. More recently, the Japanese government recently forced Texas Instruments (TI) to join a venture with SONY, where SONY got TI technology in exchange for TI being able to sell some of their products in Japan.
The second defense mechanism is the wide "cross holding" of stock shares between the companies in Japan. This basically works by having the Japanese companies print up lots of shares and exchanging equal values of these shares with other Japanese companies. This is very cheap for the companies there to do. As these shares are never given up or sold, they are effectively taken out of circulation. Because companies own such a large percentage of each others shares, it is impossible for a foreign firm or individual to accumulate enough shares (51%) to take over a Japanese company. As a result, a foreign takeover of a major Japanese company has never occured.
A side note of all this is that Japanese companies are able to think long term because they don't have to answer to stock holders at the annual shareholders meeting. Because so many shares are cross held, private shareholders tend to be not so significant in number and hence not a threat to the board. This is why US companies must worry about short term performance so much, often at the expense of wiser long term decisions. Japanese companies do not have to worry about this, so they tend to invest much more in the future than we do and hence are much more successful.
The final defense system is a well set up structure of government laws, behaviour and corporate co-operation which prevent foreign companies who get around the first defense system from succeeding to make money by selling products in Japan. The government delays foreign entry of goods through lots of intentional customs and other regulatory snafu's as well as red tape designed to hinder a foreign company to the point it becomes non competitive in the Japanese market place.
The result of all this is the fact that when Japan is compared to other industrialized countries (ie. America), it is seen that a far larger percentage of manufactured goods sold domestically were made domestically. It is often very difficult to find manufactured products in Japan which were not made in Japan or not made by Japanese companies.
The offensive strategy is also a three tiered system. Firstly, government (through the Ministry of International Technology and Industry) and corporate cartels co-ordinate and select targeted strategic industries which they want to enter, or take over (this happened in the car, camera and consumer electronics industries).
Secondly, they obtain the basic technology (often from the current foreign firms in the industry), then copy and improve upon it. They do trials, have failures and make further improvements in the Japanese home market which is protected against encroachment by foreign firms which may be already established in the rest of the world within that particular industry.
The final and most critical stage in the offensive system is the practice of product dumping in order to gain market share overseas. Japanese companies will initially export a product overseas at a price usually lower than it costs to make it. The same product is usually sold in Japan at a higher price so the Japanese company doesn't go bankrupt. This lets the Japanese companies increase their marketshare as foreign buyers tend to buy the lowest price quality product. This places stress on non-Japanese competition. Sometimes the foreign competition is a well deserved target (ie. poor quality US autos of the 1970s), but more often they are not. Once the foreign competition has given up, or has been sufficiently weakened and the Japanese dominate that industry, they bring the prices to a level reflecting cost of manufacture and development and move on to the next market they want to take over. Using this technique, along with keiretsu style bank financing, the Japanese can (and do) enter and take over in a short while, almost any industry they choose no matter how unrelated.
Because several of their companies participate when Japan attacks an industry, the industry doesn't become monopolistic on a company level and monopoly pricing usually doesn't happen in the foreign country. What does happen though is, when the attack is over, the players are mostly or all Japanese, meaning Japan as a nation, gets the industry, jobs, technology and US dollar cash profits instead of America (for use in buying up US real-estate or companies, or investing in future technologies). The goal is simply to ensure that most of the industry's competitors are Japanese and that profits derived from that industry go to Japan instead of some other country. The result of this is a consistently huge one way flow of wealth and money, from the United States, to Japan. This appears as those enormous record breaking US trade deficits with Japan each month. Technology gains (by Japan doing the engineering and the manufacturing in such industries instead of America) are also an important by-product of this strategy. This has a snowballing effect, as technology advantages gained and learned when Japan defeats a US industry, can be used to gain advantages when entering other industries (ie. see the LCD example above). Japan's strategy is virtually foolproof as long as you have trading partners and individual consumers who tolerate or don't understand the dynamics of what's really happening.
