Главная Flexible Rigidities : Industrial Policy and Structural Adjustment in the Japanese Economy,...
Сообщить о проблемеThis book has a different problem? Report it to us
Выберите Да, если Выберите Да, если Выберите Да, если Выберите Да, если
вам удалось открыть файл
файл содержит книгу (комиксы тоже допустимы)
содержание книги является приемлемым
Название, Автор и Язык файла соответствуют описанию книги. Игнорируйте другие поля, так как они являются второстепенными!
Выберите Нет, если Выберите Нет, если Выберите Нет, если Выберите Нет, если
- файл поврежден
- файл защищен DRM
- файл не является книгой (например, xls, html, xml)
- файл является статьей
- файл является отрывком из книги
- файл является журналом
- файл является тестовым бланком
- файл является спамом
вы считаете, что содержание книги неприемлемо и должно быть заблокировано
Название, Автор или Язык файла не совпадает с описанием книги. Игнорируйте другие поля.
Изменить свой ответ
FLEXIBLE RIGIDITIES Industrial policy and structural adjustment in the Japanese economy, 1970-80 This page intentionally left blank FLEXIBLE RIGIDITIES Industrial policy and structural adjustment in the Japanese economy, 1970-80 Ronald Dore BLOOMSBURY ACADEMIC COLLECTIONS Japanese Economics and Industry B L O O M S B U R Y LONDON • NEW DELHI • NEW YORK • S Y D N E Y Bloomsbury Academic An imprint of Bloomsbury Publishing Pic 50 Bedford Square London WC1B3DP UK 1385 Broadway New York 10018 USA www.bloomsbury.com First published in 1986 This edition published in 2012 by Bloomsbury Publishing pic © Ronald Dore, 2012 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. Ronald Dore has asserted his right under the Copyright, Designs and Patents Act, 1988, to be identified as Author of this work. No responsibility for loss caused to any individual or organization acting on or refraining from action as a result of the material in this publication can be accepted by Bloomsbury Academic or the author. Bloomsbury Academic Collections ISSN 2051-0012 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: 9781780939247 (cloth) ISBN: 9781780933252 (Bloomsbury Academic Collections: Japanese Economics and Industry) ENTIRE COLLECTION ISBN: 9781780933184 (Bloomsbury Academic Collections: Economics, Politics and History of Japan) Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress. Printed and Bound in Great Britain Contents Acknowledgements Introduction vii 1 I An eventful decade 1 Adjustment: The agenda and the instruments 2 Structural change in the Japanese economy 11 29 II The agents of adjustment 3 The enterprise 4 The workers and their unions; : Their response to and influence on firms7 adjustment strategies 5 Government and employment 6 Government and the business enterprise 61 87 120 128 III A case study 7 8 9 10 Textiles: How much adjustment? Textiles: The sources of viability Textiles: Adjustment policies Final thoughts Appendix: Labour disputes Bibliography Index 153 182 205 244 253 266 273 This page intentionally left blank Acknowledgements A substantial part of this volume is based on a monograph which I wrote with contributions by Professor Koji Taira of the University of Illinois, and which was recently published by the International Labour Office, Geneva, under the title Structural adjustment in Japan, 1970-82. I am grateful to all those involved in planning the research on which that monograph was based for much stimulus and enlightenment. It will be obvious from what follows how much I also owe to all those friends in the Japanese textile industry who helped me to some understanding, at least, of their problems and achievements. I would also like to thank those at the Institute of Development Studies where the work was begun, and at the Technical Change Centre where it was finished, who gave their help and support, but most notably those who worked so nobly with messy drafts and bumbling tapes to produce an intelligible typescript: Julia Broomfield, Pat White and Maria Spoors, especially the last who also took on the job of improving my grammar while making sure the typescript got accurately into print. This page intentionally left blank Introduction 'It is not/ said Adam Smith, 'from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest/ The trouble with the Japanese is that they have never really caught up with Adam Smith - in spite of the fact that a British publisher with a new scholarly work on Smith or Ricardo can expect to sell half the edition in Japan. They don't believe in the invisible hand. They believe - like Mao unleashing the Cultural Revolution and all other good Confucianists - that you cannot get a decent moral society, not even an efficient society, simply out of the mechanisms of the market powered by the motivational fuel of self-interest, however clever, or even divinely inspired, those mechanisms may be. The morality has got to come from the hearts, the wills and motives, of the individuals in it. The butcher and the brewer have got to be benevolent. They need to have a conscience about the quality of the meat and the beer they supply. They need to care. The individualistic West - and let there be no doubt about the great material achievements which its individualism has brought over the last four or five centuries - made egoism the touchstone of its economic morality - indeed of the morality applicable to the whole range of behaviour beyond relations with family and friends. Even nationalism - patriotism - as exemplified by Mrs Thatcher in the Falklands, becomes a kind of ego-projection. Even the basic rules, the minimal constraints on sharp practice necessary even for a market system to operate have themselves to be justified in terms of self-interest. 'Honesty is the best policy/ The Japanese might say something similar - 'caring is the best policy' - caring about quality and service. That, indeed, was the message of the £8m campaign launched by the Department of Industry in 1983 to improve quality assurance standards in British industry, a sign that the Japanese demonstration of the relation between quality and competitiveness is being taken seriously. But the Japanese do not say 'caring is the best policy'. They say 'caring is a duty7. Being conscientious about the quality of his 2 Introduction work, assiduous in service to the customer or his firm, is the individual's way of repaying his debts to society. It is an essential part of being a good citizen. And as for individuals, so for the business firm. Of course they believe that in the long run it is also best policy. Suppose that a supplier is in trouble. For a couple of years, you go on buying from him in spite of having to pay him higher prices than are being offered by a firm around the corner in order to keep him out of the bankruptcy courts. It will pay off in the end. He'll be so morally indebted, for one thing, that you'll be able to squeeze him when you're in trouble. These advantages the Japanese are very well aware of. But the self-interest of 'best policy' is not the way they naturally talk about the emphasis on quality and honestly delivering the goods on time. One hears much more about 'serving society'. That does mean that the hypocrisy quotient is higher in Japanese than in British life. But it also means that, while the Japanese sententiousness that makes the British cynic snort is sometimes self-serving and hypocritical, it is also sometimes for real - and sometimes half and half in the curious mixed-up way that human motives do get confused in practice in any society. At any rate the Japanese economic system works on the assumption that the 'serving society' sentiments are for real. That is why the large Japanese firms whose export products have become household words abroad found their employment system on a belief in original virtue, not original sin. They base their work systems on the assumption that their workers can be trusted to be just as concerned as the managers are about conscientious testing procedures, about making sure that no faulty car is allowed to pass and damage the company's reputation for reliability abroad. Similarly, the firm which pays higher prices to keep its supplier out of bankruptcy believes he can be trusted to reciprocate X years hence if the situation demands it. All economies in practice, notwithstanding Adam Smith, contain a fair proportion of such trust relationships, as opposed to arm's-length contractual relationships. The Japanese economy just moves a good deal further in that direction than most. Trust relationship versus arm's-length contractual relationship' is one way of putting it. 