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Abandoning Protectionism, Slowly
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14539 |
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CURRENT ISSUES
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3 / 1988 |
2,970 Words |
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Edward J. Lincoln
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Automobiles, VCRs, televisions, cameras, camcorders, calculators, and watches: Americans know Japan primarily through their purchases of products from Japan. They like Japan because Japanese products have developed a reputation for low price and superior quality. In fact, this attitude fits well with the traditional American distaste for its own manufacturing industry. We have been eager to criticize American manufacturers and vigorously demand redress for problems in product safety and pollution.
Why then do we seem to have so many problems with Japan? Is it simply a failing American manufacturing sector lashing out against superior competition? Is it lazy American firms that cannot be bothered to learn enough about the Japanese market to penetrate it effectively, and unfairly blame their failure on Japanese barriers? The Japanese would have us believe so, and because of our mistrust of American industry, many Americans do. There is a modicum of truth in these arguments, but U.S.-Japan relations are much more complex, and Japan deserves as much of the blame for the problems as does the United States.
So far the problems and frustrations have been carefully contained. Close, friendly relations with Japan have been an unchallenged pillar of American foreign policy. Because of developments on both sides of the Pacific, however, those relations could be tested and even discarded over the next decade. This remains a minor possibility at the moment, but if the problems addressed below do not improve, that possibility will grow.
Such a scenario would be like the unfolding of a Greek tragedy. Both the United States and Japan benefit from their close economic relations. And yet, strong domestic imperatives may drive them apart, to the ultimate detriment of both.
Macroeconomics either bores most people to tears or confuses them, so they ignore it. But the big picture of what is happening to Japan and the United States can only be expressed in these terms, and the basic developments are quite simple.
For almost 30 years after the second World War, Japan grew at an extraordinarily high rate--on average, 10 percent annually even after allowing for inflation. High growth requires heavy investment in plants and equipment, housing, roads, and other facilities. Investment must be financed by domestic savings or money borrowed from abroad. Rather than borrowing from abroad, as have many developing countries more recently, Japan had enough savings at home to fund its investment needs.
But Japan slowed down in the 1970s because it had caught up with the industrial world; adept at catching up rapidly, it was now constrained by the world technological frontier. From 1974 to the present, average economic growth in Japan has been under four percent annually. Slower growth means less need for investment.
So far so good. But Japan continued to save a lot. Those savings were a boon when the economy was growing rapidly, but now they had to go elsewhere in the economic system or Japan would slip into recession. During the late 1970s, the Japanese government absorbed most of those savings by running large government deficits and issuing government bonds. In the 1980s, though, the government reversed this policy and systematically cut its
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