Magazine article Ideas on Liberty

Can Japan Compete?

Magazine article Ideas on Liberty

Can Japan Compete?

Article excerpt

Can Japan Compete?

by Michael E. Porter, Hirotaka

Takeuchi, and Mariko Sakakibara

Perseus Publishing 2000 208 pages $27.50

What a difference a decade makes. In the late 1980s Japan seemed poised to dominate the world economy. The Japanese had seemingly discovered an improved version of capitalism in which active government intervention in vital export-oriented sectors of the economy, along with protection of domestic firms from foreign competition, led to high growth rates, huge trade surpluses, and a highly equitable distribution of income.

In the '90s the Japanese economy came tumbling back to earth, suffering ten straight years of anemic growth with per capita GDP growth averaging less than 1 percent per year since 1990. Stock-market and real-estate prices have fallen to one-third of their astronomical highs of the late '80s. The unemployment rate in Japan has eclipsed the U.S. rate for the first time in recent memory. The Japanese government's budget deficits dwarf those run by the United States during the '80s and early '90s as a percentage of GDP, and the looming Japanese banking crisis makes the American savings-and-loan debacle appear like a mere bump in the road. What has happened to the Japanese juggernaut of a decade ago?

According to Harvard Business School guru Michael Porter, Japan's stunning success in highly visible fields such as automobiles and consumer electronics long masked a deeply inefficient and uncompetitive society and propped up an otherwise ailing economy. In their new book, Can Japan Compete?, a title that would have been unthinkable a decade ago, Porter and coauthors Hirotaka Takeuchi and Mariko Sakakibara make a strong case that the once lauded Japanese model of close government and business cooperation is largely responsible for Japan's current malaise.

It is easy to point out the Japanese success stories. Following the oil crises of 1973 and 1979 the Japanese auto industry came out of nowhere to take the U.S. market by storm. In the 1980s, Americans bought large numbers of inexpensive, high-quality Japanese television sets, VCRs, and audio systems. At the time, much of Japan's success in penetrating U.S. markets was credited to the actions of the Japanese government's all-wise Ministry of International Trade and Industry.

The authors argue that the successful Japanese industries prospered in spite of government assistance rather than because of it. …

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