Japan vs Korea

Greg Nowell GN842 at CNSVAX.Albany.Edu
Fri Jun 11 11:20:49 PDT 1999


Dennis R Redmond wrote:


> On Thu, 10 Jun 1999, Greg Nowell wrote:
>
> > Actually if you follow James Fallow's argument, which I think is sound, the
> > Koreans really aren't catching up tot he Japanese
> >
> > a) because the keiretsu model is less effective in a country with a small
> > domestic demand base than a larger country like Japan.
>
> I don't buy this. The keiretsu are essentially a way of socializing
> production by pooling financial resources across a wide array of
> industries; surpluses in one area compensate for deficits in others, and
> the credit rating of the whole network is more solid than any individual
> firm.

Yes. It does more than pool resources, however, it provides guarnateed client and supplier bases. The steel member of the keiretsu supplies the car member of the keiretsu and no doubt the car memeber of the keiretsu supplies the vehicle fleet of the steel member & so on, down to plastics, electornics in the car, and many other types of goods besides. So you know you've got a certain guanteed buyer, and you also know, if you're the car company, that you're not going to be gouged by your steel company.


> I would argue, in fact, that Western Europe's tradition of state
> ownership and mixed public-private firms was in fact a modified version of
> keiretsu capitalism; i.e. the states of Belgium and Sweden served as the
> lenders of last resort and industrial financiers to their national
> industrial base

Yes, but you don't need state ownership. German model very similar to Japanese. State ownership usually intervenes in W. Europe in situations of high risk or bailing out a failing proposition.

One of the elements missing from your description is the close relationship of a concentrated banking sector to the central bank. CB's can expand liquidity through the purchase of an asset (bonds are the usual) or through lending made up money to the banking sector (aka discount window operations). Either practice "increases liquidity."

The prized "neutrality" of the US CB is guaranteed by its preference for "open market operations," which don't privilege one bank over another. In Japan there is a stronger emphasis on the discount window, which gives banks cheap money which they can then re-lend. Expansion of the economy and its liquidity is thus linked to the tight nexus of the banking sector and its link to the Keiretsu.


> , just like Sakura Bank provides lending to Mitsui firms,
> or BTM to Mitsubishi. Finally, the keiretsu model was export-led, not
> demand-led.

You are unaware with how "predatory tariffs" aka dumping work. The best description is in the ass end of Hilferding's finance capital, but other theorists, including bourgeois theorists, have treated it extensively. Jacob Viner, for one; there is also an essay by Krugman who "reinvents it." Perelman might even furnish us with the extensive Congressional testimony about how it works that was give around 1900-1903, which I've read about , but never looked up. Brewer gives a description in his Marxist theories of imperialism.

1. You have a closed protected market. 2. You sell at a high price in that market. 3. You expand your production line, which *realizes economies of scale*. (this is crucial). 4. You sell abroad at a price lower than the domestic price. Depending on how your scale economies are working, you may even to choose to sell abroad at a price lower than your average cost of production. You will still make more money than in a "non-dumping model."

In order for this to work, you need a domestic demand base. The larger the domestic demand the better you can play the game (watch out for China!), because it gives you more sales and hence more revenue with which to "subsidize" (the term is misleading, because you are in fact making more profit than you would without the foreign sales) exports.

Note that Japan did not begin exporting cars till it had its domestic market well established. Moreover, in spite of general practices which are anti-demand (lack of consumer credit, for example), certain sectors have a big help. The "shakken" practice of rigorous car inspections forces Japan's cars off the road (after 6 years, according to the MIT study, after 10 years, according to Fallows--but the process of putting pressure on the consumer get rid of the car is incremental, and no doubt starts at 6 years and becomes absolute in ten) in about 1/2 the time that they last in the U.S. This provides a very steady demand base (see graphs in MIT study, Machine that changed the world), which is ideal for calculating the "predatory" export strategy.

As Fallows correctly emphasizes, citing Japanese execs, world business could not survive if every country did it the way Japan does. In any case you won't get far understanding keiretsu until you understand the linkages between domestic and foreign demand, and why it is that Japanese tourists try to stuff NY purchased VCRs into their suitcases to take back to Japan.


>
>
> -- Dennis

-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222

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