[This document was prepared by Dr Andrew Jennings. Dr Jenning is a senior staff member at the Research Laboratories of the Australian and Overseas Telecommunications Corporation. He has lived in Japan while working in Telecommunications research there. This rely is being distributed with his full persmission. ] A reply to "JapanYes" I've re-read this article in detail. My reply to some specific parts of the article are detailed below. I find the article inflammatory in the extreme. It is clearly designed to persuade Americans that Japan is at "economic war" with the US. I believe that any objective review of the position will conclude otherwise. Japan is pursuing commercial objectives, and is keen to bolster its economic position in the same way that any other country is concerned for the well being of its citizens. Most disturbing about the article is its callous disregard of the truth and its goal of inflaming an already difficult situation. The author claims to be in accord with a free trade policy. Yet his article seeks to distort the nature of the relationship between Japan and the US. Let's just take a simple case. If Japan destroys the American economy, who is going to buy their products? Certainly not the EEC: they have erected very tall walls to keep many Japanese products out. Several people have described this article as racist. I don't think on the whole it is a racist article. But I am of the opinion that it is dangerously inaccurate and should not be published without a substantial reply. Some detailed comments: THE "JAPAN PROBLEM": "Japan is in a kind of economic war against us. Their objective is for them to win and for us to lose." For Japan here we could substitute "Europe" or perhaps "China" and on the whole the statement should not shock. Since most of the world is now loosely basing its economy on capitalist economic principles, we should accept that competition is the basis of operation. Surely Ford competes with GMH: their objective is to gain market share, and in the process some win. If the system is fair then we would hope that the more efficient or those who provide the best customers will win. However: "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. As a result, the greatest transfer of wealth in the history of the world from one country to another is happening right now, from the United States, to Japan." To place this as the next statement is to say the least a rather large jump. Does the remainder of the document provide the evidence to support this claim? I'll go through the document section by section to examine how the various parts tend to support this proposition or otherwise. Its important to distinguish propaganda from argument. A statement of propaganda makes a series of emotionally compelling points that may be completely unrelated to the point at hand. It then makes a "grab" for the reader's emotions and attempts to persuade them of a proposition. An argued case on the other hand takes a proposition such as "Japan is destroying..." and looks at the logical basis of this statement. It attempts to substantiate by independently verifiable evidence that the proposition is correct. From my reading of this document I have come to the conclusion that "JapanYes" is propaganda. It does not present a reasoned argument to support its central proposition as outlined above. For this reason I call upon the author to substantiate through independently verifiable evidence the central supporting tenets of his argument. Trade is a very important subject. Breakdowns in trade relationships are serious for us all. But propaganda has no place in such arguments. IN THE BEGINNING, THE TV CARTEL: The trade behaviour documented in the TV program "Coming from Japan" certainly shows how Japanese companies used every loophole and dirty trick to get their goods into the American market. The key step in this whole process is the following: "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." So American companies sold technology to their competitors, no doubt making quite a good deal in the process. How is this consistent with the statement that it is Japan that is destroying America's strategic industries? The use of the Japanese domestic market to subsidise foreign exports is a decision in one sense forced on the Japanese people by their own companies. Yet at this time (early 60's) I don't doubt that a very high proportion of Japanese people would have supported this decision. We can criticise their choice, but I don't doubt that it was a choice made freely. If you and I group together our savings and gain an economic advantage is that unfair? It is also simply not the case that Japanese TV's were initially cheaper. It took some time to get to the point where the Japanese product was cheaper. Unfair trade? Yes. A process of "Japan destroying.." I think not. Surely the American companies who sold the technology should be held equally accountable. As perhaps should the American consumers who preferred to buy the Japanese product in the end. DISPELLING SOME STATISTICS: I don't think anyone disagrees that there is a serious trade imbalance between the US and Japan. There is