Japanese Competition Requires Firms Forego Short-Term Profit / Secretary of Commerce Needs Handbook on Economics

By Peters, Tom | THE JOURNAL RECORD, December 16, 1987 | Go to article overview

Japanese Competition Requires Firms Forego Short-Term Profit / Secretary of Commerce Needs Handbook on Economics


Peters, Tom, THE JOURNAL RECORD


I was thinking of sending newly confirmed Secretary of Commerce C. William Verity a copy of my latest book, ``Thriving On Chaos,'' after reading a report that he was going to devote the next year to jawboning corporate chieftains for better American product quality. I've changed my mind, after reading excerpts from a recent speech he gave the U.S. Chamber of Commerce.

Instead, I think I'll send him a copy of the latest edition of economist Paul Samuelson's classic economics text.

In his talk, Verity criticized Japan's refusal to match the dollar's devaluation with an equal rate of price increases. He said that this failure to jack up prices amounts to an official act of ``dumping.'' Such a suggestion is another mindless escalation of our trade battle with the Japanese, which, as usual, seeks to shift the blame for questionable performance from ``us'' to ``them.''

Japan's economic and social systems are different than ours.

- Its corporate strategists, not under the influence of Wall Street's sharp-penciled analysts, emphasize market share over profits.

- Japan's leading firms, after spending decades gaining a foothold in America's giant and lucrative markets, are not about to frivilously toss it all away to keep short-term profit margins healthy.

- As usual, cultural differences are involved, too. Overall lower profits of Japanese corporations are due in part to their assuming a major share of the national welfare bill. Government provides the majority of human service benefits in the United States; corporations shoulder a large share of the load in Japan.

Verity also brushes over the fact that Japan's firms have responded to the new reality. Bellwether Honda, for instance, has implemented eight price increases, amounting to an almost 30 percent overall price hike, since late 1985. That's especially noteworthy, considering that almost half the cars Honda sells to Americans are made in the United States. Moreover, Japan's firms overall have swiftly moved to slash costs by almost 25 percent in the last two years, abetted by their very flexible wage structure.

However, the real ``profit problem'' is ours, not Japan's. A reporter challenged me recently, ``If things are as bad as you say they are, how come U.S. profits are high?'' Part of the answer is that American firms have responded to the beneficence of the plummeting dollar by raising prices.

Faced with Wall Street's opprobrium and the fidgety raiders, as soon as the magnitude of the dollar's fall forced the Japanese to act, many of our firms matched their price increases to be sure. This resulted in a sweeter bottom line.

But in the first week of any Economics 101 course, students learn that this was, instead, the time to hold the line on price in order to grab some market share back and to cause further agony for Japanese and other market opponents. …

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