'Relational contracting versus spot contracting' (Goldberg 1981) and 'customer relations as opposed to auction market relations' (Okun 1974) are others. And what Hirschman calls Voice and loyalty' as opposed to 'exit and entry' relationships are yet another. Japanese consumers do shop around Introduction 3 for the 'best buy' refrigerator. Much 'spot contract' transacting of that kind goes on in Japan no differently from elsewhere. But with their fishmonger and greengrocer Japanese consumers are more likely to have a relational contract. And in the employment relationship, the extent to which loyalty and long-term commitment are expected to play a part is well known. One might measure where an employment relation stands between the 'spot' and the 'relational' extremes by the frequency with which the employee looks at the job advertisements and wonders whether he might not do better elsewhere. By that criterion, employment relations for a large part of Japan's 'lifetimecommitted' employees fall squarely towards the relational end of the continuum. The same applies in the market for intermediate goods - the transactions already referred to between large engineering firms and their sub-contracting suppliers, between final goods producers and the suppliers of their industries. Japanese automobile companies each buy their steel, through the same trading companies and from the same two or three steel companies, in proportions that vary very little from year to year. The price is set by the biggest seller and the biggest purchaser in annual bargains which the others follow. For several years certain kinds of Brazilian and Korean steel have been available more cheaply than domestic products, but it was a long time before they made any significant penetration of the market because the trading companies which handled the steel companies' sales hesitated to jeopardize their established customer relations by dealing in them. These established customer relations ramify throughout the economy, and impart what we would call a sluggishness to every kind of market - for loan finance, for insurance, for equity capital as well as for labour and producers' goods. They are at their strongest in hierarchical relations. The more dependent firm and especially, as with a part supplied to a local automobile company, say, where the dependence is 'structural' and not much affected by fluctuations in the supply-demand balance has to give stronger guarantees of quality and service and loyalty to retain the mutual obligation of the relation. And the vertical element of inequality and dependence in the employee relation is clear enough - the employee probably needs the firm more than the firm needs the employee. But these obligated customer relationships operate importantly in situations of equal and 4 Introduction mutual dependency, too - as between steel-maker, trading company and car firm, for example. If all this is true, the economist is likely to ask, how can it be that the Japanese economy operates with apparent efficiency? If there is so little market competition, how can the forces of supply and demand establish a set of relative prices which allocates goods efficiently or gives the right signals to producers? Surely, all this fine talk of trust and mutual obligation amounts to a lot of feather-bedding and protection of the inefficient? How can one get growth out of an economic system like that? There are several answers to that. One is that - and the international oil market is a case in point - markets dominated by relational contracting can still respond fairly quickly to changes in demand/supply conditions if there is a tiny spot market fringe. Another is the answer Harvey Liebenstein has been offering for years - that the allocative efficiency brought by a competitive market is in the end less important than what he calls X-efficiency - the efficiency that comes from everybody in the system being keen to do his or her job conscientiously, and actually having the knowledge and skill to do it well. And it is precisely these qualities which trust relationships with their emphasis on quality and service promote. Well, supposing you are right, the orthodox economist may grudgingly say; that may explain the static efficiency of a system, but how can such an economy be dynamically efficient? If economic activity is encompassed within a rigid set of long-term relationships which do not easily respond to price signals, how do you ever get change? It is a question of very wide general interest, for it is the kind of question constantly being asked about European and North American economies. Trade union monopolies, the unwillingness of unions to accept redundancies and changes in work practices, the growth of government regulations, protection for declining industries, are all blamed for making our economies 'rigid', for their lack of 'dynamism'. Lester Thurow writes of America as becoming a 'zero sum society', a web of government regulation which cannot be untangled because every restraint of X's activity protects the interests of Y, and Y is always politically mobilized to defend the status quo. And defence of the status quo was no principle for the running of any economy in the 1970s when most of the Organization for Economic Co-operation and Development (OECD) countries faced Introduction 5 a triple challenge. The sharpest and most obvious was the hop, skip and jump of relative energy prices. The second was the increase in inflation rates, exacerbated by the oil price rise, but starting long before that and associated with the decline in the power of competitive forces even to hold back increases in wage rates, much less to cut wages. Getting control over inflation came increasingly to dominate economic policy and the search for the recipe to combine inflation control with growth is still on. The third was the rise of the newly industrialized countries (NICS). The four Asian NICS, with Brazil and Mexico in particular, began, in their accumulation of capital and technical sophistication, to reach levels at which their still cheaper labour costs enabled them to penetrate the domestic markets of the OECD countries and the Third World markets of their exporters - especially in the labourintensive textile, leather goods, ship-building, etc., branches of industry. 