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IP: Workshop on US-Japan relations REPORT ON PAST 2
From: Dave Farber <farber () central cis upenn edu>
Date: Mon, 19 Feb 1996 21:25:04 -0500
Date: Wed, 14 Feb 1996 17:28:54 +0900 The New Mexico US-Japan Center and the Japan Policy Reserach Institute held a workshop on 31 January in Washington DC. The theme was "Changing aspects of the US-Japan relationship". I will post a summary of that workshop (as I have for the two previous held in September and October of 1995). However, since the first two were held some months ago, I thought I might recap those two meetings. I wrote the following (minus the standard welcoming remarks type comments) for presentation at the Washington DC meeting for just that purpose (it was presented by our Director, Wally Lopez). Regards, Michael Jensen ---------------------------------------------------------- [snip]...Although the focus of these workshops is Japan, the key underlying message from the speakers is that real change in the US-Japan relationship will come only when the US looks at the entire region and when the US links security with trade and economic policy. This is not the case with the Nye Initiative and similar moves in Congress and the DoD. The "system" accepts the so-called "special relationship" and de-links trade and security. This was not always the case. In the Kennedy administration, the Japanese protested their $1 billion trade deficit with the US and threatened to change the terms of the recently completed security treaty if nothing were done. The result: the US launched a concerted effort to favor the Japanese economy and hasten its mature development by opening American markets to Japanese goods. One piece of evidence about how quickly the Asian economies are developing: trade statistics just released for Thailand show that Thai trade with the US has now been eclipsed by Thai trade with the rest of Asia. In fact, Thai trade with Japan, despite the large presence of Japanese companies exporting back to Japan, will also soon be overtaken by trade with other Asian countries. The message: no longer is the US the "engine" of the Asian economies. Those who assert that the US needs to maintain its traditional role in Asia in order to supply the "oxygen" of development do not seem to be aware that the patient long ago went off life support. There has been a shift in the balance of power in Asia; reliance on traditional security regimes or assumptions about the universality and triumph of Western liberal values are dangerous illusions. How has this happened? According to the participants at these two previous workshops, the answer (and pardon me for using a four-letter word) is "industrial policy". The cumulative weight of all the presentations makes dismissing the historical and continuing presence of an effective IP untenable. Marie Anchordoguy of the University of Washington speculated that the emotional resistance to acknowledging the role of IP in the Asian miracle economies is probably due to three things: a) Japan and Asia might then be seen as a threat to US/Western hegemony b) The US/West might have to deal with Japan and Asia *outside* the established international mechanisms [here I would note that the new Japanese trade negotiator said Japan will pursue disputes with the US only through international agreements] c) The US might have to adopt real IP itself. Two presentations in particular laid out the workings of Japanese IP. Mark Tilton, author of the very recent book, "Restrained Trade", detailed the past and present workings of cartels in the basic materials industries in Japan -- especially steel, petrochemicals, and cement. All of these industries, which are regarded by MITI as strategic, operate through a public policy of cartels, run for the government by trade associations and administrative guidance. His evidence came from both publicly available information, including the press, as well as prolonged, patient, and innovative use of a tremendous number of personal interviews of people involved with these industries. Eamon Fingleton, author of "Blindside", described how investment drives Japanese development. Japan has 52% of total world savings, so that even during this serious slump investment runs 2-3 times the US rate. Japan makes a practice of targeting advanced manufacturing and technology in order to control or influence the enabling technologies at the heart of the modern economy. This is done first and foremost through the Ministry of Finance's control of the budget, taxes, defense, and the financial sector. Nor does this system remain in Japan. Through ODA and other forms of foreign aid, MITI, MoF, MoFA, and other agencies cooperate and coordinate efforts with industry to transplant Japanese firms to low-wage sites in Asia. The underlying motive (openly discussed in Japan) is to create an Asia-wide division of labor in order to restructure the Japanese domestic economy. An additional effect of this policy is to offer Asian countries a different model of economic development stressing the role of the State and cooperation over liberalization. Just last month, the Senior Economist at IBM Japan, in a conference at MIT, demonstrated how this policy of industrial and technological division of labor has prevented the Japanese economy from "hollowing out". And, while some may question the degree to which other Asian countries have adopted the Japanese model, very few disagree that Japan is a model, including a model for what will likely be the world's largest economy within the next couple of decades: China. Robert Orr, Government Relations for Nippon Motorola, asked rhetorically if "the sun shines from the trenches". No. Everywhere there are signs of a kind of "know-nothingness" regarding Japan and Asia. US funding for Japan and Asia area studies is under attack, and the American Electronics Association Tokyo office and other important activities are cutting back or closing down. Japanese money will soon dominate funding of US programs on Japan and Asia. The last time funding for Asian studies was so low was in the '50s, leading to mis-reading of the Sino-Soviet threat and ultimately to the war in Vietnam. Many say that Japan is, finally, changing. None of the speakers seemed to agree. Reform in Japan is illusory. The term translated in the US as deregulation actually means "loosening" regulation; there are some in Japan who call for use of another term meaning "re-regulation". The sense of crisis (like the "software crisis") is partly kabuki to provoke re-direction of the system through changes in education, the national innovation system, the financial sector, and the traditional employment practices. These are bottlenecks, but Japan is quite aware of them and is dealing with them in its own way. Some of the speakers believe the ultimate outcome could be a strengthening of the bureaucracy through a return to the so-called "1940s system". Policy-making in Japan has already become even less transparent and has been driven deeper into the bureaucracies. Japan likes to accuse the US of "managed trade". The US media has done little to counteract this sort of diversion. US business has also been too lax in defending its interests and actions in Japan. What to do? Recommendations from past workshop participants include: a) Create disincentives for production and technology to move off-shore by using some of the practices our competitors use, like 60-day warnings and severance packages for workers, or by enforcing US domestic environment and labor laws on US companies abroad, since these often constitute a driving force for such off-shore activity. b) Deal with the complex securities, tax, and regulatory frameworks that drive US corporate decision-making. c) Reform the US education system. d) Institute a major increase in private sector, non-military, R&D. e) Stop the practice, actionable under US law, of US firms trading technology for market access. f) Don't rely on international organizations to protect US interests. g) Staff government agencies (and companies) with experts possessing language skills, area studies backgrounds, and in-country experience. h) Negotiate *outcomes* not *processes* -- it is okay to have different trading systems in the world, but international exchange among those systems needs to be regulated. i) Adopt a real, coordinated, and long-range industrial and technology policy in this country. Michael Jensen New Mexico US-Japan Center http://www.nmjc.org/
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