IP: Sen. Bingaman Speech on US Natl Econ Interests -- Part 1

[Dave Farber <farber () central cis upenn edu>]

From: Steve_Clemons () bingaman senate gov
    
     Many DFSers and other friends have e-mailed me in the last few days 
     about the US-Japan Conference sponsored by the Japan Policy Research 
     Institute and New Mexico US-Japan Center on January 31 in the Hart 
     Senate Office Building in Washington, D.C.  I believe that Michael 
     Jensen of the New Mexico US-Japan Center will soon share with DFS a 
     rapporteur's report on the proceedings, but many have asked for a copy 
     of Senator Bingaman's Speech on America's National Economic Interests.
     
     Other speakers at this conference besides Senator Bingaman were 
     Chalmers Johnson, Pat Choate, Alan Tonelson, Jeff Shear, Yoshi Komori, 
     Ivan Hall, Charles Lake, and Clyde Prestowitz.  Wally Lopez of the New 
     Mexico US-Japan Center and Asian Technology Information Program opened 
     the session, and either Chalmers or I chaired the other sessions.  The 
     meeting fulfilled the organizer's expectations that a thoughtful, 
     serious meeting be organized on Capitol Hill which might provoke 
     better analysis of the terms of American security and economic 
     engagement with Japan.
     
     Senator Bingaman's remarks follow, and I'm sure that other material 
     will soon be posted by Michael Jensen.
     
     Regards,
     
     Steve Clemons
     Senior Policy Advisor 
     Office of Senator Jeff Bingaman
     703 Hart Senate Office Building
     Washington, DC  20510
     202-224-4266 phone
     202-224-2852 fax
     steve_clemons () bingaman senate gov E-Mail
     
     ******************************************************************
     
     REMARKS BY SENATOR JEFF BINGAMAN
     AMERICAN ECONOMIC INTERESTS: AT HOME AND ABROAD
     
     Workshop Program: "Changing Aspects of the Japanese Challenge" 
     sponsored by
     New Mexico US-Japan Center and Japan Policy Research Institute
     Washington, D.C.
     
     January 31, 1996
     
     
        First, let me thank Wally Lopez for not only my introduction but 
     for organizing this important day-long program here on Capitol Hill.  
     His able staff, Kate Ternes and Michael Jensen, deserve special praise 
     for putting all of this together, and I'd also like to thank Steve 
     Clemons whom I know has done the lion's share of the work,  Marco 
     Jaramillo and Sean Casey from my staff for helping with some of the 
     logistics involved in this production.
     
        I would also like to thank Chalmers Johnson and the Japan Policy 
     Research Institute for their partnership with the New Mexico US-Japan 
     Center.  I understand that this is the 3rd in a 3-part series of 
     workshops organized jointly by these organizations -- the first taking 
     place in San Diego and the second in Albuquerque.  
     
        These  workshops are made possible through a grant from the Air 
     Force Office of Scientific Research in the Japan Industry and 
     Management of Technology Program (JITMT).  Wally Lopez has done a 
     terrific job, it seems to me, of helping to address the real shortage 
     of talent and expertise on Japan and, more broadly, Asia, in our 
     science and engineering sectors.  He also directs the Asian Technology 
     Information Program which charts technology developments in several 
     major Asian nations and transmits detailed information to private 
     sector firms and to the government.  This is what these AFOSR programs 
     were intended to initiate, and I want to applaud Wally's important 
     results.
     
     INTRODUCTION
     
        To start things off today, I thought I would share with you my 
     perspectives on US-Japan political/economic relations -- as well as 
     some thoughts on what we need to do on the American side of the 
     equation.  Japan's economic successes since World War II are nothing 
     less than miraculous and deserve the utmost respect and attention from 
     us.  I do think that there are still plenty areas of concern in 
     US-Japan affairs and these span from nagging trade deficits to 
     concerns over whether the rationale supporting the deployment of 
     troops in the region is still valid.   But others today are sure to 
     more fully discuss the nexus of trade and security.
     
