From: ar12@quads.uchicago.edu (Richard Nixon)
Subject: Interesting article on recession, politics, and Japan (1of2)
Reply-To: ar12@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Date: Fri, 16 Oct 1992 21:52:19 GMT

The following article comes from FTP site monu6.cc.monash.edu.au.
 
It is a very informative and quite disturbing piece about the
problems between the United States and Japan and how they relate to
some of the problems the US is experiencing today. The article
talks about the mechanics of Japan's trade strategy and uses many
examples. It is a bit long, but is thoughtfully written and
explains with explicit detail what seems to be actually happening.
At the end of the article is a part about the US debt and how the
author thinks it may destroy America a few years from now.
 
This article seems relevent and worthwhile to post. I'd appreciate
your comments on it if you have any.
 
My own comments follow the end of the article.
 
-Andre
ar12@midway.uchicago.edu
 
Here it is....
---------------------------------------------------------------

       D O E S   A M E R I C A   S A Y   Y E S   T O   J A P A N ?
 
    (A M E R I C A   W A   N I H O N   N I   "H A I"   T O   I U K A)
 
     There are many misconceptions about Japan and its miraculous 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 third world country to
richest in the world so quickly?" are common questions asked in America.
Today, I will try to answer with examples, at least partially, these
questions. 
 
     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. Following this
article on Japan, is a piece about the US national debt, which has
relevance to this discussion.
 
     I must thank my fiance, Mutsumi (a native Tokyo-ite herself) for her
help in writing/editing this paper and her guidance as I toured and tried
to understand her country. All names have been changed or omitted to
protect anonymity as we do not wish to reveal anyone involved with or
mentioned in this paper for fear of them being labelled deviants in a
country that is not so tolerant of internal dissent. 
 
     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 on the topic), you will find the points
made in this paper to be truthful. 
 
THE "JAPAN PROBLEM":
 
     Some claims echoed in America which are commonly dismissed as "Japan
Bashing" statements, surprisingly turn out to be true upon investigation.
The following statements may seem brash right now, but their meanings will
become clearer in the explanations and examples that follow. 
 
     It seems that Japan is in some kind of economic war against us. 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 destroying
much of America's strategic industries, standard of living and military
strength. These actions are also destroying the jobs of ordinary American
people. 
 
     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, uses a tactical 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. 
 
     The greatest transfer of wealth in the history of the world from one
country in the world to an other is happening right now, from the United
States, to Japan. This is no accident and is in a large part responsible
for our economic problems in America today. Many new graduates and
students today realize the consequences of this much more than their
parents. People entering the workforce today are likely to have a standard
of living considerably lower than that of their parents. Members of the
current generation are unlikely to be able to afford a home like the one
they grew up in. They are much more likely to have trouble finding a good
job upon graduation than their parents ever did and will need two sizable
incomes to support their family. Their parents may lose their jobs, and
not be able to find other 'good' ones as they don't exist in America
anymore. These problems may not seem relevant to the 'Japan issue', but in
fact they are. 
 
IN THE BEGINNING, THE TV CARTEL:
 
     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 Frontline did an excellent
documentary on this ("Coming From Japan"). 
 
     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
illegal under US trade law were set up by Japanese TV makers and US
retailers such as Sears and Woolworths to sell the TVs under store brand
names. 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. 
 
     The transcript of this PBS program is available via FTP at Internet
site: monu6.cc.monash.edu.au in pub/nihongo, or at the address listed in
the appendix of this article. It is very thoughtfully written and is an
excellent case study of what is explained in this paper.
 
     In the 1980's the Japanese applied this same strategy to the machine
tools industry and now completely dominate that industry (a point well
made at a machine tool exhibition I visited in Tokyo). Before that was
motorcycles 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 back). It will be happening again with
major and smaller kitchen/washing appliances during the 1990s. It has
already happened with liquid crystal computer displays where the Japanese
today have 100% market share (these were actually invented in the USA).
 
DISPELLING SOME STATISTICS:
 
     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.
 
     An other false claim, most often made by Japanese trade
representatives, states that it is naturally expected 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. 
 
     This is a mathematical fallacy. To see more clearly this picture,
imagine a world with 2 countries, one with 100 citizens, and an other 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 buy $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.
 
POLITENESS AND CODED LANGUAGES, A BACKGROUND:
 
     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. 
 
     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. 
 
     Some recent examples 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. When he left the Japanese Prime Minister said the
agreement they reached was 'a difficult goal'. This is Tatemae code for
'we have no intention of meeting your demand'. But of course, the Japanese
PM would not say this directly to George Bush, who is 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 don't use 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.
 