'Rigidity' came into all three. Adjustments to oil price changes meant primarily a redistribution of income - among countries, obviously, and within countries between those who use a lot of energy and those who do not. Where everyone thinks he has an inalienable right to his place in the relative income scale - thinks that the distribution is a rigid 'given7 and is prepared to fight to preserve his right, adjustment takes a long time. The second, the challenge of inflation, is variously attributed to the inability of governments flexibly to control public spending, faced as they are by a rigidly unyielding structure of demands by pressure groups, or to their inability to control the leap-frogging of wage claims by unions which have substituted trade-union monopoly for competitive labour markets. As for the third, the challenge of adjustment to the rise of the NICS, the economic efficiency answer was obvious. The decisive shift in the pattern of comparative advantage meant that the OECD countries must let their declining labour-intensive industries go to the wall. With the consumer surplus their citizens could gain from buying cheaper Korean shirts, they would increase the volume of demand for other more sophisticated products; Korea would use its export earnings to buy more capital goods from the OECD countries. These increases in demand would more than compensate for the loss of employment and output in textiles. Thus, too, would the humanitarian obligation of the rich countries, their duty to respond to the Third World's demand for 'trade not aid', be simultaneously fulfilled. But again it was the 6 Introduction rigidities of existing structures, the ability of industry associations and trade unions to organize successful demands for protection of the status quo - in particular the success of the trade unions in making (Japanese-type) job-tenure security close to being an inalienable human right, making 'hire and fire' employment systems morally suspect - which blocked the efficient solution. So, rigidities led to stagflation. So, with Mrs Thatcher and Mr Reagan showing the way, it has become orthodoxy in OECD circles that only by restoring to markets their competitive vigour can the dynamism of the world's leading economies be restored. 'Monetarist' may be what the new orthodoxy is usually called, but 'marketist' better describes its inspiration. Why on earth, then, should Japan, an economy which almost flaunts its rigidities as a matter of principle, be the most successful among the OECD countries at dynamically adjusting to the three challenges - absorbing the oil-price rises, controlling inflation at a low figure, and shifting the weight of its industrial structure decisively away from declining to competitive industries? That is what this book is about - the answer to that paradox. After a brief survey of the major characteristics of the economy, chapter 2 charts the changes in economic structure over the decade, chapters 3 and 4 examines the 'adjustive behaviour' in turn of businessmen, workers and their unions, and government, and the next three chapters offer a case study of the textile industry. The details of the Japanese recipe for dynamic adjustment can wait until then. At the most general level, the message, as I see it, is this. Don't stand against the tide of history. Accept that there are good technical-efficiency reasons for oligopoly sometimes. Accept that it does make for a better quality of human relations at work if people are not hired and fired at will and that the improved quality of personal relations is a luxury our societies can now afford to indulge in as well as having potential efficiency pay-offs. Accept that the realities of international competition demand more active state intervention and hence the preemption of a lot of investment decisions by bureaucratic rather than market processes. Accept all these things, but make them work. Accept, for instance, that the virtual disappearance of competitive labour markets requires political control over wages and think how you can create the consensus that make incomes Introduction 7 policies possible. Work out principles for the dividing lines between open competition and oligopoly-oligopsony bargaining, and devise schemes to make sure that the latter is not at the expense of the public and consumer interest. Give up simple notions of a clear cut distinction between the state's minimal regulation of the legal framework and the free market operations of business within that framework, and accept that workable arrangements require a lot of corporatist bargaining in which the state represents a residual public interest against the contending interests of organized - not market-atomized - parties. Accept, further, that a sense of community of interest and social solidarity, and hence of national purpose, provides a useful, even necessary, basis for making these new processes of corporatist bargaining work flexibly, for making them work to produce beneficial change, not the stalemate which arises when the priority of established rights and 'what I have I hold7 are the only decision principles that all parties can agree on. And accept, in consequence, that while no heterogeneous European nation can aspire to the beehive-like homogeneity of Japanese society, the chances of developing the sense of common purpose and social solidarity which make 'rigidities' flexible are much affected by social institutions. That is why the sense of common purpose is likely to be strongest in a society with decent and temperate industrial relations, with a distribution of income and wealth which is widely considered equitable, and with patterns of authority within organizations which subordinates can accept as functionally necessary, not as exemplifications of a pattern of class domination. For a country like Britain, a lot to expect. This page intentionally left blank I An eventful decade This page intentionally left blank 1 Adjustment: The agenda and the instruments It was not without justification that the OECD1979 Report on the impact of the newly industrialized countries referred to Japan as the forerunner of the NICS (OECD, 1979). The Japan of the 1980s is the product of two decades of faster growth than the world had ever seen until the even faster growth of some of the Asian NICS began a decade or so later. Japan is unquestionably an industrial power of the first rank - with its dollar GNP per capita rapidly approaching that of the USA as the yen climbs up towards its purchasing-power parity level, and well ahead of Britain and Italy, if still lagging behind Sweden and West Germany. Its total size of GNP - thanks to its large, 115-million population - is second only to that of the USA among market economies. In terms of relative factor prices too, her pattern of comparative advantage in world trade with respect to labour-intensive, capital-intensive, or skill-intensive goods is roughly that of the other advanced industrial countries (if anything lying more with capital- and skill-intensive production than the OECD average). But - and this is important for understanding her adjustment to her contemporary situation - it is not much more than a decade ago that Japan was being forced into trade-induced structural adjustment because she evoked protectionist reactions to her exports of labour-intensive goods as a /ozi;-wage-cost competitor. Hence it is that measures of, for example, state adjustment aid to the textile industry, now invoked to cushion the impact of Chinese or Korean low-wage competition, are in direct line of descent from the measures taken when production had to be cut back in the late sixties in response to American insistence on export restraints to protect domestic producers from floods of 'unfairly competitive' cheap Japanese textiles. Indeed, the last global negotiations over trade in textiles leading to the renewed Multi-Fibre Arrangement (MFA), Japan figured still as a textile exporter, the potential recipient rather than the imposer of quotas. But more important than such direct institutional continuity is the way in which the whole experience of rapid growth over the 12 An eventful decade Table 1.1 Some dimensions of change 1960-80 Per capita product (1975 prices) Manufacturing output Composition of GDP* by economic activity: agriculture, forestry, fisheries mining manufacturing construction tertiary Employed labour force (1960 = 100) Composition of employed labou r force: primary: agriculture, forestry, fishing secondary: mining, constructson, manufacturing tertiary 1960 100 100 1973 493 462 1980 593 564 14.7 1.6 29.0 5.7 49.0 5.9 0.7 35.1 8.7 49.6 3.9 0.6 36.8 8.1 50.6 100.00 100.00 100.00 100 120 127 32.6 13.4 10.9 29.2 38.2 36.6 49.9 33.5 55.7 100.00 100.00 100.00 * For 1960: NDP at factor cost Source: KY, 1981-2, pp. 14-17, 194-7, 69, Yomiuri