Japanese Industrial Targeting: The Neomercantilist Path to Economic Superpower

300 Pages·1991·27.756 MB·English

by  William R. Nester (auth.)

JAPANESE INDUSTRIAL TARGETING
Also by William R. Nester
JAPAN'S GROWING POWER OVER EAST ASIA AND THE WORLD
ECONOMY
THE FOUNDATION OF JAPANESE POWER: Continuities,
Changes, Challenges
Japanese Industrial
Targeting
The Neomercantilist Path
to Economic Superpower
William R. Nester
Assistant Professor
Department ofGovernment and Politics,
St lohn' s University, New York
Palgrave Macmillan
© William R. Nester 1991
Softcover reprint of the hardcover 1s t edition 1991
All rights reserved. For information write:
Scho1arly and Reference Division
SI. Martin's Press, Inc., 175 Fifth Avenue,
New York, N.Y. 10010
First published in the United States of Arnerica in 1991
ISBN 978-1-349-21286-6 ISBN 978-1-349-21284-2 (eBook)
DOI 10.1007/978-1-349-21284-2
Library of Congress Cataloguing-in-Publication Data
Nester, William R., 1956-
Japanese industrial targeting : the neornercantilist path to
econornic superpower / William R. Nester.
p. crn.
Includes index.
ISBN 978-0-312-05782-4
I. Japan--Cornrnerce. 2. Japan--Cornmercial policy. 3. Japan--
Econornic policy-1989- 4. Industry and state-Japan.
5. Mercantile system-Japan. 6. Protectionism-Japan. 7. United
States-Foreign econornic relations-Japan. 8. Japan--Foreign
econornic relations-Uni ted States. 9. International econornic
relations. I. Title.
HF3826.5.N39 1991
338.952-dc20 90-20560
CIP
With the deepest love to my brothers
Mark, Brian and Steve
Contents
Introduction 1
1 Neoclassical versus Neomercantilist Economics:
Theory and Reality 13
2 Japanese Neomercantilism:
Continuities and Changes 25
3 For Their Money and Votes:
Farmers, Distributors, and Builders 43
4 Heavy Industrial Giants:
Steel, Machine Tools, and Automobiles 79
5 Fueling Industrial Superpower:
Energy, Raw Materials, and Comprehensive Security 119
6 From Technological "Catch-Up" to "Leap-Frog":
Computers, Semiconductors, and Telecommunications 161
7 Banker to the World:
Managing Oceans of Cash, Stocks, and Bonds 207
Notes 255
Bibliography 270
Index 294
Vll
Introduction
Leaders of the seven top democratic industrial nations - the United
States, Japan, West Germany, France, Britain, Italy, and Canada -
have met annually to discuss global problems since President Ford
initiated the first get-together in 1976. Of the twelve summits to date,
none was more richly symbolic of the immense changes that have
occurred since 1945 than the July 1989 meeting. Hosted by President
Mitterrand in Paris to coincide with his nation 's spectacularcelebration
of the French Revolution's 200th anniversary, the summit straddled a
year which recalled Dickens' adage that "it was the best of times, it
was the worst of times. "
The world economy was in its seventh straight year of growth with
North America, Europe, and East Asia leading the way. The Euro
pean Community's (EC) twelve members were actively preparing for
1992, when they would abandon all internal barriers thus creating the
world's largest common market with 360 million people. For the first
time, the global environmental disasters behind the worsening green
house effect and depletion of the ozone layer were a top summit
agenda item. Meanwhile Gorbachev's glasnost and perestroika policies
were partially fulfilled through his renouncement of the Brezhnev
Doctrine which justified Russian intervention in other communist
countries, and his encouragement of quasi-democratic elections in
the Soviet Union, Poland, and Hungary; the Soviet empire itself
appeared to be slowly crumbling as Russian troops withdrew after ten
years of fighting in Afghanistan, and calls for genuine autonomy
swept the Baltic states and many of the Muslim states; Moscow and
Washington took turns announcing unilateral weapon- and troop
cuts, and seemed on the brink of major nucJear and chemical arms
reduction treaties - all of which led many analysts to decJare the Cold
War's denouement if not finale. These positive developments,
however, were somewhat undercut by such trends as Beijing's
crushing of China's mass democratic movement, the failure of
Gorbachev's reforms to spark the fossilized Soviet economy, the $1.2
trillion Third World debt burden dragging at the heels of an other
wise dynamic world economy, and another year of mass famine and
natural disasters in Central Africa, South Asia, and elsewhere.
The most startling long-term economic development, however,
seemed to get lost behind all these other headlines - Japan was
1
2 lntroduction
rapidly solidifying its manufacturing, financial, and increasingly
technological leadership over the world economy while the United
States remained mired in its immense trade and budget deficits.
Although the American president still occupied the summit's center
stage while the Japanese prime minister remained as obsequious as
ever, the real balance of economic power was revealed by their