To keep Japanese companies within a given industry technologically competitive (even though the Japanese market is closed to outsiders), Japan usually ensures that the number of Japanese companies participating within that industry (within Japan) is at least 10. Only the best of these get to export to the outside world. Cross corporate labor unions (ie. like the UAW) do not exist in Japan as they tend to create labor monopolies which lead to inefficiencies in manufacturing (ie. work "rules", pattern bargaining...).
It should be noted that raising the price of a good within Japan in order to pay for dumping in the foreign country is becoming less and less prevalent as the Japanese companies today have enough cash to finance dumping in the foreign country strictly from cash reserves. Once they have wiped out the foreign competition, the profits start to roll in.
In some ways this is America's fault as Japan has taken advantage of the open US market, as well as America's tolerance to Japan's closed market in order to help them rebuild their country after WWII. Ironically, America's best scientists and engineers are working for military projects, whereas Japan's are working on commercial ventures, where the war is actually being waged.
Sometimes, the Japanese will fail at first to enter a market. For example, the Japanese auto companies entered, and retreated from the US auto market several times before making their successful onslaught. During the intervals that they were not so active in the US market, they were learning from their mistakes, improving, refining and testing their products in their protected home market, preparing to enter the US market again at a later time, which ultimately they did.
This strategy is still used today, most recently in telecommunications where Hitachi (a Japanese telecommunications maker for 40 years) has recently announced they are retreating from the US telecommunications market. In Japan, they will continue to improve their products. Once their improvements are complete and proven in the home market, they will re-enter the US market, possibly surprising America's domestic makers. An other Japanese maker, Fujitsu has already scored some important successes over AT&T in the US telecommunications manufacturing industry, having recently made multi-million dollar sales of advanced data-telecommunications equipment to US phone companies like Nynex and Bell-South.
A serious problem, which the Japanese themselves have acknowledged, is the lack of originality and innovation. This is quite notable when you look at their companies' histories. The Toshiba company in Tokyo has a big science center with a time line of its history on a wall. On it were its achievements. It read something like "transistor imported into Japan 1950, manufactured here in 1953", "teletype imported 1931, manufactured here 1935"...etc. There were no inventions, only refinements. NTT (the telephone company), Nissan and Matsushita had similar "timelines" in their centers with quotes like above.
If a Japanese firm wants foreign technology but can't buy it, they sometimes steal it by patenting a very large number of similar (but legally "different") items derived from the foreign company's original and then intimidating/bankrupting the small company through a blizzard of legal action. If the company is publicly traded, or the owner wants to sell, the company is bought outright by the Japanese. America, unlike Japan, makes no effort to protect its strategic companies from foreign takeover. Imagine your small company and its patents versus the attorney war chest of Mitsubishi Industrial Company.
This is actually what happened to Fusion Systems, a small American firm which invented and patented a new way to get spray paint to stick on pop cans [Agents of Influence p126/PBS Frontline, "American Game, Japanese Rules"]. Mitsubishi bought one of this firm's machines and came out a few months later with one of their own. The small firm sued. Mitsubishi then made many small modifications to the machine (not improvements, just voluminous iterative changes), patented all of them and sued the US company many times over (for each patent). Mitsubishi just waited for Fusion Systems to run out of money defending them all (and offered to drop the cases if the small company sold them the rights to the machine).
If Japan can't get technology this way, they get it free from public research done in non-Japanese universities and published in academic journals which are available to anyone. A major reason for getting foreign research this way is the fact that Japanese universities themselves don't do much research. Their equipment is extremely outdated (in contrast to corporate labs). These schools are literally straight out of the third world (possibly the last physical part of the third world still in Japan). University is a place for students to drink and party before joining a company. At the main campus of University of Tokyo, the most prestigious university in all of Japan, the buildings are in extreme state of disrepair. Stench of raw sewage permeates and leaks down the hallways of the buildings and the students live in squalor. Academics did not seem to be taken seriously by the students who were too busy drinking or playing sports. Libraries were almost devoid of students. Some buildings like the Library for American Studies were very nice, but many others were in shambles. Half of all the windows in many of the buildings were broken and glass was strewn about the floors. Electricity wires were hanging exposed in hallways and lighting was not functioning (for many years it seemed) in parts of buildings. Piles of garbage and wrecked cars were strewn about the campus and behind buildings. Cats and other creatures lived in some of the buildings. The school swimming pool was a filthy algead mess. If this seems unbelievable, one can get off at Todai-komaba station in Tokyo and go see for themselves. This is all the more surprising as the rest of the country is so rich and modern, more so than most parts of America today.