Nenkan, 1969, p. 850. last twenty years, and the rapidity of Japan's transformation in recent decades, shifting her from the status of a backward country claiming special dispensation to protect its infant industries from competition to that of a leading industrial power, has diffused throughout the nation - among trade unionists and production workers as well as among managers and bureaucrats - a general conception of the inevitability and even desirability of continuous structural adjustment, of positive adjustment as a positive good. A good many Japanese think naturally in the imagery of the ladder-model of the world economy according to which Korea, say, now occupies the rung which Japan occupied fifteen years ago and stands in the same relation to Japan on a higher rung today as Japan did to the USA then - partly because most of them can remember what it was like to be on that rung fifteen years ago. Partly, also, it is because the ladder model has long been well established in the thinking of the Japanese economic profession - Colin Clark's Conditions of Economic Progress was a favourite book in the 1950s - and it has been generally diffused in a number of simple slogan-phrases, mostly originating in the Adjustment 13 reports of government committees, which have gained widespread acceptance and had a considerable impact on those business decisions which shape the structure of production. Thus, the 1960s were declared, in Japan, to be the decade in which Japan was developing 'the heavy and chemical industries'. A report of 1971 spoke of the end of that era - urged, even, increased reliance on imports for such products - and hailed the need to concentrate on development of 'the knowledge-intensive industries'. But the movement of the countries of the South 'up the ladder' - the accumulation of capital and skills in lower-wage countries has been only one of the exogenous changes affecting investment, recruitment, training and production decisions in Japanese firms - only one of the factors that the Japanese economy has been adjusting to. Several other major contextual changes have been generally seen by those taking business decisions as calling for adjustment - as requiring, in other words, not just accommodation to the fluctuations of the business cycle, but decisions which in their cumulative effect have led to change in the Japanese industrial structure. These contextual changes may be briefly listed, roughly in chronological order of their appearance. Environment The first was an efflorescence of concern with environmental pollution and the quality of life. This was not the result of any particular triggering incident, but rather of the cumulation of a number of factors: the rapid onset of the automobile age brought a rapid thickening of urban smog; one or two famous cases of poisonous industrial pollution attracted widespread attention; internationally notions of development were affected by the UN'S slogan for the Second Development Decade, 'balanced social and economic development' (the phrase 'social development' gained general currency in Japan in 1963 after it was used in a report of the government's Population Problems Council). The take-off of the environmental movement in the United States in the late 1960s also had its effect. By the end of that decade, it had become a recurring cliche of public discussion that Japan had developed its productive infrastructure too fast at the expense of her social infrastructure and the quality of life. There was much talk of the need for increased public expenditure, and a flurry of experimentation with the devising of measures of Net National Welfare. 14 An eventful decade In concrete terms this had several consequences. Politically effective protest against pollution led to the enactment of quite stringent emission standards which affected cost structures and stimulated certain kinds of machine-building industry. Expenditure on pollution control investment by private firms covered by the Ministry of International Trade and Industry (MITI) investment survey increased nearly nine times from Y62 bn. to Y917 bn., from 2 per cent to 15 per cent of total investment between 1968 and 1974. (KY, 1981, p. 129). Secondly, finding sites for raw material processing and chemical industries with high pollution potential, which had become increasingly difficult for physical and cost reasons (the Pacific Seaboard had already become the area with the highest density of economic activity in the world) became even more difficult for reasons of local amenityprotecting opposition. This was one of the major motives for the 1971 declaration by the Industrial Structure Council - a declaration which reflected large sections of business opinion - that Japan should consider increasing reliance on imports of heavy and chemical industry products (albeit that they expected them to be the products of Japanese firms located abroad) and concentrate at home on 'knowledge-intensive7 branches of production: computers, robotics, VLSI, fine chemicals, industrial housing, business machines, fashion goods, electronic music, high quality printing, etc. This was a declaration which affected not only government decisions on support for R & D and various other fiscal and financial decisions, but also business decisions concerning research, investment and location. The oil-shock Japan's rapid industrialization in the 1960s had been based on cheap oil and no other industrial economy was quite so dependent on imported oil for its energy as Japan. (In 1977 oil accounted for 44 per cent of Japan's total imports compared with 21 per cent in France and even less in Germany and the UK). That it was the Japanese who coined the term 'oil-shock' for the quadrupling of oil prices in 1973 is not, therefore, surprising. In the short term, Japan staged a rapid recovery from the inflation induced by the oil-price rise and the earlier commodity boom. After general consumer price rises of 12 per cent and 21 per cent in (calendar) 1973 and 1974, (the last a year of negative real income growth), by 1976 the economy was back to 6 per cent inflation and 5 per cent Adjustment 15 growth. The 3 per cent cut in GNP which the oil price rise represented had been absorbed and distributed (the holding back of wage increases played a major part) and exports had been increased to meet the oil bill. Beyond such questions of economic management, however, the increase in the cost of energy - particularly the second round of 1979 - had important lasting consequences with long-term impact on the industrial structure. Industries which were heavy users of energy, and those like the chemical and fertilizer industries which used oil products as raw material, faced a loss of competitiveness vis-a-vis those who did not have to pay international prices for their energy (aluminium smelters at large hydroelectric sites, for instance, or steel producers sitting on large domestic coal deposits) or for their naphtha (Indonesian producers of urea from natural gas, for example). By and large these were also the industries which were most pollution-prone so that the oil-price effect tended to reinforce the environmental effect. Lower growth prospects The third occasion for long-term adjustment was the general acceptance of the idea that in an energy-constrained world economy it was no longer possible for Japan to resume her pre-1973 growth trajectory. In the mid-1970s it became the received wisdom in Tokyo that Japan could and should aim for something like 5 per cent growth rates until 1990. This gearing-down of expectations had the greatest effect on the internal structure of companies; they could no longer invest at rates earlier projected and, indeed, some industries - synthetic fibres, electric arc smelting, etc. - found that their large investments in the mid-1970s, planned in the optimistic early 1970s, had left them with excess capacity which it took