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Consider Japan

Chapter XII

The Front Runners

Japan’s industries today can be divided into four groups. First, there are those in which its own planners recognise that Japan is not internationally competitive, and presumably never will be. Among these industries where Japan is “uncompetitive by reason of unfavourable natural resources and social conditions,” Japan’s Economic Survey for 1959-60 specifically mentioned coal, nonferrous metals, paper pulp, soda and most agricultural products; in other words most of its primary industries now belong to this “throwaway” group. It is now fairly generally recognised in Japan that the more swiftly resources move out of these industries into other fields the better.

The second group comprises what may be called Japan’s “early stage industrialisation” industries. These. too, are industries which should now gradually declinealthough naturally not all the industrialists concerned recognise this. The most obvious items in this “early” list are cotton textiles, the manufacture of sewing machines, bicycles, leather goods, pottery, rubber goods, and (admittedly in a different category as regards potential domestic growth) cement. Many of these goods – to which may be added the special but structurally not dissimilar industries of silk and cultured pearls – formed the main staples of Japan’s competitive export trade in the 1930s. In all of them Japan’s competitive position is still high; in nearly all, including textiles and cement, its productivity per man month (let alone per wage unit paid) is today higher than most other countries, including Britain’s. But nearly all are also industries in which Japan does not expect its productivity per man month to increase very much in future. In most it feels that its limits of technical innovation may pretty well have been reached; in many it feels that its competitive position may in future decline, for two reasons.

One of these reasons is that other underdeveloped countries seem likely to enter many of these fields. Most of the products mentioned above are labour-intensive rather than capital-intensive; many are manufacturable in, or partly in, pretty small-scale workshops; many are therefore on the list of industries which other Afro-Asian (and West Indian and South American) countries are already setting up. The second reason why Japan might not be sorry to see some of its own productive resources move out of these “early stage industrialisation” industries, however, is that, quite apart from the threat of international overcrowding, the prospects for a voracious increase in world demand for most of these products frankly do not seem very glowing.

Nearly all of them have new competitors appearing over the horizon. Natural textiles are losing some of their markets to synthetic textiles; pedal bicycles lose ground to motor (or motor-assisted) transport; sewing machines suffer from the world-wide switch (which Japan itself is now experiencing in full flood) from the small village dressmaker to ready-made clothing; plastics bite into some of the markets for rubber goods, leather goods and pottery. This is very awkward for the newly developing countries. The list of labour-intensive “early stage industrialisation” goods is narrow enough in all conscience. But if, in addition to being limited in number, the “early stage industrialisation” industries look like losing ground before new style competitors that require heavier capital investment, the problem becomes knottier still.

That is why special interest must be attached to Japan’s most astonishing achievement in the decade of the 1950s: the fact that it has broken through into ultramodern levels of labour productivity no longer just in labour-intensive “early stage industrialisation” industries, but in a whole range of what might be called “second stage industrialisation” or capital-intensive industries as well. The list of capital-intensive industries in which it has made this breakthrough is wide, although also specific. By 1959-60 Japan’s statisticians could justly claim that Japan’s productivity per man month broadly equalled (and indeed sometimes exceeded) west European averages in the manufacture of iron and steel (other than special steels, like those for high-grade tools); in building ships, in making lorries and buses (but not yet in making passenger cars); in making television sets and radios (especially, of course, what might be called consumer-style transistors, but interestingly not yet in high-grade transistors or other electronic parts for computers); in railway rolling stock and tractors; cameras and optical instruments; in small-scale construction machinery (but not yet large-scale construction machinery). What is the distinguishing factor between the industries in which this “second stage breakthrough” has been made, and those (like passenger cars and some high-grade precision tools) where Japan still lags relatively behind?

The answer is pretty clear when one thinks about it; unfortunately it is also, at first sight, more than a little unmoral. The common base for most of these “second stage” breakthrough industries was laid in the long period in the 1930s and early 1940S when virtually the whole of Japan’s industrial effort (and thus a very large part of its very low national income) was devoted to building up or serving its capacity for war. That is when Japan laid its foundation of technical know-how, of rough (but initially pretty costly) experience, of trial and initially considerable error, in the making of lorries (but not passenger cars), of ships, tractors, rolling stock, small-scale construction machinery (i.e., portable engineering corps stuff), and behind them mass production of iron and steel. Many of the small firms who are engaged today in making parts for transistor radios were originally engaged in making parts for range finders and other optical instruments demanded by the military authorities. The same is true of parts of the camera industry. Indeed it is interesting, looking through the list of these ploughshares made by yesterday’s sword manufacturers, to note the similarities of parts of the industrial structure of modern Germany and modern Japan.