        During the August recess last year, I visited China for the first 
     time, as well as South Korea and Japan, and came away feeling that the 
     strength and vibrancy of the region is robust and certainly something 
     about which America must become better informed.  Even though 
     America's trade with Asia surpassed our trade with Europe nearly 20 
     years ago, America still has difficulty coming to terms with the 
     enormous importance of Asia and remaining fixed on the challenges and 
     opportunities that Asia represents.
        
        It is disturbing that the American public's  view as seen through 
     the media swings so wide on its assessments of Japan.  Until a few 
     years ago, according to many national commentators, Japan was 
     portrayed as  the unstoppable, unbeatable, market-share grabbing, 
     perfect machine that meant certain doom for American and European 
     firms, and for American way of life.  And recently, Japan is generally 
     presented as taking its last few breaths, practically on its deathbed, 
     out of the race, no longer a challenge, an amalgam of uncompetitive 
     practices that will sideline that nation for a very long time.  These 
     portrayals miss the mark.  Japan needs to be evaluated without 
     ideology, studied for its merits as well as for the problems it 
     encounters.  If we underestimate the fundamental strengths of the 
     Japanese economy, we have no one to blame but ourselves.
     
     
     THE COLD WAR IS OVER 
     
     
        The Cold War's end unleashed a sense that America had beaten the 
     best that competitors had to offer.  The dissolution of the Soviet 
     Union was taken to mean that communism had failed.  And the seeming 
     decline of Japan, falling into recession after the bursting of its 
     `economic bubble,' signaled to many that the American model of 
     capitalism had proven better than Japan's.  
     
        Although I tend to think that an ideological challenge such as that 
     posed by the global spread of communism will not face the United 
     States for some time, it would be a great mistake for American 
     business to believe that Japanese competition has drawn its last 
     breath.
     
     
     JAPAN'S BUBBLE
     
        Japan's economic bubble was certainly impressive, but it was an 
     anomaly that must be understood as such.  The five-year period in 
     which the valuation of Japan's economy and appetite for global 
     investment seemed to know no bounds was driven up, in part, by the 
     1985 Plaza Accord.  The Accord drove the Japanese yen higher, 
     practically doubling the value of all assets in Japan and cutting in 
     half asset values in the United States.   This effectively meant that 
     any owner of a parcel of land in the huge expanse of the Tokyo region 
     became a millionaire or better.  With such highly-valued collateral 
     and extremely low interest rates, Japanese borrowers directed their 
     investment power at the United States.  Higher rates of return in the 
     U.S. coupled with a declining dollar made everything in this country 
     --  from yachts, strip malls, office buildings, and golf courses -- 
     look like terrific bargains to Japan's newly rich.
     
        When the Bank of Japan Governor Yasushi Mieno decided that the 
     surge of Japan's asset values was distorting world markets -- when, 
     for instance, the grounds of the Imperial Palace were worth far more 
     than all of Canada -- interest rates marched upward and the hey-day of 
     wild speculation ended.  Although steps are underway to write off 
     non-performing loans, Japanese banks are still holding enormous 
     quantities of bad debt, and the general strengthening of the yen has 
     created some problems for the Japanese economy, which has seen only 
     minimal growth in the last several years.
     
     JAPAN'S FUNDAMENTAL STRENGTHS ARE STILL IN PLACE
     
        But what is overlooked by most observers is that all of the 
     strengths that so many had pointed to when Japan was riding its 
     speculative wave of success still remain.  Japan continues to maintain 
     high literacy and education rates, strong family and community 
     networks, and robust savings rates.  Japan's current accounts balances 
     remain the world's highest (Though there is a small decline in its 
     1995 current accounts surplus, Japan is still posting surpluses above 
     $110 billion!) and it has built a world class commercial and dual use 
     technology base.  Good cooperation and coordination between the public 
     and private sectors still characterize the system that specialists 
     such as Chalmers Johnson, Ezra Vogel and others have done so much to 
     document.  Although the U.S. certainly has improved short-term 
     productivity rates, has moved profitability higher and  managed to 
     expand market share in some sectors, American corporations are surely 
     not as untouchable as many commentators suggest.  And Japanese firms 
     are certainly not out of the race.
     