     As an other example, an agreement was reached where Japanese would
allow more US made computer chips to be sold in Japanese products.
Recently the Japanese have said this goal would be 'difficult' to reach.
This is code for 'we will renege on the agreement'. 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 and the Japanese market is opening, but it takes time
and Americans must be patient for Japan to succeed at this difficult task.
They have been saying this for the last 20 years.
 
DISCRIMINATION:
 
     Although the Japanese are individually are very polite people, Japan
is a very racist country, maybe even more so than we are. The common name
for foreigners is 'gaijin' in Japan. This is a racial slur somewhat in the
way 'nigger' refers to a black person in America. There is however a
polite form of this word, 'gaikokujin', which means literally 'outsider
person'. 
 
     When you enter a rental agency to rent an apartment (the only way to
get a place 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.
This type practice seems to be very widespread in Japan.  
 
     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. I
brought some of these ads back with me. 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. 
 
     Other races are ranked in a kind of social order in Japan, first is
Japanese, then white people, then other asians, then all other races
besides black people, who are last.
 
     The government sometimes is a partner in racism and discrimination.
There is an 'untouchable' sect of Japanese society in Japan. They are
referred to as 'Burakumin' and are a particular group of Japanese of
Korean decent. A small square on the top corner of the Japanese birth
certificate (I saw Mutsumi's) is filled in if the person is a Burakumin,
or is blank like Mutsumi's if she is not. This is used by the government
and the companies to deny these people good jobs and advancement during
their careers. 
 
SHAME AND HONOR IN BUSINESS:
 
     Japanese people operate on a system of shame and honor (or the
appearance of it anyways). This developed due to the fact that so many
people must live peacefully in crowded conditions. When something does go
wrong, there is a lot of shame on the individual responsible. If the
failure was bad enough, he commits suicide (a practice dating back to when
Samurai committed suicide in front of their superiors when they were
responsible for a major failure). Some major public figure commits suicide
out of shame at least once a year in Tokyo.
 
     For example, while I was there, the CEO of Toyo Rubber (they operate
as B.F. Goodrich here in America) committed suicide by jumping in front of
the subway because profits were poor this year. A couple years back, after
a train wreck in which some people died, the manager responsible for the
whole affair also committed suicide.
 
     An interesting side note to this case is the existence of laws
discouraging suicide by jumping in front of trains in Japan. The
government has laws to fine the jumper's surviving family members based on
how much disruption to service was caused by the suicide of the now dead
family member. Apparently, the intent of the laws is to force the jumper
to think about the harm they will do to their family by choosing the train
as a means of suicide, hoping they will instead choose other means to end
their life and minimize service disruptions. In practice though, these
fines are hardly ever enforced.
 
THE DISTRIBUTION SYSTEM, WHY FOREIGNERS ARE SET UP TO FAIL IN JAPAN:
 
     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. This is why it is so difficult and complicated for the
foreigner to succeed in. 
 
     Japan, being a communal society, follows a strict code of loyalty.
Shopkeepers have loyalty to their suppliers and customers. They all 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 disrupt 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, Hiroshi, who explained to be how the system worked and
why a foreigner cannot usually circumvent it. I made him 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 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 succeed). 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 forbidden to enter,
or later set up to fail.  
 
     So, anyway to get around this law, I told Hiroshi that I will open
the business in Mutsumi's, my wife's name, so now a Japanese owns the
company. He said 'you will still fail because as you get 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 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. 
 
     True-life examples of this abound. Here are a few:
 
This is exactly what was done when a foreign garment manufacturer tried to
sell their clothing in that country (threatening the domestic garment
industry). Customs delayed unloading of the goods until enough of the
summer season had passed making the summer fashion clothing unsaleable.
Making foreign farm produce which competes against domestic Japanese
produce wait on ships long enough to rot or not be appetizing to the
consumer is an other practice.... 
 
     The Feb 10, 1992 of Time Magazine describes how a U.S. lamp
manufacturing company encountered also exactly this problem. It took them
9 months to get lamps off the ship sitting in the harbor and into retail
stores in Japan after customs, and other government agencies stalled and
stalled (which cost this particular company lots of money).
 
     Many anti-foreign goods laws are often in the form of 'protection' to
the consumer. These are applied discretionarily and are really written to
hinder foreign goods from entering the market.
 