respective foreign aid announcements. Before the summit, President
Bush paid a visit to Po land and Hungary during which he promised
American aid of $110 million and $30 million, respectively, to help
alleviate both their immense debts and their attempts at economic
reform. The Poles and Hungarians were openly disappointed, and
commentators on both si des of the iron curtain were critical of these
miserly amounts. But given its own economic difficulties the money
was all the United States could spare. Ouring the same week, Tokyo
announced a five-year $35 billion foreign-aid program. Japan was
clearly fulfilling its röle as the world's financial superpower, a position
it had achieved as recently as 1985.
How could Japan afford to give so much, and America so little? As
of March 31, 1989, Japan had the world's eight largest banks, sixteen
of the top twenty-five banks, and twenty-three of the top fifty banks;
in sharp contrast, only four American banks ranked among the
world's top fifty banks, with the largest, Citicorps, in tenth place, and
the second largest, Chase Manhattan, a distant thirty-sixth. 1 Japan's
financial power reflected its manufacturing and technological power -
that same year, there were 345 Japanese firms among the world's top
1,000 corporations, and those firms accounted for 47% of the total
assets; aithough the number of American firms was slightly larger
at 353, they accounted for only 32% of the total assets.2 A 1987
National Academy of Engineering report revealed that Japan was
superior to the United States in twenty-five of thirty-four critical high
technology sectors, while of twenty-five key semiconductor techno
logies, Japanese producers led in twelve, were equal in eight, and were
rapidly clsoing the gap in five.3 Japan's 116,000 robots in 1987 were
almost five times greater than America's 25,000 and ten times more
numerous than West Germany's 12,400.4 Japan's per capita income of
$21,040 and household savings rate of 15.1% in 1989 far surpassed
America's $19,780percapital income and5.4% household savings rate.
Japan's economic superpower is largely based on its ability to
maximize its economic growth and exports and minimize imports.
Between 1977 and 1986, Japan's GNP grew at an annual rate almost
twice that of the United States - 4.4% compared to 2.7%. In 1987
Introduction 3
Japan had trade and payments surpluses of $96.3 billion and $87.0
billion while the United States had deficits of $160.2 and $153.9
billion. Despite its trading prowess, Japan's dependence on trade is
actually the second lowest of the OECD countries. In 1987, Japan's
trade dependency to GNP ratio of 8.0% was actually only slightly
higher than America's 7.5%, while both countries were dramatically
lower than Germany's 23.1%, France's 17.6%, and Britain's 21.0%.
The possession of a large merchant fleet in an interdependent world is
as important a basis of international power as the possession of a
naval fleet was in a world in which the great powers were constantly
at war. Japan's merchant fleet of 9,804 ships in 1987 was the world's
largest - the Soviet Union had the next largest fleet with 6,741.
Thousands more Japanese ships, however, fly under Liberian or
Panamanian flags. The achilIes heel of Japan's economic superpower
- one which American policymakers have refused to take advantage
of - is its overwhelming dependence on the Uni ted States. Over
one-third of all Japan's trade (36.5%) is with the United States;
Japan's next largest trade partner is the twelve-nation European
Community which accounts for only 16.4%. In comparison, only
21.1 % of America's trade is with Japan.5
How did Japan develop so rapidly from the mass poverty and
destruction of 1945 into the world's most dynamic and powerful
economy? How did the United States fall so far behind? Libraries can
be filled with books and articles attempting to answer the first
question. Many of these works fall into either the "Japan Inc." or
"hard work in a free market" theses, both offering outright false
answers. The "Japan Inc." thesis claims that Japan is run like a giant
corporation, with the national government acting as a headquarters
that minutely controls and develops all aspects of the economy.6 In
reality, Japan was never a command economy - industrial policies
always emerged after tough bargaining and compromise between
government and the affected sectors; the big corporations enjoyed
varying degrees of autonomy even before the 1970s when the
government rarely hesitated to use its tight controls over domestic
capital and foreign exchange to yank maverick firms into line.
Equally fallacious is the "hard work in a free market" thesis which
argues that Japan became aglobai economic superpower simply
because Japan's economy is the world's most open and Japanese
work harder than the rest of humanity.7 Japanese assert that their
markets are the world's most open and the only reason why fore
igners do not seil more in Japan is because they do not try hard