        Much has been made of the `hollowing out' of the Japanese 
     manufacturing base.  When Japan's foreign-based manufacturing capacity 
     has moved from 4% to 8% while U.S. external manufacturing capacity 
     floats around 23%, one can easily see that Japan hardly requires our 
     sympathy for loss of domestic manufacturing ability.  Furthermore, the 
     high yen, which had been hovering for nearly two years at 80 yen to 
     the dollar has only recently weakened to the 107 level, helped finance 
     the expansion of manufacturing operations to other Asia Pacific 
     nations.  The high yen has been a  primary cause of the massive growth 
     in Southeast Asia led by Japan's foreign direct investment.  This 
     shift and expansion of manufacturing capacity to China, Indonesia, 
     Singapore, Thailand, Malaysia, Hong Kong and the Phillippines 
     represents an ever stronger challenge to European and American firms, 
     not a weakening of competition.
     
     ASIA IS GROWING AND DESERVES OUR ATTENTION
     
        Asia's economy is  robust, growing fast, and is less and less 
     dependent on US markets (which is so often mentioned as our key point 
     of leverage in dealing with the developing Asia Pacific nations).  
     While the US certainly has a major presence in the region, this 
     presence is not what it should be.  Our exports have certainly grown 
     dramatically in the region -- but still, our trade figures in the 
     region are far below what they should be.  We have gained from joint 
     research consortia and technology exchange with Japan, but not to the 
     degree we should have.  This is not just a question of the glass being 
     half full or half empty.  The simple matter is that we have 
     structural, chronic imbalances built into our relationship with Japan, 
     and today we run the risk that similar imbalances will become 
     permanently fixed as well in our trading relationship with China and 
     with the region as a whole.
     
     BENEFITS NOT ALWAYS MUTUAL
     
        Japan has usually been "long"  in these so-called mutual benefit 
     categories, and the U.S. very often "short," or at least "shorter."  
     During the last several decades, we didn't mind for several reasons, 
     most important of which was the desire to help keep Japan as our most 
     strategically important ally in Asia.  But we also expected that 
     economic matters would balance out --- this is what the Chicago School 
     of Economics promised.  No region should be able to get ahead with 
     trade barriers and inhibitors to trade because of the net negative 
     economic returns that this creates.  But until recently,  the Asia 
     Pacific region did pretty well with the use of inhibitors to trade and 
     accounted for about 92% of America's merchandise trade deficit.
     
        While we need to admire Japan for its successes, we cannot continue 
     to be naive about the costs of not adjusting our current relationship 
     so that the benefits of trade and security cooperation are truly 
     mutual.  
     
        My greatest concern about Japanese economic policy today is that it 
     continues to ignore the consequences of its mercantilism.  Japan 
     continues to delay liberalization of its own market -- and only seems 
     to move when under incredible external pressure which seriously harms 
     the general relationship.  In a society that has often celebrated the 
     reality of government-private sector cooperation, it is difficult to 
     discern why we cannot get more help in dealing with bilateral trade 
     issues.  Japan seems to prefer  leaving trade conflicts to the WTO and 
     appears to believe  that it no longer needs to share responsibility 
     for the resolution of US-Japan trade matters.  We need a renewed 
     commitment by both nations to redress these bilateral imbalances on a 
     bilateral basis.  
     
        
     AMERICA'S CHALLENGE AT HOME
     
        Let me also speak about  our economic challenge  at home, I feel 
     that the US has inadequately addressed its economic problems here -- 
     and while it is important to encourage our trading partners to 
     understand the importance of mutual benefit in a global trading 
     system, responding to our economic difficulties here at home  will 
     have a  more profound effect on our well-being.
     
        The President in his State of the Union Address made a strong case 
     that the economy has turned  some corners and in his words, "The Union 
      is Strong."  He outlined that home ownership is at highest rate in 15 
     years; there have been 7.8 million new jobs created during the last 
     three  years; the administration's 1993 economic plan has cut the 
     deficit nearly in half -- which means less burden on the taxpayer.  
     And one might add some other items to the President's list.  The stock 
     market is  hitting all time highs, corporate profitability rates are 
     at historic highs as well.  And volume productivity rates are also 
     moving strongly upward.
                