There is an important reason for all of this. In the world, universities typically do research to advance learning and science for the world. This is extremely expensive to fund, and is a lousy way for a country to get the most value for its money, so Japan does not do this. The Japanese government and companies make no effort to seriously support its universities. This does not mean that Japan does not value basic research. Quite to the contrary. It is far cheaper to let the other countries' schools and governments do (and pay for) basic research which is published openly to the world and to simply translate and read their papers.
Japanese research money and results stays in the corporate and government labs, where it may be kept secret from the foreign countries, which are the enemy in the economic war. Japan does do research (lots of it actually), but not for public dissemination and world advancement. Research is done to gain advantage over their rivals. In 1991, the Toshiba Company alone spent more on research than was spent privately and publicly in all the country of Canada [Canadian Broadcasting Corporation (CBC) News;Venture-Racing the Rising Sun]. This is the fundamental reason why Japan refuses to fund universities and diverts it to corporate research instead.
Ironically, it may not be a weakness of theirs that their universities are so awful. If they know that they can get research from America for free, they are smart to put their money in their private and company labs instead; where they can use it against US companies in order to defeat them.
In spite of all this, Japanese workers still get an excellent education. This is because education up to (but not including) university is very good and extremely well funded. In great contrast to the universities, the elementary, secondary and tertiary schools are very well stocked with the best of equipment, facilities and teachers. They are as nice as anything in America. Furthermore, highly specialized training programs are provided to newly hired workers when they join their companies. This makes up for the weakness of the Japanese university system. In cases where advanced training unavailable in Japan is required (ie. in certain types of engineering, or technology), the student will be sent to America or another foreign country that has good universities to study.
Sometimes, Japanese companies buy their way into cash hungry quality US universities (usually for pennies on the dollar) to make up for the lack of innovation in Japan. A recent deal between Hitachi and the University of California at Irvine makes the point [ABC 20/20 12/06/91]. It went as follows: Hitachi will pay to build an advanced research building on the campus and occupy the top floor. The university occupies the rest. The provision however is that Hitachi gets access to all research and discoveries in the building done by the university (paid for by the US taxpayer). Furthermore, Hitachi is granted the power to restrict all university research discoveries from this building to the outside world whenever it is to the advantage of Hitachi to do so. Research done on the Hitachi floors is never available to anyone, not even UC Irvine (the information flow is one way only). Similar arrangements with other Japanese companies exist at other US universities like Princeton, MIT, U of Oklahoma... Advanced Japanese research organizations make no such deals with US companies.
Ordinary Japanese don't have much idea of why they can't buy foreign goods at reasonable prices in their stores. When I asked Japanese people why they don't buy American (or other foreign goods), they often say because they can't find them, or they are much too expensive. This is true. Non Japanese goods are much more expensive in Japan than they should be (especially if the goods are in an industry targeted by the Japanese companies and government) and Japanese goods are often cheaper in America than in Japan.
Typically, foreign goods are often impossible to buy at any price and are usually very expensive when found. For example, I looked for, but found no Korean products at all in Japan even though this country is very close to Japan on the map. Because South Korea has little political influence, it cannot pressure Japan to allow their products in. As a consequence South Korea cannot sell their products in Japan even though they make many of the same types of high quality electronics and automotive goods the Japanese make, but at a lower price. US (and other foreign products) which must face a Japanese domestic maker are also extremely hard to find in Japan. Even the American flags in the Tokyo-Shinjuku Mitsukoshi department store were made in Japan.
