http://www.worldlink.co.uk/stories/storyReader$243
>>DO YOUR HOMEWORK
Brad DeLong
Today, the conventional wisdom is that the American economy is by a wide margin the most successful of the industrial core. A business cycle expansion of unusual length, the lowest unemployment rate of any major industrial economy, no visible problems with inflation, relatively rapid productivity growth, high stock market values, and technological dominance of the most vibrant and rapidly growing sectors of the economy. <<
Or is that of the deindustrialized rotten core?
>>Once again the US is ? as Leon Trotsky wrote
more than 70 years ago ? "the furnace where the
future is being forged". Politicians,
bureaucrats, business executives and
intellectuals are pondering how they can, at
lowest cost, adopt and adapt the key economic
institutions that have underpinned the American
economyfs triumph over the past decade.<<
I suppose so were taxi drivers.
Worldcom, Enron, Andersen, GlobalCrossing, Tyco. One institution that I'm made to think of is bankruptcy court. The other is called 'jail'.
>>But little more than a decade ago things were
very different. About 15 years ago a joke was
making the rounds about three executives ?
American, European and Japanese ? facing
execution by terrorists and their last requests.
The last request of the Japanese executive was to
give a lecture on Japanese management techniques.
The punchline was the last request of the
American executive: to be executed immediately so
as not to have to listen to another lecture about
Japanese management techniques.<<
See Baudrillard on 9-11 or something? Guess terrorism isn't so funny anymore. Actually, it was always the American business gurus lecturing about said techniques anyway. Not the Japanese.
>>At that time the "triumphalism" was Japanese
economic triumphalism. Observers (myself
included) looked at Japanfs extraordinary rate
of investment, the high rates of return on
investment, the extraordinary competence of
Japanfs export manufacturing sector and
projected these trends forward. They, or we, saw
the productivity of export manufacturing
diffusing through the rest of the Japanese
economy, and saw the country gaining the same
productivity edge in processors design, software,
networks and other highest-tech industries that
it had earlier gained in industries like consumer
electronics, metallurgy and automobiles.<<
Sorry Brad, but Japan was shut out of developing processors for desktops. They were even forced into strict quotas on quickly commoditized memory chips, which created artificial shortages and a gray market in the US. See the trade agreements inked back in the late 80s. And having been shut out of Europe long enough, Japanese auto manufacturing capacity is significantly owned by non-Japanese.
>>Social solidarity, long-term loyalty, patient
capital, a successful developmental state ? these
seemed to be powerful virtues worth imitating.<<
Talk about stereotypes.
>> Today, however, the arms of the Japanese
developmental state ? the Ministry of
International Trade and Industry (MITI) and the
Ministry of Finance (MOF) ? are seen as having
been unequal to their tasks and unable to grasp
Japanfs situation in the 1990s.<<
For one thing, the two ministries never had any solidarity and, along with Post and Telecommunications, spent the better part of the past decade disagreeing about who should do what to whom for what reason. With politicians like Koizumi in his pre PM days conniving and blabbering away.
>> Long-term loyalty is now seen as lack of
entrepreneurship, patient capital as failure to
respond to market signals. Social solidarity is
viewed as blocking the economic reforms that
would raise the productivity standards of
Japanfs non-export manufacturing sectors.<<
I never saw the solidarity here, so I'm not sure what to conclude. I'm not sure you are sure of what you are referring to when you say 'non-export' manufacturing sectors, since a lot of companies Americans know nothing about prop up Japan, Inc. or just compete like mad in Japan (e.g. Suntory against Coca Cola, Kao and Lion against Proctor and Gamble).
Some of the leanest, meanest companies I know of in Japan (Kai Razor, Itoen Beverages, House Foods, etc.) compete mostly for the domestic market and never got to benefit from the high profits of an export quota for something to be sold in the US or Europe (like Sony or Toyota did). So I think that this is just anecdote repeated and repeated based on outright lies about the Japanese economy. Of course the outright lies go back to those concocted by the so-called Japan revisionists who at least got read in summary form in the Clinton admin. Basically the way it works is like this: if your bullshit gets printed in a book someone paid good money for, much of its content gets accepted as accurate and factual.
>>WATCH AND LEARN
The pendulum has swung remarkably far away from Japan over the past decade. But before this happened, both businesses and governments had learned much from the countryfs economic miracle. The lessons about quality control and productive efficiency taught by Japanese manufacturing firms were painful ones, but the Fords, the Siemenses and the Hewlett-Packards learned.<<
Uhh, sorry, Ford still sucks. And I'd never buy a HP pc. Too many much better ones to pick from here in Japan. Ford is so stupid it took them 8 years to admit Mazda builds better small car engines than Ford does. Duh.
>>And the pendulum will swing back, away from the
US economy. The most likely way that this will
happen is through a decline ? either rapid and
short or slow and prolonged ? in American stock
market valuations and in the value of the dollar.
Any claims that the historic highs wefve seen in
American stock market values are sustainable rest
on a belief that attitudes toward risk have
changed, and that the marginal investor now
expects a treasury bond-style rate of return from
equities. But no one holding Cisco or Yahoo!
today does so because they anticipate that they
will receive a treasury-bond-style rate of return
from their investment.<<
No, I guess they wanted to shoot the moon! Some would probably give up a gonad for a bond-like return.
>>Substantial portfolio losses on American
equities will make decision-makers all over the
world allergic to praise of the American economy.
