IP: Workshop on US-Japan relations REPORT ON PAST 2

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

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/