For example, the major Japanese appliance manufacturers are planning to enter the US market for appliances (refrigerators, stoves, vacuums) in the 1990's. In a major Hiroshima appliance store (the only store I could find any foreign appliances), I saw a GE refrigerator selling for $3000 (US). This was a very low end model you could buy here in America for about $600. The Toshiba right next to it was a luxury high end model and sold for $2500. It is these Japanese cartel tactics which lead ordinary Japanese people to believe that US goods are inferior and overpriced.
Conversely, in America, Japanese made Sears brand refrigerators (similar to the Toshiba I saw in Japan) sold for about $1000. This didn't seem right to me. The government and business people I spoke with already knew about these points and acknowledged that they could see it was a "problem" for America.
The Japanese are successfully using the same strategy utilized in home appliances in other industries as well (desktop personal computers, bicycles, golf equipment, musical instruments...) where US product quality and price is better than competing Japanese products.
In the book "A Japan that can say no! (to America)", by Akio Morita (CEO of SONY) and Shintaro Ishihara (an influential parliament member), the authors state that Japan has under development the world's most advanced military jet because American made planes are not suitable for Japanese terrain, which is "different" because it has mountains. Not only does Japan have the world's second largest military budget, they are also accumulating the largest stockpile of plutonium in the world (more than the US or Russia) [Chicago Tribune 02/03/92 s1 p1] for reasons of "national security". In Japan, Fujitsu has built several nuclear breeder reactors (such reactors are sometimes used to make nuclear weapons). The Japanese claim however, that they are for peaceful purposes. Hopefully this is so.
There also exists a well funded extremist nationalist movement in Japan which posts large posters at most major intersections and subway stations in Tokyo calling for restoration of the emperor as ruler and re-militarization of the country. Every day in the business and shopping areas of the city, vans drive around with huge loudspeakers blaring nationalistic music and making the above demands. Apparently, the older Japanese ignore this, aware of the west's generosity after the war, but feelings of the younger people who don't have the memories of Japan's dark past are more uncertain. What is happening today in Germany may be a foreshadowing of things to come.
This may seem implausible at first, but not after one looks at Japanese elementary students' textbooks. In the texts, the sections about World War II are extremely distorted. In these books, Japan is played out as the victim to world aggression and the atrocities of the Japanese Imperial Army are not mentioned anywhere. Furthermore, the Japanese government to this day maintains and actively uses its legal right to overrule book authors in order to "whitewash" and dictate textbook history whenever it is in the national interest to do so. They have recently done this to prevent disclosure to the Japanese people of World War II Japanese atrocities in China and germ warfare experiments on prisoners held by the Japanese [Toronto Globe & Mail (Reuters);A1;03/17/93].
The massive US aid to rebuild Japan after the war is mentioned on only one line in the Japanese elementary text which went "America provided Japan with some help". Japan's postwar success is credited only to the hardworking values of its people (partially true), and not to the massive US aid for reconstruction of its industries (paid for by American taxpayers), free access to the US market, and US tolerance of Japan's closed market. After reading these books, one is lead to believe that WWII was America's fault. It is hoped that the younger Japanese learn what really happened before their parents grow old and die, or America and Japan may face new misunderstanding and confrontation in the future.
Japan is perceived by the outside world to be an efficient country. In actuality, Japan is a very inefficient country. The valuable intellectual resource of women is wasted by giving them only the most menial jobs such as "escalator dolls" and tea servers. The banking and farming systems are the some of the most inefficient you will find in the modern world. Because of this inefficiency, there are a lot of people employed on the farms and banks who otherwise may not have a job. Although this is an inefficient use of people and resources, it helps maintain a low unemployment rate. Japan prevents all this from collapsing by keeping foreign products and services out of their country. As a result Japan can be inefficient, non innovative, yet still get enormously rich at the expense of its trading partners. Japan is now per-capita, the richest industrialized country in the world and is expected to be the richest absolutely by the year 2000, surpassing America [CBC News Venture "Racing the Rising Sun"]. Ironically, it may surprise many people, but the most efficient country in the world today is the United States ($49,600 production per person), not Japan. Japan ranks pretty far behind ($38,200 production per person) [New York Times 10/13/92]. In manufacturing though, Japan is the best in the world.