     Some of the more famous ones include a law which for many years
banned US beef from Japan because 'Japanese intestines were too short and
couldn't digest US beef which is too hard'. An other banned european skiis
because the snow in Japan was 'different'. US made towels were banned
because the fibers were 'too rough' for Japanese ears, which are 'softer'
than ours. All foreign rice is banned for 'national security'. Rice in
Japan as a consequence, is the most expensive in the world.
 
     As an example of the no-foreign ownership rule, the recent baseball
team fiasco comes to mind: Nintendo recently bought the Seattle Mariners
Pro Baseball team. It is in great irony that it is illegal under Japanese
law for an American to buy (very lucrative) Japanese Pro baseball teams
(from ABC News Nightline).
 
THE BUSINESS CARTEL, KEIRETSU:
 
     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 keiretsu.
These keiretsu 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 keiretsu 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. Mitsubishi Bank, Mitsubishi Electric Corp, Mitsubishi
Heavy Industries and a wide array of other Mitsubishi companies 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. 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 systems 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 are
Japanese brands, even if it is more expensive (in the short run) to do
this. This is national and keiretsu loyalty at work.
 
     Every Keiretsu has a bank. This is the heart of the keiretsu. The
bank is like a national central bank, but for the keiretsu. The bank takes
money from winning operations and gives it to new ventures in the keiretsu
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. 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. 
 
     This is also why buying a Japanese product may put buyers of that
product out of a job, even if they work in a different industry. They take
the profits from the product that person bought, shift it through the
keiretsu bank to develop, invest in and dump products into the industry or
market that person now works in, and put them out of a job. See the
telecommunications example at the bottom of this paper for how this works
in practice.
 
COMMAND AND CONTROL:
 
     Japan's business effort is directed by the powerful 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 where Japan's
'united front' when entering a market is co-ordinated from. This is also
why 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, the companies, banks and government can attack and overrun a
foreign industry with a real punch. 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 again 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 again large foreign firms who are able to join their forces to
defeat America's companies.
 
THE PROTECTED HOME MARKET...JAPAN'S LAUNCH PAD TO THE WORLD:
 
     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) with out fear of foreign companies
entering and ruining the game.  
 
     An unwritten rule is that there is no real 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 these 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). For example, SONY and Mazda did or had
done this frequently within Japan. 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
got 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). The
Japanese then enter unimpeded, dump their perfected goods here 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 doesn't. This is an other reason the
Japanese protected/non competitive home market is so important to their
success.
 
     The non-competitive home market serves an other important function to
Japanese industry. Smaller/weaker Japanese companies 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. Its 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 up 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* 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.
 
WHAT IS DUMPING AND WHY IS IT BAD:
 
     A New York Times writer last year wrote in his commentary that
Japanese companies are foolish because they practice 'dumping' (selling
their products here for a price lower than it costs to make them), and
that he hopes they continue as it benefits the American consumer. His
article is misguided and shows why it is so 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 cost turns 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 never the less.
It turns up somewhere else than at the checkout counter and is how Japan
benefits 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. Japan's factories run,
their people get jobs and later on Japan makes much more profit than it
originally cost to do the dumping. Japan can do dumping by raising prices
in the 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.
 
ECONOMIC STRATEGY, WHAT IT ALL MEANS:
 
     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.
 
     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 US upstarts who invented them to go
bankrupt. As a result, today 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 fridges 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)). 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 on the 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 will often offer to manufacture your entire product at
a reasonable price and put your name on it. For example, the Mac Powerbook
portable computer is not a Mac at all, but really a SONY.
 
     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 have such
a large market share in portable PCs which use these 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 machine. 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, 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 are making.
 
     This example shows why something like LCD screens are a strategic
component and why Japan needs to dominate this industry. This is what is
meant by a famous Japanese phrase: 'business is war'. Key markets
overlooking industries are like peaks overlooking cities. The 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.
 
THE ECONOMIC WAR, A SUMMARY OF THE MASTER PLAN:
 
     Free world trade is a good thing for all countries. Generally,
countries raising protectionist barriers against each other is very bad.
This in fact, helped cause the 1929 depression. What is happening now
though is worse. Although some will tell you that US and Japan are
practising free bilateral trade, this is not true. Today, Japan and
America have basically a one-way trade relationship. Japan closes their
market towards us, but we don't towards them.
 
     Some say 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. 
 
     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 use it for their own
purposes (such as buying our real estate, or companies).
 
     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 the 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. 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.
 