several years to absorb or dispose of. The prospect of slower output growth in the future, combined with pressure to raise the retirement age beyond 55 as a result of growing social concern with the rapidly rising age of the population, made it impossible to maintain the pyramidical ageauthority structures which had hitherto been fed by annually increasing cohorts of school and university leavers. Recruitment numbers had to be reduced, and whereas output growth had exceeded labour-productivity growth until 1973, thereafter the relationship was reversed and the total in manufacturing employment began to fall. Smaller and more stable recruitment 16 An eventful decade quotas implied also a shortage of promotional opportunities for mid-career managers - not enough Indians for the available chiefs - which added to the incentives for establishing overseas operations. At the same time, the end of employment expansion in manufacturing, not fully compensated by expansion in services, had clear consequences for the adjustment process: nothing so eases the pain of phasing out a few particular industries than a general dynamic of expansion, and nothing more increases the pain than rising unemployment - though in Japan's case unemployment has still, until 1983, been kept to around 2 per cent of the labour force, with only a 1 per cent fall in participation rates, 1973-80, fully in line with long-run trends. The place of the plant construction industry in the industrial structure was also obviously adversely affected, although some compensation was found in exports. The rapid expansion of the plant export industry (from $4bn. in 1974 to $12bn. in 1979) dates from this time. Likewise, in so far as Japan's growth had derived some of its stimulus from export expansion (though exports were only 9 per cent of GNP in 1973), and particularly in so far as one of the major parameters involved in creating the consensual view that Japan could not expect high growth rates was pessimism about the growth of world markets, plans for expansion of industries relying largely on exports (the electrical industry, for instance) were also set back. Reactions against Japanese exports Pessimism about export prospects originally based on growth of world purchasing power was reinforced in the late 1970s and early 1980s by the fear of protectionism further reducing export possibilities. The mounting criticism of Japan's 'aggressive' (read 'successful') export drive in the United States and Europe, and the voluntary restrictions placed on exports of, e.g., automobiles to both markets can thus be counted a fourth exogenous change which has called for adjustment - though one which in its effects is not easily distinguished from the last. The major consequences for the industrial structure have been (a) to cut back plans for expansion in certain mass consumergoods industries (and some capital-goods industries such as machine tools), (b) to accelerate plans for export-substituting Adjustment 17 overseas investment in Europe and America, and (c) to give extra incentives to firms to 'move up market', to products where they can be protected against the protectionism of European and American domestic producers by sheer product superiority - a concern reflected at the national level in plans to provide government support for 'next generation' technology. Before trying to look in more detail at the way in which the economy has adjusted to these challenges, in particular at the employment aspects of adjustment, and especially at the way in which adjustment to all the other factors has interrelated with the form of adjustment which concerns us most - adjustment to the rising manufacturing export capacity of developing countries - it will be useful to set out a few salient characteristics of the Japanese economy which has been doing the adjusting. Major characteristics of the Japanese economy Perhaps the most striking characteristic of the Japanese economy is its combination of some of the world's most technologically advanced industries with some of the hallmarks of its recent past as an 'underdeveloped country'. On the one hand, in 1980, over half the world's industrial robots were working in Japan. On the other, although both capital and output are highly concentrated in industry and services, and agriculture contributes less than 5 per cent of GNP, it is an agriculture which is still structured in tiny two-to-three acre homesteads, and still involves 15 per cent of the nation's households, even if the bulk of them (in 1980, 65 per cent) now derive less than half of their income from agriculture and only 11 per cent of the labour force, predominantly older workers and two-thirds of them women, are actually engaged in agricultural work. The persistence of family enterprise is marked also in other parts of the economy - and very important, as we shall see, precisely in those labour-intensive sectors most subject to competition from developing countries. Still, in 1981, only 72 per cent of the employed labour force were in wage or salary employment: 28 per cent were self-employed, or employers or family workers, and even if agriculture and forestry are excluded from the calculation the figure was still 21 per cent. A good proportion of the employees also work in small enterprises (16 per cent in firms with less than ten workers in 1971,18 18 An eventful decade per cent in 1979) which are often, in terms of the social character of the employment relation, extensions of family enterprises. At the opposite pole, the large-scale enterprises which dominate manufacturing and communications and parts of the service trades were employing increasing proportions of the total employees until about 1970, but stable or declining proportions since. (About 35 per cent of the workers in private firms are in firms with more than 300 workers.) The 'Japanese employment system', as it is operated in those firms, is well known for its distinctive features: a strong preference for recruitment straight from school or university and a strong taboo - reinforced by fears of sanctions from the union - against dismissing workers for reasons of redundancy; a wage system based very largely on seniority increments within categories defined by educational qualifications; rather clear, though not formally prescribed, seniority qualifications for promotion within job groups with merit selection among the qualified, (e.g. in the managerial hierarchy, the age for appointing directors may never vary from the 50-55 band, though not every manager aged 55 becomes a director); wage bargaining on a predominantly enterprise-byenterprise basis between managers and an enterprise union which embraces all categories of employees, including younger managerial staff without line responsibilities; considerable training investments, the rentability of which is assured by lifetime employment; concentration of at least a third of cash wage payment in the form of twice-yearly bonuses, also unionbargained but varying a little more according to current profitability than wages do; a substantial portion of labour costs paid in kind as housing, medical, recreational facilities and subventions. The system is one which appears to generate a measure of loyalty and commitment to the firm's success, and a dynamism and willingness to accept or promote change which compensates for the inflexibility of wage costs and the age restrictions on merit appointments which strike many Western observers as flagrantly flouting all received principles of capitalist rationality. The meta-enterprise pattern of organization is complex. Enterprises combine together in three ways. There are, first, groups of firms, made up of a major firm and its satellites, possibly tied by capital ownership and the strategic 'posting' of the major firm's staff to the satellite 'colonies', but at least by long-standing trading relationships - contracts for the