plenty of evidence to support this, although the author doesn't cite this. American government sources are quite detailed. POLITENESS AND CODED LANGUAGES, A BACKGROUND: "As another example, an agreement was reached where Japan 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." Lets try substituting "the Americans" here for "the Japanese". Nobody would seriously expect that if the American government gave an indication that American firms would buy certain products, that this would automatically happen. These are commercial decisions that companies make, If American chips are too expensive, why should the Japanese firms buy them to their commercial disadvantage? The implication is that Japan operates as an authoritarian regime where the society is directed from the top. Where is the evidence to support this proposition? Yes, it is important to be polite in Japanese culture, but this is surely not the basis of the problem here. "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. 'The Japanese market is opening, but it takes time and Americans must be patient for Japan to succeed at this difficult task." Japan has been saying this for the last 20 years." True, the Japanese market has been slow to open. Let's look also at the fact that Japan is the world's largest importer of food. Also we should take into account that some countries (such as mine, Australia) run large trading surplusses with Japan. Many firms succeed in the Japanese markets, but many American firms fail. Why should American firms be given preference? DISCRIMINATION: Yes, there is institutionalised racism in Japan. It should be condemned in the same manner as elsewhere. Also the arguments about Konishiki are complex, and I'm not convinced that this in particular is an instance of racism. How is institutionalised racism relevant to the trade difficulties? SHAME AND HONOR IN BUSINESS: Yes. Japanese culture is different. Its older, and the group is very important. But how is this relevant to the trade issue? THE DISTRIBUTION SYSTEM, WHY FOREIGNERS ARE SET UP TO FAIL IN JAPAN: Its always difficult to set up business in a new country. However the contrary view should be put here. Many foreign business prosper in Japan because they find ways around the difficulties you mention. We can drag up horror stories from the past, but how relevant are they to Japan's market of today? If you walk through the aisles of any Japanese supermarket you will see a large volume of foreign goods. Yet the Japanese distribution system is complex. The evidence supports the view that the distribution system is being undermined by clever foreign firms. Where is the evidence to support the proposition that Japanese markets are closed or are increasingly closed? The evidence is in fact to the contrary. I cite the magazine "The Economist", in particular its detailed reviews of the Japanese economy. Also several articles in "Fortune" magazine address this point directly. I am afraid that this section is propaganda of the worst kind. THE BUSINESS CARTEL, KEIRETSU: The behaviour of Keiretsu's is well documented. "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 nowworks in, and put them out of a job." Actually this applies to purchase of a product from a European firm also. The profits will then be plowed back into that firm's development. The issue of whether Japanese firms are organised into Keiretsus is quite incidental to the global distribution of jobs. Surely here the consumer has the right and freedom to purchase goods from the firm of their choice. This is what free trade is all about. American comsumers choose to buy Japanese products, and in the process of so doing they export jobs to Japan. It is quite inconsistent to accuse Japanese firms of failing to operate according to free trade principles, then to condemn the very process of free trade. COMMAND AND CONTROL: "Japan's business effort is directed by the Ministry of International Technology and Industry (MITI)." Where is the evidence to support this outrageous proposition? "By acting in unison, the companies, banks and government can attack and overrun a foreign industry with a much bigger 'punch' than had they done so separately. It also enables strategic moves which countries like America cannot do as American business efforts are not co-ordinated in any kind of way." So by cooperating in a limited sense, Japanese firms can gain some competitive advantage. American firms do not think strategically. The implication here again is that there is a conspiracy in Japan. There is no evidence presented to support this proposition. THE PROTECTED HOME MARKET...JAPAN'S LAUNCH PAD TO THE WORLD: "An unwritten rule is that there is no real price competition in the Japanese home market between Japanese companies which are also strategic exporters." Again, no evidence presented. The implication here is that there is no competition in the domestic market, which is a very large market. Why would Honda forgo its share of the domestic market by stitching up a deal with Toyota? This is commercial nonsense of the highest order. Japanese firms tend to use the domestic market as a testing ground for new products. So what? Japanese consumers are not compelled to buy these products. "..