An end to the net inflow of capital to the US and
a consequent substantial fall in the value of the
dollar would significantly reduce the
international purchasing power of American
investors and companies, and lower their relative
weight in the world economy. Such a decline in
the dollar value of American equities and in the
international value of the dollar would not have
to disturb greatly the fundamentals of US
production and employment. The Federal Reserve
could use its interest-rate tools to shift
investment demand from sectors valuable in times
of stock-market exuberance to sectors like
construction, where investment is profitable when
interest rates are low. And a decline in the
value of the dollar would eventually generate an
export boom. <<
Something sure looks like it's getting disturbed. I can't wait for the US to try and export more cars to Japan, though. More likely, Daimler-Chrysler is going to move even more Mitsubishi stuff to the US, as is Ford, putting Mazda engines in everything.
>>The lessons that the rest of the world
economyfs industrial core should learn from
Americafs relative economic success in the 1990s
have not yet been thoroughly learned, have not
sunk in
Only if the Federal Reserve badly misses the mark
? or if a substantial decline in the dollar is
accompanied by revelations that Americafs
financial institutions have extraordinarily large
and unhedged euro, yen and sterling liabilities ?
will the American economy face problems of the
same magnitude that the Japanese economy faced ?
and has so far failed to surmount ? as a result
of the end of its bubble economy a decade ago.<<
I think some far different 'liabilities' are coming to light.
>>But even though an end to the period of
irrational stock market exuberance and a high
currency value supported by large-scale capital
inflows will not ? or need not ? disturb in a
significant way the fundamentals of American
production and employment, it will bring an end
to the eagerness of politicians and executives in
other countries to learn from America. Cultural
patterns and socio-economic institutions are
stubborn things that change only under
substantial pressure.<<
Oh yes, the trade mercantalists and neoimperialists in the Clinton administration were stubborn, I agree.
>> And there is a sense in which it would be
unfortunate if American economic triumphalism
came to an end too soon. For the lessons that the
rest of the world economyfs industrial core
should learn from Americafs relative economic
success in the 1990s have not yet been thoroughly
learned, have not sunk in.<<
I think we are starting to get that sinking feeling, though.
>>What are these lessons ? analogous to the
lessons about quality control, productive
efficiency and manufacturing organisation learned
from Japan more than a decade ago ? that the rest
of the industrial core should learn? I see four.
First, that governments seeking full employment can ease their task by providing large subsidies to businesses that hire relatively unskilled, low-wage workers. The expansion of the Earned Income Tax Credit ? a programme that directly boosts the wages of the working poor by having the government pay a substantial share ? in the US in the 1990s appears to have been a significant policy success. It has paid dividends not just in a lowered unemployment rate but a less unequal after-tax distribution of income.<<
Funny I don't remember this coming up in the discussion on employment on LBOT recently.
>>Second, that there is more room for
expansionary monetary policy to lower
unemployment without raising inflation than
anyone had believed.<<
Sure is, especially if you can use a cheap dollar and artificially high prices in steel and oil to prevent deflation from overproduction and cheap commodities.
>> Economists will squabble for decades over
whether the large reduction in Americafs natural
rate of unemployment in the 1990s was the result
of the end of inflationary psychology, the coming
of age of the information technology sector, the
growing experience of the labour force, or all
three.<<
Sorry, I blinked and missed that little bit of history.
>> But it is clear that the pattern of
inflationary response to even minor monetary
easing that has been feared by central banks
since the 1970s is greatly weakened, or gone
altogether.<<
I think the danger the masters of the economy are trying to avoid is not European style inflation but Japanese style deflation. I guess the US can still learn from the Japanese! Of course, maybe with the weak dollar you'll get stagflation lurching ever forward to meet the new economic dawn.
>>Third, that in large part because of changing
technology, there has been an important shift in
the efficient location of new technological
development. The extraordinary economic success
of the venture-startup system of Silicon Valley
is not just a side effect of a stock market
bubble, but is the result of a technology-driven
decline in the relative competence of very large
firms at tasks of developing (but not marketing)
new technologies and new products.<<
Venture startup? What's that?
>>Fourth, that it is possible to capture most of
the benefits of large-scale integration and also
most of the benefits of fierce economic
competition if businesses are forced ? either by
the market or by regulatory authorities ? to make
their products conform to standards so that other
firmsf products work with theirs. If there is a
lesson from the success of America's
telecommunications industries over the past
generation, it is that government regulation
requiring firms to build products that other
firmsf products could connect with was
extraordinarily successful. <<
I like the way so many software developers were forced to develop software that would crash on every Windows OS computer I ever worked on.
Also, the US spent something like a decade attacking European and Japanese standards setting as 'exclusionary'. Why?
>>If there is a lesson from the success of
Americafs personal computer industry, it is that
the marketfs forcing nearly all hardware and
software manufacturers to make their products
first IBM and then Microsoft-compatible ? so that
nearly any programme would run on nearly any
microcomputer ?<<
Make that 'nearly run' to disambiguate your prose.
>> created extraordinary value. And if there is a
lesson from the Internet boom, it is that the
common http and html standard open-sourced by Tim
Berners-Lee was overwhelmingly more powerful than
the closed-source proprietary online system
architectures of Compuserve, of Prodigy, of
Minitel, or of the original AOL.<<
Yeah, and e-mail more powerful? Why? Plain text.
>>Will the rest of the world economy learn these
four lessons before the pendulum swings away, and
people cease for a time to look at the US for
models to imitate? I hope so.<<
I see now your piece was more about the US than Japan or US policy toward Japan. How disappointing. But couldn't you at least have said something about what having a currency that is forced to appreciate against the dollar 150% does to that currency's economy?
CJ
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