it is claimed that Japanese transplant factories in the USA are good for America and create jobs. Although a Japanese transplant factory may be good for the town which gets it, its bad for the country as a whole. Japanese factories opened here tend to be only assembly plants which put together parts which were originally made in Japan. This is important because most of the value of manufactured products resides in the research and development of machine tools, plastics, technology as well as the manufacture of parts which make up that product. There is little value in assembling pre-made parts together to make a final product. This is true even for Japanese products "made in USA" like the famous "US made Honda Accord". Final assembly of Japanese auto parts is pretty low tech and low value. It doesn't keep money in America. The costs of paying for welfare and unemployment for unemployed US engineers and parts maker employees are much higher than the benefits of the Japanese transplant factory and later wind up on American's tax bills. In the cases where Japanese transplants do buy US made parts, they are usually from Japanese owned parts makers which have also set up plants in America.
Another claim goes that "America is successful in Japan and one only has to look at Mcdonald's, Disneyland and others to see America's success". These are not "American successes" in Japan because in reality, these are Japanese owned franchise companies. Their appearance is American, but their ownership, production and management is Japanese. A very small token number of foreign companies are allowed to have a presence in Japan (ie. Toys-R-Us, P&G, BMW, Kodak, IBM), but their overall market share is kept quite small via the means described in this paper.
Finally it is claimed that Germany is much more successful than America in selling cars to the Japanese, so it means that America is lazy and isn't trying hard enough to sell in Japan. This is false. Germany is successful in selling cars (and other products) in Japan due to the fact that the European Community (which Germany is a member of) forced Japan to open their market more to Europe if Japan was to continue to have access to the European market [Agents of Influence p156]. The US government never made Japan abide to similar trade terms with America so as a result, America has far less success selling in Japan.
American's behavior when trying to do business in Japan is not what it should be. After seeing how some American firms operate there, it is little wonder our success rate is often so poor. For example, something of an annoyance (and also advantage) to the Japanese is American business people working in Japan who don't speak Japanese, or know nothing about the country they are dealing with. These included some trade representatives from an Oregon company, some people from Boeing whom I met at a Nissan factory, and some from the Government of Wisconsin at a machine tools fair trying to attract Japanese industry to their state.
The group of businessmen I met from the Oregon company I met in Roppongi (an entertainment district in Tokyo). These people were a disgrace to American industry and opened my eyes to why the Japanese are able to take advantage of us in business. Firstly, these men spoke no Japanese at all (so they couldn't understand what their opponents at the negotiating table were saying) and knew nothing about the culture. They asked me what it was like to be a "gringo" in Japan. It seemed that they thought the business adversaries they were negotiating against in Japan were running some 2 peso Mexican hot dog factory. My conversation with them was a real eye opener to many of America's problems when dealing with the Japanese in business.
Secondly, the very presence of the trade group from Wisconsin at the machine tools fair is the result of a very foolish, self destructive and shortsighted US practice which will now be explained. With so many jobs leaving America (due to many of the above Japanese tactics), some states have decided to go to Japan to try to attract Japanese companies and plants to their state. Because America (unlike almost all other industrialized countries) doesn't co-ordinate or regulate this in any way, what happens is that states get played off against each other by Japanese companies and the Japanese government. The state which gives the most tax breaks or contributes the most money to build the plant gets the plant. This is probably good for the winning state in the short run, but is much worse for the country as a whole (and that state) in the long run.
Here's why: What this leads to is Japanese companies opening US branch plants paid for by the US taxpayer and which pay little or no taxes themselves. With many states doing this to each other to "win" a few jobs, everyone winds up losing. This is because after each state has "won" a plant from some other state, the final tally shows that no one state has gained any jobs from any other state (or very little anyways), yet every state is short lots of tax money which must be made up by placing more taxes on individuals, or pre-existing US businesses (who must now compete against the American state subsidized Japanese businesses). The only winner in all of this is Japan who receives property tax free (or discounted) factories and in worse cases plants which we the taxpayer, sometimes pay to partially build through government grants. The Honda Accord plant in Marysville, Ohio was a result of this practice. Japanese companies producing out of tax free plants are also at an advantage to defeat US companies, who must pay taxes. Ultimately, this practice makes America lose, not gain, jobs (see above section "assembly plants") and pay more taxes. This very topic is the subject of many sick jokes in Tokyo about America's greed and foolishness today.