purchase of parts or intermediates, exclusive dealerships and rights for further pro- Adjustment 19 cessing, etc. All the major manufacturing firms like Hitachi, Toyota, Kubota have such keiretsu - such satellite clusters. Secondly, there are groups of firms of relatively equal status, usually including a major bank as an important component, which maintain continuous liaison over major matters of corporate strategy, and give each other marginal preferences in interfirm transactions. These latter groups, like the Mitsubishi and Mitsui groups, were formed on the basis of the informal personal relations between managers dating from a time when the core firms were part of the integrated zaibatsu conglomerates, dominated by a central holding company, which were compulsorily dissolved in 1946-7. More will be said about the functioning of these two types of groups, and about their importance - for technological development, for quality maintenance and also for the possibilities of import penetration - in chapters 3 and 6. The third form of grouping is of the greatest importance for adjustment matters, whether it be a matter of adjusting to energy prices or import competition: namely the industry associations. These are well-organized and often have good business research sections and officials of some authority. They play an important role in joint R & D projects sponsored by the state in industries thought to be of major importance for industrial policy. In the highly oligopolized industries they often provide a forum for the co-ordination part of the delicate balance between conspiracy and competition which the oligopolists maintain. They are the principal instrument through which recession cartels can be formally arranged by MITI; they are often the channel for 'administrative guidance7 from the Ministry; and/or a means for individual firms to get the information necessary for them to assess the evenhandedness of the guidance the Ministry offers to individual firms. The effectiveness of these associations and their operations reflects a strong sense, evidently shared by top managers, of membership in 'the industry' as a community. This is a function of the well-known 'groupishness' manifest in so many other spheres of Japanese life, a willing propensity to accept the constraints and comforts of group membership - a consequence partly of the almost direct organizational continuity between feudal guilds and modern industrial associations and partly of the fact that genuine conglomerates are very rare in Japan: most firms are firmly located in 'their' industry without dual loyalties. The highly organized nature of the Japanese economy, serving 20 An eventful decade in many ways to lend inertia to relations between firms and their suppliers is an often cited 'non-tariff barrier7 which reduces the penetration into the Japanese market of manufactured goods, other than the small range of capital goods in which Japan is still not competitive, and some luxury prestige consumption items. So it is that in spite of an extreme poverty of natural resources only enough land to provide 40 per cent of basic grains and 60 per cent of the value of total food consumed, forests to provide less than a third of timber consumption, a little poor-quality coal, minor deposits of a few minerals, hydroelectric resources to provide 5 per cent of energy needs - Japan's foreign trade ratio is still low: her economy is still a good deal less integrated with that of her neighbours than European economies are with theirs. At some points, indeed, exports have been the most dynamic sector, giving some substance to the characterization 'export-led growth', and certainly export growth was a major policy goal right through the 1950s (export tax relief ended in 1962). But the surpluses which accumulated towards the late 1960s were first reduced by yen appreciation (correction, most would say, of the earlier policy of under-valuation of the yen) and later - twice - by the impact of higher oil prices. The overall increase in the export ratio - from 9 per cent of GDP in the 1960s to 14-16 per cent in the mid-1970s and then to 19-20 per cent after the second oil crisis did little more than cover the cost of dearer oil imports. There were small balance of payments deficits in 1979 and 1980. The momentum of export growth plus easier oil prices changed that picture somewhat in the 1980s, bringing the prospect of a $40bn. trade surplus in 1984. The making of policy The feature of the Japanese economy which more than any other distinguishes it from the other seven summit-nation economies is the stable integrated nature of its politico-bureaucratic establishment. The Liberal Democratic Party has been continuously reelected since 1955, and the constituent elements from which it was formed were in power since 1948. The opposition, once dominated by a Socialist Party, closely backed by the trade unions, is now fragmented into the New Liberal Club, a centrist break-away group from the Liberal Democratic Party (LDP); a Democratic Socialist Party which has strong support from Domei, the trade union federation covering the bulk of private industry Adjustment 21 and whose views on policy issues differ from that of the ruling establishment only about as much as the views of, say, the Nissan union differ (as they sometimes do) from those of the Nissan management; thirdly, a Socialist Party with a Marxist vocabulary, strong support from the public sector unions in the Sohyo federation, and a more determined oppositional stance; a Communist Party which is similarly, if not more, 'alienated' and uncompromising in mobilizing indignation on civil rights, poverty and inequality issues and which competes with the fifth party, the Komeito - a party originally of Buddhist organizational origin, not markedly different from the establishment in basic world view - for the votes of the poorer third of Japanese society, the workers in petty commerce and backyard industry, the old, the widowed, the divorced and the handicapped. The degree of integration of the bureaucracy and the ruling party may be indicated by the surprise occasioned when a former bureau chief from the Economic Planning Agency (EPA), retiring around the age of 50 as convention required when one of his age mates was made vice-minister above him, went, not into one of the myriad of quangos maintained by the various ministries (and maintained partly because they provide such splendid sources of second jobs), nor into private industry, nor (admittedly a route more often trodden by Ministry of Finance or MITI than by EPA officials) into a safe constituency seat of the LDP, nor even, as some quirkish EPA intellectuals had been known to do, into academic teaching, but instead into association with the opposition - to head a research institute designed primarily to serve the Di^mei federation and the Democratic Socialist Party. A recent newspaper feature article recalls the circumstances of his translation in the autumn of 1978, at a time (known in Japan as the 'government-opposition-neck-and-neck period') when the opposition parties were making electoral gains and it looked possible that the LDP might lose its overall majority. Mr Sasaki, the official in question, who had done a lot of work on wage issues in the EPA, was invited out to a restaurant by the Domei leaders who explained that, with the looming possibility that there might actually be an opposition-coalition takeover of government, they badly felt the lack of real policy-making capacity, and would he be willing to head a research centre which was supported by, but independent of, the major trade union groups. He said he would think about it. 22 An eventful decade It was right in the middle of the neck-and-neck period. There was a certain perturbation in leading civil service circles as to what might happen if the period of permanent LDP rule should come to an end. And