A "Win-Win" Economic Policy toward Japan

Lewis, William W., The McKinsey Quarterly

Open competition in services would raise Japanese productivity, help Japanese consumers, and benefit Western companies

THE ECONOMIC POLICY of the other G7 nations toward Japan should focus on helping Japan globalize its entire economy. The benefits would be substantial for their own workers and corporations, especially those in the United States, and even larger for Japanese consumers. Such a policy, however, would require firm recognition on all sides that international economics is not a zero-sum game among closed national economies.

Globalization -- the current stage of international economic development -- is, rather, a process in which superior innovations are rapidly transferred back and forth across borders to the benefit of all countries.(*) These innovations may be imbedded in products, such as the Sony Walkman, or in processes, such as McDonald's. In either case, these transfers improve both worker and consumer well-being through productivity increases.

Countries with lower productivity benefit more from these transfers: it is easier to adopt innovations from elsewhere than to push out the frontier. For this reason, economic convergence is taking place among the developed countries. But the convergence is less complete than many people assume, and overall productivity levels in Japan are still about two-thirds of those, for example, in the United States.

Opening up the entire Japanese economy to the transfer of innovations, especially from the service sector and especially from the United States, would help to improve productivity in Japan. Japan needs to achieve productivity improvements to get its economy going again. Indeed, Japan is the most dramatic example of the need for such a policy. All the same, the policy is right for trading partners in Europe too.

Japan is now in economic recession, even …

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Publication information: Article title: A "Win-Win" Economic Policy toward Japan. Contributors: Lewis, William W. - Author. Journal title: The McKinsey Quarterly. Issue: 4 Publication date: Autumn 1992. Page number: 92+. © 1991 McKinsey & Company, Inc. COPYRIGHT 1992 Gale Group.

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