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." I read this as Japanese firms learn from their mistakes, American firms don't. "This is another reason why the Japanese protected/non competitive home market is so important to their success. " There are two statements here. That the Japanese home market is protected. Which the evidence certainly supports in some industries. However to state that the Japanese market is "non-competitive" flies in the face of a mountain of evidence to the contrary. It is a cut-throat market. Japanese firms that do not survive this competition do not get to export in the first place. "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." Its true that some firms persist longer than in America. This is primarily due to the difficulty of takeovers in Japan. Its not an argument for lack of competition. WHAT IS DUMPING AND WHY IS IT BAD: There is no doubt that dumping is bad. But where is the author's evidence that Japanese products are being dumped on the US market? ECONOMIC STRATEGY, WHAT IT ALL MEANS: Where is the author's evidence that national industry strategy is a key component to commercial success? "Today, Japan has a huge trade surplus not only with America, but with almost every other country in the world it trades with." This is demonstrably false. Japan has trade surplusses with several of its trading partners, and serious problems with America. But other countries, for example Australia (my country) run very large trading surplusses with Japan. INNOVATION: "A serious problem, which the Japanese themselves have acknowledged, is the lack of originality and innovation." This is in a relative sense. As a point of reference, the number of Nobel prizes in Japan, and the number of patents awarded are perhaps the important measures. Just recently the number of Japanese patents awarded passed the no of American patents issued in the US. These give a more up to date picture. "This is quite notable when you look at theircompanies' histories. The Toshiba company in Tokyo has a big science center witha 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." As it happens I've been to two of the museums mentioned (Toshiba and Matsushita). This description of their contents is quite wrong. "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 smallfirm sued. Mitsubishi then made many small modifications to the machine (not improvements, just voluminous iterative changes), patented all of them and sued the US company many times over (for each patent). Mitsubishi just waited for 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)." I can't comment on this as I don't know the details. But this is a common method of competition for a large company against a small one. I don't think its unusual for an American company to do similar things. "A major reason for getting foreign research this way is that Japanese universities themselves don't do much research." No, its mostly done in Japanese companies. "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." This also is quite wrong. In the general sense, Japan is rapidly increasing its spending on fundamental research. There are statistics available on this spending. Most of the research is centered on companies. Does the NEC research lab in Princeton spend its time translating papers into Japanese? It certainly does not. JAPANESE PEOPLE AND THE MARKET: "Japanese goods are sometimes cheaper in America than in Japan and non Japanese goods are much more expensive in Japan than they should be, especially if the goods are in an industry targeted by the Japanese companies and government." Certainly this is true, and pressure should be brought to bear to improve this situation. "BUSINESS IS WAR": "'Peer stresses' in Japan are very strong. Many kids can't take it and commit suicide before reaching university age. Many Japanese suffer from a wide variety of stress related nervous ticks and twitches (if you ride the subway in Tokyo and look at the other riders, you will notice this readily)." Sure, the society is stressed. MILITARISM: "The military mindset even extends to city planning. Most streets in Tokyo have no names in order to 'confuse the enemy' in the event Japan was ever to be invaded again. The US Army did name many of the streets during the occupation, but these were removed by the Japanese shortly after US occupying forces left the country." This is amazing stuff. I don't think there have ever been such signs in Japan. I don't think that I have met so many people as in Japan who take as their starting point that Japan must never arm. Myself, I don't agree with this view. But the representation in this section is grossly inaccurate. It is simply propaganda. AMERICA IS ALSO TO BLAME: Yes. Surely. I think that any objective review of the history will assign blame more or less equally to the two trading partners. Disclaimer: the above is my personal view, and in no way should be construed as the views of my employer. a.jennings@trl.oz.au phone : 61 3 253 6241 fax : 61 3 253 6173 Andrew Jennings AI Systems Telecom Australia Research Laboratory