So, why does our government even allow the things explained in this paper to take place? The reason is due to another problem (and is also the subject of many good jokes in Tokyo). It lies at the highest levels of our federal government and has to do with much of the recent talk in the last federal election about "foreign agents". These are very high level Federal public servants and elected members Americans sent to Washington to represent them, who go work in the U.S. Federal government for a short time, make contacts in the government or US Commerce Department, then betray the country by selling themselves out as representatives to foreign interests.
These people were our front line trade negotiators, staff members, trade attorneys, elected officials and have the inside knowledge the foreign interests need to circumvent our trade laws, defeat our companies and find out what our confidential future trade laws are likely to be. These people sell themselves to the other side in order that they may personally get rich through the resulting huge amounts of "blood money" as they use their contacts they made while serving the public, in order to betray America. The amount of money involved is in the millions of dollars per person. Some claim these are delayed bribes which are paid after public service is completed for favors done while in public office. Often, these people start representing foreign interests within weeks of quitting their government job.
The popular book "Agents of Influence" (1991) by Pat Choate, contains the list of people who became foreign agents, a thorough explanation of how this scam works, and how this is obliterating our status as a rich industrial country. The book also explains very well the point made on the 11/27/92 edition of ABC's 20/20 (which did a segment on this problem) about how much more the Japanese "invest" in bribery and how we have lost billions of dollars and hundreds of thousands of jobs as a result of this small handful of people willing to sell out their country and their kids for cash.
For one example of bad this all really gets, one can look in the very highest level of our national government, at the case of Mr. Ronald Brown (who is by no means an exception). Ronald Brown has been appointed the Secretary of Commerce by President Clinton. This is the highest position in the US Commerce Department, the agency whose job it is to ensure US interests are protected in the world trade arena. Mr. Brown however, is a foreign agent who until recently, worked for the Japanese for big money. After leaving his past government job as a US senate aide, Mr. Brown went to work as a lobbyist for big Japanese companies such as Toshiba and Sony who wanted government insiders to help further their interests in America. Now he is again "working for America" ("against" his old cronies at Sony, Toshiba and others) as he has been appointed chief of the US government agency which is supposed to ensure that foreign companies (including the ones Mr. Brown lobbied for) do not have undue advantage or resort to illegal tactics (such as those mentioned in this paper) when competing against US companies at home and abroad.
The "Agents of Influence" book mentioned above has a very controversial section [p147,193] on what the author depicts as the "Japanese propaganda machine". The fact that today Japan has so much power in the US government and owns so much of the US popular media industry has lead many (including the author of that book) to believe that Japan uses their media power to prevent distribution to the public of information unfavorable to Japan. Such manipulation has already taken place in the motion picture industry. Matsushita, owners of Universal Pictures, recently changed the script of one of Universal's major U.S. motion pictures in order to portray certain Japanese customs as being superior to American customs and to remove negative references about Japan which were in the original script [Chicago Tribune, 11/30/91 s.1 p22/New York Times 11/20/91 A1]. The film "Rising Sun" however, made by one of America's remaining non-Japanese movie companies, is a definite exception to this trend as it does try (albeit indirectly) to warn people about what is going on.
Today, Japan owns many very large US popular media companies including the largest record company (CBS/Epic records[SONY]) in America and two of the three largest entertainment companies in America (MCA Entertainment/Universal Pictures[Matsushita] and Columbia/Tri-star Pictures[SONY]). They also own Columbia House Records, Loews Theatres, MCA home entertainment (TV shows like Dragnet) and a part of Cineplex Odeon (about 50%). America doesn't own large Japanese media/entertainment companies.
