From: ellisk@ucsu.Colorado.EDU (Michael K. Ellis)
Subject: Re: Strike at Saturn?
Reply-To: ellisk@fido.Colorado.EDU
Organization: University of Colorado, Boulder
Distribution: na
Date: Tue, 1 Sep 1992 04:47:05 GMT

underdog@leland.Stanford.EDU (Dwight Joe) writes:

>In article <ellisk.715239049@fido.Colorado.EDU> ellisk@fido.Colorado.EDU writes:
>>...  Having said that, I also find your attitude and
>>your ad hominem attacks about as attractive as Tim Maroney in top form:
>>...

>Yeah.  About as attractive as Mr. Ellis' assumptions about my comments.

Non sequiteur.  I've used only your comments in basing own comments.
While they may not reflect your real life personality, they certainly
reflect your tendency on the net to act with the general disposition of
a small animal with its leg caught in a trap, snapping at anything and
everything that approaches.  (Oh, and by the way, Tim's an extremely
handsome, dapper gentleman in real life, with very good manners.  Nice
two-tone hair, too.  You may be the same, but your personality on line
leaves, ah, much to be desired.)

>>[UC-Berkeley education]

>Big deal.

I won't deny being proud of my degree. I will maintain that I included
it for reasons of establishing a background, however.  This is rather
more than you have done.  You've made many assertions without giving any
background.  That's unacceptable in the realm of academia, and I find it
equally unacceptable in a 'discussion' (term used loosely) such as this.

>>The only solution to 'cracking' the Japanese market is to commit to a
>>long term market presence in Japan.  That costs money, lots of it.
>>Contrary to Mr. Joe's assertions, Japan is currently one of the most
>>open countries in the world from a free trade aspect.

>Here's an unwarranted assumption.

It's neither an assuption, nor unwarranted.  Or were you talking about
your own comment which follows directly below?

>Japan is much more closed than the USA, which is the benchmark of comparison
>that I was using.  The cost of living in Japan is much worse than the
>USA because of import restrictions.

Japan is, certainly, closed compared to the USA.  Unless you happen to
be selling sugar, for example.  Or any of the myriad other protected
items in this fine free-trading nation of ours.  I believe my argument
in my original article stated explicitly the reason for both America's
original openness while tolerating very closed markets in Japan and
Europe, as well as other 'allied' nations.  Those circumstances,
however, no longer apply.  The US has acted to protect many of its
impacted industries (mostly without success) while the Japanese have
slowly, but steadily opened their markets.  There is a long way to go,
certainly, but things are progressing.  Your 'open it up with a crowbar'
attitude exacerbates the friction between the two countries, as well as
ignoring certain political and social realitys in Japan.

To begin with, Japan has a population approximately 1/2 that of the US
living in an area about the size of California, much of which is too
mountainous to be of any real residential use.  The result is *going* to
be higher land prices no matter what.  That will raise the cost of
living quite a bit from the word go.

In addition, the political coalition which has formed the backbone of
the Liberal Democratic Party, farmers, small businessmen, and larger
corporations, has tended to receive lion's share of benefits from the
government (headed since the mid-50's by the LDP).  This has been at the
cost of those not making up those groups, particularly urban dwellers.
They pay higher taxes, receive less proportional representation, and
have a lot less room to dwell in.  Food prices and subsidies have also
been kept high to benefit the dwindling agricultural sector.  The end
result, even before taking imports into account, is much higher prices.
Remember, import/export comprises less than 15% of the Japanese economy
(and I'm erring on the high side).  Even if Japan were to overnight
become a 'free trade' nation on the scale of the US, the cost of living
would remain substantially higher than here.

>I never said that the trade barriers were only "formal" ones.

>The net cumulative effect of the trade barriers, whether formal
>or informal, in the specific case of the Pontiac Trans Am is to
>jack it's price from $14,000 in the USA to about $24,000 in Japan.

We'll ignore, for the moment, the cost of transport for that Trans Am
across the Pacific, as well as the comparatively high price of setting
up and maintaining a showroom and dealership in Japan.  Remember, it's
only in the US that you can't factory order Japanese cars.  Most dealers
factory order, and deliver to the customer as soon as the car arrives,
cutting down on inventory costs.  Since you can't do this across an
ocean and still have any kind of timely delivery schedule, the necessary
inventory drives costs up.  (Go talk to BMW about this some time.)  But,
as I said, we'll ignore this for the moment. (If you want to learn more
about the domestic Japanese auto market, read _The Machine that Changed
the World_, Womack, ed., MIT Press.)

>The SII (Structural Impediments Initiative) talks are designed to
>to knock down those "informal" barriers.  The Japanese,
>American pseudo-free traders, and certain foreigners in America
>think that it's Japan "bashing".  These self-appointed arbitors often use
>the same nutty argument saying, "I'll decide when John Doe's tinker toys
>are adequate in quality.  Now they suck.  After they've been improved to
>my liking, I'll think about opening Japan's markets."  They seem to confuse
>two separate issues:  (1) product quality/desirability, which should
>be determined by the consumer, not a self-appointed arbitor, and (2)
>market access.