the EPA was no exception. When Sasaki discussed the approaches with the other senior members of EPA the general view was: there are possibilities of big changes in the political situation in the future. It would be not at all a bad thing for the EPA to have its pipe into the trade unions and the labour world. Sasaki should take up the offer. The EPA also being a non-sectoral ministry, not having any obvious places, nor many of its own quangos, for its retired officials to parachute into . . . (Nikkei, 15 November 1984) In the heady days of the 1945-8 post-war reforms, the Socialist Party had had a number of leaders recruited from the bureaucracy. Today, after a 30-year institutionalization of the patterns of political power, the establishment/non-establishment boundaries are so tightly drawn that migration across them is barely conceivable, except in the sort of circumstances just described. In the politico-bureaucratic alliance, there is no question of the bureaucracy's intellectual dominance. Bureaucrats appear beside ministers to represent the government in the parliamentary committees where all the real work of the Diet is done, thus freeing ministers from the tiresome duty of actually mastering the details of legislation or administration. Politicians specialize rather in cultivating expansive and dominating personalities and an acute sense for the feelings and interests of constituents. Those among the bureaucrats who have both brains and dominant personalities move into the Party and, when they do so, have a better chance of becoming ministers than those who have graduated to the centre from local politics. From a third to a half of most cabinets have been composed of ex-bureaucrats. They have held the prime ministership for roughly 25 of the first 35 post-war years. The dominant form of political conflict is rivalry between competing factions within the LDP. Factions are relatively formally organized networks of personal loyalties clustering around leading politicians competing for preferment. Conflict between them is rarely rooted in, or expressed in, differences of policy or ideology, though when there are unresolved policy issues opposing factions may become identified with opposing views - as when, in the rivalry between Messrs Nakasone and Komoto for Adjustment 23 the party leadership and prime ministership in 1982, the former was seen in the bureaucracy, at least, as more closely identified with the conservative Ministry of Finance views favouring retrenchment of government expenditure, the latter with'the more expansionist views of MITI and the EPA. In practice, however, it would be hard for any observer of the subsequent actions of the Nakasone government to point to policies which would clearly have been different, had one of his rivals been successful. On the one issue on which Mr Nakasone did break out from the prevailing consensus - defence expenditure - he was quickly drawn back to moderation. Forceful leadership of the kind expected in the politics of more individualistic societies is not the Japanese style. The management of the economy The role of the politicians in the making of economic policy becomes, then, largely one of ratifying rather than shaping the consensus which emerges from the - very open and public debates between the main 'organized interests'. In the matter of month-to-month 'conjunctural' management of the economy, the main 'organized interests' are the Ministry of Finance, the Bank of Japan and what is known as zaikai (with the EPA, MITI and the Party's Budget Committee playing minor roles). There is no easy translation for 'zaikai'. Literally it means 'financial circles', but whereas in the context of a Britain one would have to distinguish between the financial circles of 'the City' and 'industry', in Japan, because of the far greater involvement of the banks in industry (see chapter 3), Keidanren, the organization whose austere octogenarian leaders are the most powerful spokesmen of zaikai, is equally representative of financial as well as of manufacturing, and indeed commercial, interests. The main monetary regulator is the Bank of Japan base rate plus the imposition of direct credit ceilings on the main lending banks, the city banks and the long-term investment banks. The main fiscal regulator is the acceleration and deceleration of public spending plans, which is made easier by the maintenance of a separate government investment account, the Fiscal Investment and Loan Plan, which is financed largely from state insurance funds and post office savings. The volume of expenditure it finances (until 1973 it was not subject to Diet scrutiny) has steadily risen from around 3 per cent of GNP in the 1950s to over 9 per cent in 1980. 24 An eventful decade Relatively little use is made of variation in taxes as a fiscal regulator except to save the raising of thresholds made necessary by inflation for periods when the economy is thought to need a boost. The tax take rose during the 1970s from 19 per cent to 24 per cent of GNP in 1981 (central from 13 to 16, local from 6 to 8) but with almost no change in the 70/30 ratio between direct and indirect taxation. The general acceptance, until 1980 at least, of the need for a long-run increase in government spending ruled out much use of tax reduction as a means to stimulate the economy. At the same time the constraints of the political competition limited the possibilities of increasing taxation in spite of a general consensus by the mid-1970s that indirect taxation had to be raised. The LDP majority was cut in the 1978 election and this was attributed to its leader's proposal to introduce a value-added tax. Since then, fingers burned, no would-be leader has dared to make himself unpopular by resurrecting the idea. The deficit has been covered by borrowing, sometimes to the tune of more than 30 per cent of government expenditure. In addition to fiscal and monetary regulators the third arm of, if not month-to-month at least year-to-year, economic management is the 'control7 over wages. This involves not formal incomes policies, but an institution with the unlikely name of the Spring Offensive. It consists, essentially, of a short, sharp 'annual round' of wage bargaining concentrated in a few weeks in March-April. The key element is the simultaneous contract settlement date throughout the private sector, and the creation in public consciousness of the concept of an annual 'norm' which ex post is the weighted average (weighted by numbers involved) percentage increase in wages and ex ante is what everyone expects the ex post figure to be. The trick lies in engineering convergence of these expectations. Bargaining is predominantly by enterprise, but partly by industry and, even where there is enterprise bargaining, industrial federations frequently co-ordinate the strategy of individual unions and encourage the strongest unions, in the most favourable position, to accelerate their schedule of one-day strikes in the hope that they will be norm-makers at a high figure. When enough of the giants have settled the television pundits declare that 'the peak of the Spring Offensive has passed', and their prediction that the average thereto established will not be very different from the final one becomes self-fulfilling as the remaining settlements are made by unions which see themselves primarily as norm-takers, their ambition being to Adjustment 25 come out on the norm or, if they are explicitly arguing a case for preferential - better than comparable - treatment, a little above it. The key to the smooth working of the system, however, is the fact that all parties go into their disputes after months of national shadow-boxing - the first union statement to the effect that they cannot settle for less than x and zaikai statements that more than y would be unthinkable appear in the press in November. In the course of these months of publicized