America must pay more attention to the future and not take for granted that it will always be rich and powerful. One only has to look at the social and economic troubles today in countries like Britain (which years ago in its time, was also the richest and most powerful in the world) to see our destiny if we continue in our erroneous and divisive ways. Britain failed to take action in time and suffered the consequences. They were once the world's most powerful economy. They too thought that any damage to their economy would have profound impact to the world, and hence, thought they were safe as the rest of world would not let anything bad happen to the British economy. They were wrong. People saying this today about the US economy are also wrong. Britain's economic power diminished gradually and unnoticeably, such that today, what happens in Britain is not so important to the world global economy. They are now a minor player and now have a much lower standard of living. Our economic power is now in decline, following the "British pattern" which occurred many years ago. We will suffer their fate if we don't change.
America has many problems which are not the fault of the Japanese, but are of our own doing. Japanese work as a team much better than we do. They struggle together to save their companies when in need (versus jumping ship, staging strikes like the recent ones at GM, or selling out to foreign interests). They don't pay some of their CEO's millions while driving their companies into the ground. They also realize that management and workers are not each other's enemy. The competition is the enemy and foreign competition is the ultimate enemy. No war was ever won with internal conflict and the same goes for this one. Labor strikes (no matter how justified) and management selfishness and shortsightedness are not the answer to our problems.
The US auto industry is a prime example of this. Managers grossly overpaid themselves and the UAW bosses kept in power by promising its workers a labor monopoly, "job security", outrageous salaries and ridiculously inefficient work rules. Over the long term, this was of course, unworkable. Like many other monopolies, over time it self destructed. The environment the labor leaders provided to their workers caused them to lose concern about quality and efficiency. As a consequence, many of these people ultimately lost their jobs.
However, as much as many Americans want these companies to go bankrupt, it is a unrealistic and dangerous hope. These are still US companies. We need them in this country as they are a key part of our industrial base and our wealth. Rather than destroying them, America will have to change them from the inside by altering both worker and management attitudes. The current ways (on the part of both management and labor leaders) only serves to ensure our kids won't have these kinds of jobs in the future. Co-operation and a common vision are the only solutions to this problem. On a positive note, it should be noted that quality in the US auto industry has improved considerably and today is at par with the Japanese (ironically as a result of the Japanese competition which broke the UAW labor monopoly). The lesson from this is that America will have to revisit laws which help enforce labor monopolies (which in the long term tends to destroy American jobs and industries) and restrict the schemes which allow public company top management teams to set their own and their friends salaries to ridiculously high levels while not acting in the best interests of their companies, employees, customers and stockholders.
One note should be remembered on this example. Some try to apply the model of the US auto industry to other US industries devastated by Japan. This is incorrect. Comparisons between the successful Japanese attack on US autos and other industries must be made carefully, as US auto, a very old and very unionized industry, is in many ways very different from the other US industries Japan has successfully targeted. Though the US auto industry was complacent, other US industries (such as high technology) which were very efficient, innovative and high in quality, were still devastated by Japan.
The article is not meant as an affront to the ordinary Japanese people (to whom nothing is held against). Like most conflicts, it is the ordinary people who get caught in the middle and wind up suffering. The same, unfortunately, is true for this conflict. This paper is not about them, but is about their companies and their government policies.
America's citizens have failed to realize that Japan practices a different kind of trade than America does. Japan practices adversarial trade and "taisen" or war economics, where the goal is to wipe out the foreign countries' industries in order to dominate them entirely. For the Japanese, business is in every sense of the word, like war.
Some say protectionism is bad for America. This is true and this article is not about protectionism. Free trade is almost always a better alternative as it provides foreign markets for US goods and helps keep our firms competitive. Today, however, we do not have free trade with Japan, we have one way economic war "trade" where Americans buy Japanese goods and Japan buys America.
Forty years ago, Japan was a third world country. It had almost no industry and its people lived in third world squalor. Their "war" economic strategy, though devastating to its trading partners is very effective. It has quickly made Japan the most modern country in the world and average Japanese people much richer than they would have been otherwise under US style free-market capitalism (which would have lead the development of Japan to take place much more slowly). They did what was best for their country, which is what I would expect them to do. Though I do not blame them for the economic strategy they use against us, we must still recognize it for what it is.