This moral story does not mean that war per me is an excellent forcing ground for all the most economic and profitable sorts of industrial development. But two of the commonest features of a war-orientated economy probably are a great help in fostering a breakthrough into what we have called “second stage industrialisation.”

The first of these is the ruthless drive made in a war economy to get production moving ahead in a number of industries which usually belong to the more modern part of a developing nation’s industrial structure.

The second is that a drive for war production tends to concentrate more on volume of output than on fussing about achievement of very high grades of quality of craftsmanship; certainly if a firm makes a botch of one pioneering line of output it does not go bankrupt as a result, but is enabled to push on instead with a Mark 2 model. In the initial stages, at least, the war industries’ sole and voracious customer does not worry overmuch if costs per unit of output are considerably higher than equivalent costs abroad. Although there were inevitable exceptions, a lot of Japan’s equipment during the Pacific war was frankly well below western standards in terms of both quality and man-hour production costs; but instead of being beaten on the open market-places of the world (in which case the firms making it would have had to draw in their horns much earlier), it was beaten in much lengthier and bitterer competition in Leyte Gulf, on the jungle trails of New Guinea, and along the Tiddim road. By that time, deep below the surface, the economic infrastructure for new industries had been laid. And the fact that, in these postwar years, Japan has devoted only 2 or 3 per cent of its national income to defence – compared with 10 per cent or so in other big industrial countries has enabled it to direct the energies of these industries into booming production for the domestic and export markets.

Clearly, this analysis has now reached a very awkward point indeed. One’s guess is that the other underdeveloped countries may move fairly quickly into the stage where they can efficiently operate “early stage industrialisation” industries – where they can become economic and capable manufacturers of textiles, sports goods and so on. But, once there, they are unlikely to find a rapidly expanding market for their products; and the narrow range of these industries may present some very awkward problems. If nearly the whole initial weight of poor countries’ industrialisation is to fall on a limited number of relatively hard-up industries of this sort established interests in these industries in western countries are going to object to being “utterly swamped”; and, foolish though this may be, are going to persuade western governments to close their markets by import restrictions.

Higher up the scale, one’s guess is that Japan itself should find it relatively easy to move from its present “second stage” industries into the “third stage” advanced industries in which it is still a rather high cost producer. One cannot be sure of this. It is a bit surprising that a country, which can already produce lorries so efficiently, is still finding it so difficult to bring its costs of motor car production down; that, although it can now build factories and office blocks more quickly and probably more cheaply than the West, tenders for building new western style houses (e.g., for foreign residents in Japan) still tend to be three or four times as high as they would be in England; and that Japan’s few new and modern motor roads look like being so expensive to build. The arguments put forward by Japanese contractors are that “in these things we find ourselves working in media which are foreign to us.”

This comes back to the problem of the country’s industrial foundations again. One phrase sometimes used in Japan is that while most of Japan’s new and successful industries of the last decade were “built from the lower echelons upward” (i.e., the small sub-contracting firms making parts for transistor radios had some background of know-how from making radio or other components in the war), the automobile and other less successful industries have had to build “from the higher echelons down” (i.e., the manufacturers of passenger motor cars had to put out orders for components which the small subcontracting firms were quite unused to making). Clearly, there is a real gap to be bridged here. But your correspondent’s own guess is that in the next few years one or more of Japan’s manufacturers of automobiles will break through, perhaps after amalgamations between the different producers, into successfully starting mass production of some standard small size passenger cars with Volkswagen-like efficiency.

Certainly, the stride into this “third stage” industrialisation looks like being much easier and shorter than the leap which Japan has already taken into “second stage” industrialisation, apparently during the last decade but in reality (probably) as a post-dated result of its course during past and painful years. The real question therefore remains: how can other developing countries start to prepare themselves for that leap? Apart from Britain, which had the advantage of being first in the field and so had no real competitors, it is arguable that virtually every other country in fact crossed this particular chasm in the first place thanks partly to the accident of running or preparing for a war economy. Even in America, the early industrial structure of the northern United States owed at least some of its initial impetus to the drive for equipping the Union armies in the civil war; in Canada some of the main seeds of industrialisation were planted during the second world war; in western Europe and Russia the part played by war economics has been obvious; nobody else apart from these has really crossed the chasm as yet.

One of the needs in the next few decades will be to consider how international trading policies, international development policies, international aid policies and international subsidy policies can be worked out so as to provide a better godfather than Mars to the infant of development. Not nearly enough thought has been devoted to this subject as yet.