        But many Americans do not believe that things are as well off as 
     they sound. To adjust the President's well-known election year slogan, 
     "It's still the economy, Stupid." The average worker feels he or she 
     is working harder than ever just to stay in place, and that they are 
     not participating in all of the `historic highs' our economy is 
     supposedly hitting.  Corporations are faced by a blizzard of foreign 
     incentive packages to pick things up and move elsewhere.  And CEOs 
     have little choice, it seems to me, than to seriously consider cheaper 
     labor and reduced environmental costs abroad given the slash-and-burn 
     pressures of short-term focused securities markets.
     
         Last year, the Senate Democratic Leader Tom Daschle asked me to 
     chair a task force of twelve senators to look into our economic 
     problems -- wage stagnation,  the failure to create enough high wage 
     jobs, and other problems -- and make recommendations about what might 
     be done to deal with the fact that our economy is leaving a great 
     number of hard-working Americans behind.  This High Wage Jobs Task 
     Force has worked for about ten months and has come very close to 
     preparing some legislation and possibly a report that will outline a  
     strategy that will eliminate  government incentives for things that 
     harm our national economic interests -- and provide  incentives for  
     those behaviors that help our national interests.  We need to let this 
     economy work better for corporations, for their investors, and for 
     workers.
     
        Corporations today are faced with tough choices given that labor 
     costs are often cheaper abroad; many countries are refusing to give 
     market access to American products unless that company builds a plant 
     or other facility abroad; and many developing nations have lower labor 
     and environmental standards (which translate into cheaper costs when 
     it comes to the bottom line).  Furthermore, corporations are compelled 
     by markets and capital expectations to organize for the short term, 
     generally pursuing lower and lower wage strategies that lead to 
     restructuring, downsizing, outsourcing -- all of which raise 
     uncertainty for workers about where they are going to be working down 
     the road.
     
        According to pollster Stanley Greenberg, Americans feel that they 
     are "scrambling" just to hold things together, just to manage the 
     bills that come in month to month.  But still, people feel that they 
     can chart a course through this uncertainty -- as long as they can 
     make it to retirement and get access to Medicare and their social 
     security savings.  But lately Medicare and Social Security, part of 
     the personal survival strategies of many Americans, have been 
     threatened.  In addition, according to Greenberg, most Americans 
     believe that economic advancement can come through education and 
     training -- but the costs of education are increasingly out of reach 
     for those who would most benefit and who are least able to pay.  The 
     story is the same in health care -- costs are going up and workers are 
     having to personally carry more and more of that burden.  Retirement 
     security is the same.  We are shoving the responsibilities and risks 
     of this economy onto average workers who can't cope.  We need to 
     correct this trend.
     
        Some of us on the Democratic side  have tended to blame 
     corporations for what has happened to workers in our economy.  AT&T 
     slashes 40,000 off the payroll, and the stock goes up but workers lose 
     out.  So, this must be the "fault" of AT&T's management.  This 
     response isn't appropriate.  Our `system' promotes downsizing, 
     outsourcing, and restructuring.  Our system has led to too much 
     short-termism and continues to promote short-termism.   We need to 
     find a way to encourage  firms  to invest in themselves, here in this 
     country -- and that means in their workers and in R&D.
     
         We need to take a common sense approach to getting our economic 
     system back on track so that it does three things:
     
                        1.      Promote long-term, high-wage economic       
                                growth
                        2.      Shared with working families
                        3.      In the United States
     
     We can respond to this challenge by doing several things: streamlining 
     and simplifying government interaction with firms and workers.  We can 
     adjust our income sources so as to put more money in the pockets of 
     hard-working Americans so that they can chart their own direction in 
     our evolving economy.  If we can get rid of our byzantine and 
     complicated corporate tax code and replace it with something far 
     simpler -- and which rewards long-term investment here in this nation 
     that is shared with workers -- we may be able to significantly reduce 
     worker's payroll taxes -- and greatly expand the standard deduction on 
     federal income taxes.  Just this alone would promote more job growth 
     and give real financial relief to hard working families.