Consequences for a country defeated in economic conflict are strikingly similar to consequences of being defeated in a military conflict. In both cases, the industries of the defeated country are destroyed or severely weakened and the nation's technological and advanced manufacturing base are shattered. The standard of living of the defeated country ultimately declines drastically (though slowly and steadily over many years in the case of an economic war). Ultimately, the country tends to become less stable socially and politically as people try to blame others or take personal/political advantage of the fact that there is little wealth to go around (which ultimately is the root cause of instability in most shaky countries around the world today).
The danger of an economic conflict such as the Japanese have mounted against America is that ordinary citizens generally are unaware or do not understand what an economic war is, what the consequences of losing one is and that one is taking place today here in America. The Soviets used to parade their bombs every May through Red Square. The threat to America and its way of life was very apparent and most people could understand it. As a result, Americans stood up and took action to defend against the Soviet threat. Economic wars are much more complex to understand and for that reason, far more dangerous.
We either have to learn about and apply Japan's superior (for survival anyways) economic strategy, or find a way to defeat it. Else, there is little hope for us. If we do not adapt to today's economic climate, America will most certainly fade away as a modern world leader. Most Americans however, don't see the world for what it is: an economic and military jungle; and the laws of the jungle do often apply. The Japanese realize this, we don't.
Americans who buy Japanese goods, or US companies that actively source Japanese parts for their produces unknowingly help Japan reach the goal of their economic war. As Michael Crichton wrote in "Rising Sun", The Japanese (and other countries such as Korea and Taiwan who have adopted the same Japanese style business practices described in this paper) are not our economic allies, they are our competitors. America will have to learn to invest more in the future, and make a sincere effort to protect its manufacturing base, technologies and university resources from foreign countries and corporations who have chosen to destroy the nation's industries and wealth through "economic war" strategies.
America often complains that Japan must change its ways to become more like us. This is not true as America is not number one anymore. It is not a request we can make. Today, the tables are turned. America, which used to be the world's largest creditor nation, is now the world's largest debtor nation. Japan today is the world's largest creditor nation and we are one of their biggest borrowers. Each year, Japan acquires ever larger amounts of our government debt bonds (which we issue to cover our massive deficit), land and industries. With these holdings, they increase their influence and ownership on our government [Yen! p77] and our citizens and use it accordingly when it is in their interest.
America will have to change its ways to become more like the Japanese. Japan will surpass the United States to become the world's leading economic, technological and manufacturing nation by the end of this decade, even though it has only 1/2 the population of America [CBC News;Venture "Racing the Rising Sun"]. History has pointed out every time, that the richest and most economically powerful country in the world, ultimately becomes the strongest militarily. We have to realize this and be prepared to accept it, or we have to do something about it. Japan will not have to change their ways to become like us, as tomorrow they will wield the power, not us.
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Hopefully this article has interested you in learning more about the seriousness of this topic. The following bestsellers: Pat Choate's "Agents of Influence" ISBN 0-671-74339-2 and Daniel Burstein's "Yen!, Japan's new financial empire and its threat to America", ISBN 0-449-90460-1 each give very in-depth background on what I've discussed above and provide far more facts and references than I did in this (relatively) short paper. Both make for very true, but frightening reading and are very well backed up. The book "Trading Places, How we are giving our future to the Japanese and how to reclaim it", by Clyde Prestowitz, New York: Basic Books 1989 is also very worthwhile to read.
The book "Yen!", mentioned above, talks about an important aspect of this issue not covered in this article due to complexity: the financial "war" being waged by Japan against America. Today, world US financial power is rapidly being annihilated by the Japanese finance industry (using many tactics mentioned in this article). Once complete, Japan will then become the number one superpower in the world, having won world dominance of both advanced manufacturing/technology industries (already happened) and the financial services industries. The book goes on to imply that Japanese military superiority will occur shortly after as America will then lack the economic resources and revenue (as happened to the ex-USSR) to support its military infrastructure. The details behind all of this are even more dangerous to America than what's discussed in this article.