Although, all things being equal, the currency re-evaluations should theoretically have caused the Japanese share of the VCR market to fall from 33 percent to 15 or 16 percent, just the opposite occurred. As American prosperity led to increased absorbability, economies of scale were brought into play and unit costs came down. Meanwhile, to counter the strong yen, Japanese businesses restructured and put greater emphasis on technological innovation and automation that led to wholesale cost reductions. In short, economies of scale and technological innovation made possible low-cost mass production so that Japanese VCR manufacturers were able to achieve a seventeenfold increase in sales despite the adverse climate resulting from the strong yen.
As a result, the Japanese consumer electronics industry achieved an unrivaled position, nearly a monopoly, flooding world markets with goods labeled “made in Japan.” Japanese goods earned such enormous profits that the question of who was more at fault for this flood tide—those who import or those who export—ceased to have any relevance. Nothing seemed to be able to check the Japanese export juggernaut. Under the circumstances, what other course was open for America except, as Fallows suggests, to consider the new ploy of containment?
TWO
CONFLICTING VIEWS OF THE ROLE OF GOVERNMENT
Economic Strength as a National Security Issue
Japanese Hypercorporatism. One crucial difference between the United States and Japan is that Japan is a country that holds government in high esteem, whereas the American public has a fundamental distrust of government. This difference is significant because, as many have pointed out, postwar Japan has become an economic superpower under the “administrative guidance” of the Ministry of International Trade and Industry (MITI), the government department whose function is to formulate and implement Japanese commercial and industrial policies. In order to rebuild a country that had been reduced to rubble during World War II, the Japanese government adopted policies that favored production and provided indirect support to help producers maximize their market share. In contrast, a mature capitalist society like the United States tends to regard government intervention in the activities of producers as undesirable and favors policies that improve the well-being of the consumer. In an article in the Nihon Keizai Shimbun of September 17, 1990, I called this sort of Japanese capitalism “hy-percorporatism” and the mature capitalism of North America and Europe “hyperconsumerism.” To adopt the terminology of Alfred Chandler in Scale and Scope: The Dynamics of Industrial Capitalism, if the United States is a system of competitive managerial capitalism and Germany is a system of corporate managerial capitalism, then perhaps we might call Japan a state managerial capitalist system.
Spurred by the astonishing prosperity Japan has achieved, some American and European policymakers have begun to advocate a form of government-led capitalism that would provide support to corporations. The reaction in America to industrial policy, however, has been consistently negative. Although Washington has, in fact, stepped in to protect producers on numerous occasions, the American people have a deep-seated, almost physical, aversion to providing systematic protection for particular companies.
In Japan, however, although some of the glitter is gradually wearing off the hypercorporatist system, the Japanese people still have absolute trust in those in positions of authority. The reason everything in Japanese life converges on Tokyo is that that is where the okami— the higher powers—congregate and govern their subjects from a position that is above the law. Tokyo’s ability to attract those who have an exclusive hold on power and information is prodigious. The city is Washington and New York combined.
In America there is a clear distinction between the functions of those two cities: power is in the hands of the government in Washington; the private sector, based to a large extent but not exclusively in New York, controls information. Power itself is regarded as something that is entrusted by the people to political leaders and can be taken away from them at the first sign of any slip. Deep down Americans have little confidence in government. Mistrust of Washington is particularly deep-rooted among state governments.
This hostility to government is ingrained in the American people. Government service has little appeal for young people. Many of the most gifted undergraduates at American universities go on to pursue advanced degrees in graduate or professional schools; the second-best go to work for major corporations; few of the elite seem interested in a career in government. In contrast, the top graduates of Japan’s top university, the University of Tokyo, set their sights on passing the civil service examination and enter the government in droves. The American image of government is one of agencies squabbling with each other over money (a bigger share of the budget), and for that reason the government commands little respect. Recently, I must admit, similar feelings have been gaining ground among the Japanese as well.
In 1989 I had a conversation with a former vice-minister of MITI who asked me an extremely interesting question: “With all this talk about the American economy being on the decline and the United States falling behind in technology, why does the American government stand idly by? Why doesn’t it do something? In Japan MITI would have taken action long ago.” Although one can understand the vice-minister’s perplexity, the United States makes a sharp distinction between the sphere of government and that of the private sector. No matter how frustrated the American government may feel, no matter how much authority it may have, the American people would not tolerate its interfering in private enterprise.
The only areas in which Washington can openly intervene and make policy decisions are those related to military matters and national security. Conversely speaking, if these areas can be used as justification, the government can get involved in anything it wishes. All it has to say is that national security is at stake and those who ordinarily would object will remain silent. National security is the “open sesame” that unlocks all doors. Setting aside what might be done behind the scenes, any top U.S. government official who openly attempts to give public support to a private company will immediately lose his job. What makes James Fallow’s proposal for containing Japan so difficult to adopt as a policy measure is that the U.S. government would have to support one corporation or industry over another in order to win the trade war with Japan. Washington, however, cannot openly propose special rules for private corporations.
What then is it to do? When the government chooses to give support to the private sector, it dreams up an excuse for doing so, namely, that such action is necessary for military reasons or in the interest of national security. Once an action can be justified on these grounds, anything is possible. Thus we have seen Fujitsu prevented from buying Fairchild Camera and Instrument Corporation, the smashing of a Toshiba radio cassette player on the steps of the Capitol, and Washington’s blithe reversal of its own decisions about the FSX fighter support plane.
Excuses for Japan-Bashing. Each of these incidents was justified on grounds that came close to pure fabrication. The reason given by the Commerce Department, the Defense Department, and the Congress for stopping Fujitsu from buying an 80-percent share of Fair-child in 1987 was that semiconductors are a strategic, high-tech product and that the takeover of a leading American semiconductor company by a foreign firm would pose a serious national security problem. Fair-child was a subsidiary of a French firm, however, and not an American company at all, to say nothing of the fact that Schlumberger, its French parent company, wanted to sell it because of management difficulties. Yet as soon as national security was invoked, the American government felt it could step in and call the deal off.
The Toshiba affair was also highly suspect. In 1985 the United States informed the Japanese government that Toshiba Machine Company, a subsidiary of Toshiba Corporation, had sold precision milling equipment to the Soviet Union in violation of COCOM, the coordinating committee for controlling East-West trade. This equipment, it was claimed, had made it possible for the USSR to reduce the noise of its
