November. 1986/ TOKYO Business Today

A Japanese friend succumbed to cancer the other day. To the end it was the old Japanese story: everyone else but the victim knew something was badly wrong. The doctors kept on telling him he had only some minor disease. Every small return of energy was hailed as a major recovery.

Meanwhile the victim, right to the end, kept on fussing about minor details, as if they were the really important things in life.

Failure to Recognize the Cure

I was musing over all this during a recent seminar here on the future of Japan-U.S. economic relations. The U.S. participants, mainly academics, spent all their time fussing about such details as the trade deficit, the budget deficit, interest rates, Japan's defense and infrastructure spending, more market opening, etc. Meanwhile the Japanese kept on saying how they were sure everything would come right in the end, and that the U.S. economy was about to stage a come-back anyway.

No one was willing to get up and tell truth - that the U.S. like many other Western economies is in the throes of a disease called deindustrialisation, and that the disease is likely to be terminal. The West is losing both the will, and the capacity, to engage in serious manufacturing activity.

The disease set in some time ago. It could have been cured by decisive early action. But we ignored it, and pretended it would go away. Now when it is too late, we worry about the symptoms of the disease rather than the disease itself.

Australia's Laissez Faire Position

As an Australian I think I can speak with some authority on this question. It is one area where we lead the world. Australia used to have quite a good manufacturing sector, despite its small domestic market, thanks to sensible industry policies and some protection for strategic sectors. It also had a reasonabl work ethic - an Anglo-Saxon version of the same semi-feudal 'company / family' ethic we see in Japan combined with an indigenous 'bush / mateship' sense of togetherness.

But Australia also had minerals, lots of them. Booming exports pushed the dollar to as much as ¥4OO in the early 70s. Soon our manufacturers were in deep trouble, having to compete with artificially cheap imports.

In this situation the obvious thing to do was to get rid of weak, mainly labor-intensive, industries and protect higher technology industries. At the very least protect the industries crucial to the industrial base. But our politicians with much help from the academic economists decided otherwise. We would move to a laissez faire position, they decreed. Let in the imports and force our manufacturers to face the full blast of international competition. They would emerge lean, hungry and efficient. We would be the Switzerland and Sweden of Asia. And if a lot of them fell by the wayside why worry anyway? Who needs dirty old manufacturing when we have nice clean minerals? On the other hand politicians do need votes, so protection was kept for the weak, labor-intensive industries.

The Downward Spiral

The result of this brilliance ? Just 12 years later we have cut the share of tradeables manufacture in GNP by almost half. We have serious unemployment, a collapsed currency, a lousy work ethic, a mountain of foreign debt, and an almost total dependence on foreigners for nearly all technology goods. But we still have those weak, labor-intensive industries.

Even with the dollar sinking to almost 9O, we find it hard to compete. Too many key manufacturers have been allowed to go bankrupt. The people who were supposed to be getting lean and efficient found it much easier to put their money into speculation, takeovers and the service sector generally - anything but new manufacturing.

As Australia goeth, so too does the U.K., the U.S.and quite a few others in the West. We are locked into a downward spiral. We are even forgetting the skills we used to have. Japanese planning to build factories in Australia and the U.K. now talk about us in the same patronizing way as we used to talk about India and the Far East a generation ago: "The local workers, while well below our own standards of efficiency and cleanliness, will do quite well if given firm direction. But they find it hard to master new technologies etc."

Of course, when we get down to Third World income levels we might be able to rebuild our manufacturing industries using our cheap labor. Assuming that the Indians and the East Asians will let us.

November. 1986/ TOKYO Business Today


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