-->Defense:
 
     There is a three tier economic defence 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. Chrysler
doesn't sell many cars in Japan. Long ago Ford used to have a large market
share in Japan but the 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. It is because of these laws and regulations that 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. These joint ventures really enable the Japanese companies
to get foreign technology without having to invent it themselves. The
foreign company gets only a token market share in the Japanese market in
return. 
 
     It was in this way the Japanese companies learned from the US
companies how to make TV's in the 1960's. More recently, the Japanese
government recently forced Texas Instruments to join a venture with SONY,
where SONY got 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 defence 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. 
 
-->Offence:
 
     The offensive strategy is also a three tiered system. Firstly,
government (through the powerful Ministry of International Technology and
Industry) and corporations co-ordinate and select targeted strategic
industries which they want to enter, or take over. 
 
     Secondly, they obtain the basic technology (often from the current
foreign firms in the industry), then copy and improve upon it. They do
trials and 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 (ie.
Matsushita, Hitachi...below). 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),
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, the Japanese can enter and take over in a short while,
almost any industry they choose no matter how unrelated (which they have
done). Their system 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.
 
     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 its 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
theirs are working on commercial ventures, where the war is actually being
waged. 
 
SUCCESS DOESN'T ALWAYS COME THE FIRST TIME:
 
     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. For example, recently the Hitachi
company, a major Japanese telecommunications maker announced it was
withdrawing from the US telephone switching market (large specialized
computers used by telephone companies to make your phones work). It would
be foolish on the part of the US telecommunications makers to believe that
they have defeated Hitachi (some actually believe they have) because
telecommunications is a Japanese government designated strategic industry
and Hitachi will most certainly be in it in the future. As happened in the
auto industry, Hitachi is at home right now refining and improving their
products based on what they learned from their last campaign in America.
They will be back stronger than before. I know this because I saw some of
their new and upcoming products when I was Japan. Once their improvements
are complete and proven in the home market, they will re-enter the U.S.
market, possibly surprising America's domestic makers.
 
INNOVATION:
 
     A serious problem, which the Japanese themselves have acknowledged is
the lack of originality and innovation. This is quite notable when you
look at the 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. Hitachi, NTT (the
telephone company), Nissan and Matsushita had similar 'timelines' in their
centers with quotes like above. 
 
     This happens because inventing means failure (for a time at least)
and no guarantee of success. Because the Japanese cannot be seen to fail
(this is shameful and very bad in Japan), they do not invent. As their
companies become more powerful, I wonder who would be around to make the
discoveries like xerography, the transistor and LCD TV (all invented in
USA). I found 2 Japanese government sponsored organizations in Japan with
the task of short circuiting this problem. 
 
     One, the Technology Transfer Institute, specializes in finding small
companies around the world with new technology and helping Japanese firms
buy the technology. If the Japanese firm wants it but can't buy it, they
sometimes steal it by patenting similar items copied 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 (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 company many times over (for
each patent). Mitsubishi just waited for the 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
foreign research. A Japanese institution exists which is called the 'Japan
Research Foundation'. It actually does no research, but translates foreign
research papers into Japanese for the Japanese companies to use.
 
     A major reason for getting foreign research this way is 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 for life. At the 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 (often drunk) students live in
extreme squalor. Academics did not seem to be taken seriously by the
students who were too busy drinking or playing sports. The 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. There were no working safety/fire control systems. Electricity
wires were hanging exposed in hallways and lighting was not functioning
(for many years it seemed) in parts of buildings. Old gas stoves were
running unattended in kitchens with cardboard covering broken windows.
Piles of garbage and wrecked cars were strewn about the campus and behind
buildings. Nothing had been painted or cleaned in about 20 years. The
grass hadn't been cut in a very long time and had reached full height.
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 extremely 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 makes no effort to seriously support its
universities. Furthermore, unlike their U.S. counterparts, Japanese
companies give no money to universities. This does not mean that Japan
does not value basic university 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. Last year, the
Toshiba Company alone spent more on research than was spent (privately and
publicly) in all the country of Canada. This is the fundamental reason why
Japan refuses to fund universities and diverts it to corporate research
instead. It is something we must understand. 
 
     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
company labs instead where they can use it against the US companies.
 
     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. 
 
     A further point to this, companies do not to give grants to charities
(nor universities). Corporate citizenry doesn't not exist in Japan in the
way we know it here. This is why it is extremely rare to find Japanese
corporate run foundations in Japan or America. This is also why it is
extremely unusual to see for example, a PBS program sponsored by a
Japanese company (though recently, this is changing for the US branches of
Japanese firms as they learn how important Americans relate charity to a
company's image).
 
....Continued in Part 2/2;JAPANYES
 
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