So what, exactly, are you arguing here?  You seem to agree that
'informal' barriers are the current main obstacle to your vision of free
trade, but you suggest no real solution other than to 'open it with a
crowbar'.  You seem to know Japan well enough to realize just what a
cultural change that entails, yet you seem to totally fail to realize
the difficulty in achieving that change.  Japan's current distribution
system does discriminate against foreign products.  It also employs a
large segment of the population.  It has acted in the past as something
of a 'welfare system' by having a large number of middlemen in every
factory to customer relationship, cushioning Japan's historical lack of
a welfare system.  Cutting out that system wholesale would result in
massive shock to Japan's social system.  That system is currently
changing, given the population shortage, resulting in a distribution
network made up of mostly older or more uneducated people, but it will
take a while to die off.  We can push, certainly, but going in with a
crowbar would be a sure way of turning Japan from a 'more or less
friendly but ferocious competitor' into a real enemy, trade and
otherwise.

From a different perspective, lets take the other side of SII (which I
realize you don't agree with, but the changes wrought by SII are, in
effect, small potatoes compared with your 'crowbar' approach).  Japan
has suggested certain actions which the US should make to improve its
economic situation: improvement of education, cutting the deficit,
restructuring of accounting and tax methods to take a longer-term view.
These changes would, indeed, make a lot of economic sense, but
implementing them would be very hard to do.  And, every time Japan makes
even a tentative suggestion, the cry of, "Those Japs are trying to tell
us what to do!" goes up, in righteous indignation.  Are you willing to
tolerate 'crowbar' level tinkering with our economic, social, and
political system, dictated by a morally righteous bunch of Japanese
theorists who know how to solve America's problems even if you don't?
Would you have them dictating what the safety standards are for your
food, water, vehicles, and consumer products are?  If you want Japan to
give up this soverignty, then you'd better be prepared to give up your
own.  That doesn't mean Japan shouldn't be urged to open its markets,
but rather than forcing them open with a crowbar, we should let
economics do the work, and intervene only where blatant disregard for
existing agreements is evident.  

>>The only
>>real cure for that is a commitment to sell in Japan, and to spend the
>>money necessary to acquire market share.  It won't be easy, by any
>>means, but it is possible.
>>...

>Then it should be pried open with a crow bar.  The Japanese gov't should
>reform the Japanese system so that access is as easy as that in the USA.

Here we come to the crux of the matter.  Mr. Joe is certainly in the
camp of the 'free traders'.  Being something of a free trader myself, I
certainly won't run down the long term benefits, although I must put
myself in the camp of the 'pseudo-free-traders' for the following
reason:  it is not at all clear that 'free trade' is the most efficient
form of economic development for all nations, particularly those not in
the 'first rank' of countries.  If you want to use the examples of Japan
and the Four Tigers, a country which manages to close its markets, at
least in critical sectors, while maintaining a strong export market to
provide necessary competitive impetus, stands the best chance of
developing quickly.  For these countries, 'free trade' is often
disasterous.  Having said this, this 'closed at home, open abroad'
approach often does not work, as widespread failure in the Latin
American economies and in India has shown.  However, among 'first rank'
countries, which includes both Japan and the U.S., free trade is
generally the most efficient way of allocating resources in the
extremely complex economies which have formed.  The Japanese themselves
have found this out the hard way.  Prior to the 70's, the government had
almost total control of all currency flowing into or out of Japan.  With
growing strength in exports abroad, however, large Japanese companies
gradually accumulated their own foreign reserves, and eventually
rendered government policy moot.  The same could be said to be happening
in Japan in other areas, more recently in consumer products.

People are, slowly, beginning to move for lower prices and costs of
living, and better access to foreign goods.  One major party, the
Komeito, is already supporting the relaxing and eventual elimination of
rice barriers.  Komeito's main supporters (aside from the Soka Gakkai)
are urban dwellers who don't want to support those 'fat, lazy rice
farmers' any more.  While I was in Japan I met more and more Japanese
who at least wanted the choice of buying foreign goods.  I believe that
this pressure will grow, and things will changed.  The Japan of today is
drastically different than that of 10 years ago, and I have no reason to
believe that it won't be equally different 10 years from now.  One of
the changes I see in the future is a continued gradual opening of the
country to foreign goods.  Yes, it's slow, it's frustrating, and it's
historically unfair to the US, but it *is* changing.  In the meantime,
US companies cannot afford to sit back and whine that 'impediments' are
keeping them from competing abroad while they get the pants beaten off
of them here at home.  (Yes, I know you probably agree with me here, if
nowhere else.)
 
>Otherwise, the USA should play tic for tac.

One thing about tic-tac-toe: when played by two competent players,
neither can ever win.  Playing economics as a zero-sum game is going to
result in a world divided into three economic blocs, Asia, North
America, and Europe, each trading mainly within itself, with the rest of
the world looking in.  Your crowbar approach can only help this to bring
this about.  You claim to be the great free trader.  Let that economic
theory you believe in so much work like it's supposed to.  If it
doesn't, then we'll all end up with managed trade anyways, and at least
we'll lack some of the tension.

Note: I'd like to thank Lon Stowell for the email about the effect of
total import limits by vehicle number rather than cumulative value when
applied to US trade policy.  I neglected it to include it in my original
article, and it is a significant oversight as an example of how US
attempts to 'counter' Japanese import strength have ended up shooting
the US car industry in the foot.  (The same thing happened in steel,
although the mechanism was different.)  Thanks, Lon.

--
Michael K. Ellis
ellisk@fido.colorado.edu
Newsgroups: rec.autos