discussion a consensus emerges concerning the general range within which the average rate of increase is likely to fall, and the coercive effect of this consensus makes it largely self-fulfilling. Continuous newspaper comment, well-publicized 'quadri-partite' seminars (government, employers, unions and academics), authoritative statements by economic ministers, all play their part in creating the consensus. Other important ingredients of the system are the quite high level of macro-economic sophistication of union leaders and even union members in Japan, and the fact that bargains are enterprise bargains between managers and enterprise unions which acknowledge their stake in the success of the firm. The way the system worked to restrain, or rather eliminate, the wage-cost-push element in inflation in the second-half of the 1970s will be described in chapter 4. If it would be hard to define very precisely the role of the government in the determination of wages in Japan, it is equally hard to define the role of government in the field of industrial policy which is the main concern of this book. It has been aptly said that left-wing British visitors come back from Japan convinced that they have seen a shining example of state planning; right-wing visitors return full of praise for the virtues of Japan's free-enterprise system. The wide variation even in academic economists' interpretations has been illuminatingly classified by Chalmers Johnson (1978, pp. 16-18, 1982, pp. 1-20), and more recently by Boltho (1985). Johnson is certainly right in saying that the Japanese state, since 1870, has been a developmental state, and its guiding and controlling role has been, and consequently remains, greater than in other societies where night-watchmen states have only gradually and grudgingly acquired developmental functions. Within that developmental state control over the long-term growth and structure of the economy has been highly concentrated in a single ministry, MITI, whose powerful position is symbolized and reinforced by the fact that it ranks along with the 26 An eventful decade Finance Ministry as the most difficult of all ministries to enter, in a society where the prestige of the public service as a whole is such as to give it far more than its fair share of the brightest talent coming from the universities. Elite consciousness in a career service helps to create a strong work ethic with an emphasis on thorough enquiry, a premium on initiative and - thanks to a generalist tradition with postings every two or three years from one industry branch to another - an emphasis on a broader national view. The practice of early retirement and transition to a second job in the case of high-flyers sometimes into leading positions in business corporations - helps in various ways (the personal contacts between old colleagues, the 'anticipatory socialization7 of middle-aged bureaucrats not unmindful of their future career choices) to create a 'bureaucratic industrial complex7 within which the creation of the famous consensus becomes easy. The concrete measures which this consensus supports will be described in more detail in chapter 5. Briefly, there is nothing very novel about most of the measures used by Japanese governments: preferential credits through government lending institutions, special tax concessions, subsidies and direct investment in industry through public or mixed public/private corporations. The less usual features are: first, direct investment is used somewhat more readily than in most countries (though not more than in a Labour Britain) and used not just for basic industries but for relatively small quick-response initiatives (like JECC, the mainframe computer leasing company) to foster particular strategic industries; secondly, raw material and export quota allocation systems of the wartime and post-war reconstruction periods survive in some industries and are revived as production allocation quotas in recession cartels, temporary arrangements sponsored by the Ministry. Thirdly, the Government has created and retained a wide range of licensing powers which are used not solely for the public-interest purpose for which they were originally intended but for broader purposes of guiding the evolution of the industrial structure - the control over technology imports, for instance, was justified by the need to conserve foreign exchange; it was used also to regulate (both stimulate and moderate) competition, and to control the relative volumes of investment in different industries. Finally, there is 'administrative guidance7. This can be imparted as informal discretionary conditions when granting licences transactions or allocating subsidies Adjustment 27 or loan funds. It may, however, be hung on no such regulatory peg and be, simply, consultative measures initiated by officials who seek to impose public objectives on the private objectives of individual firms - or rather to seek a reconciliation between the two. The relevance of these government-industry relations to the adjustment process will be a matter for later discussion and illustration. The structure of national expenditure The high prestige and authority of the bureaucracy is only one sense in which Japan may be called a highly bureaucratized society. There are other senses too. The employment systems of the large business firms, for example, are of a kind typically associated, in Europe, with a civil service or army. Again, there is the matter of organizational styles. Firm written contracts, and litigation to enforce them, may play a very small part in Japanese, as compared with American business life - market relations depend a good deal on verbal trust as we shall see in chapters 3 and 6, but within organizations, the elaboration of explicit written rules for work procedures or conditions of employment, in management-union contracts, etc., is carried to a length rare in the West. The output of laws and regulations by government is also on a heroic scale. For nearly every industrial and social field at least one 'compilation of laws relating to7 - education, or energy, or the steel industry - is published in annually revised editions. The survey activity and statistical services provided not only by government but even by small local producers' associations are of a rare quality and coverage. It comes as something of a surprise, therefore, to find Japan is still a 'small government' society. Government final consumption as a proportion of GNP is still 10 per cent, in the same range as Thailand and Philippines (less, in fact, than the former) rather than in the 15-20 per cent range of France, USA, Canada or Australia, much less the 20-30 per cent range of West Germany, Britain and Scandinavia. This reflects a lesser government expenditure on defence and health and welfare activities (other than education) as compared with other economies - though with stronger family bonds and lesser crime problems, a lesser expenditure does not in all fields represent lesser levels of welfare enjoyed. (Also, the stock of hospitals and schools has been 28 An eventful decade improved in recent years as government capital expenditure has slowly increased from 4 per cent of GNP in the late 1960s to 6 per cent in the late 1970s, and it has to be remembered that a stable proportion of GNP in an economy growing at 6 per cent represents twice as rapid a growth as a 1 per cent increase per annum in any economy growing at 2 per cent - even if a lot of that growth is absorbed in increased salary levels with little increase in service to the public.) Private consumption has also been at a relatively low level compared with other societies. It is investment that has claimed a much greater share than in other economies: with rates consistently over 30 per cent, Japan has had the highest rate of investment of all the market industrial economies, and between 45 per cent and 50 per cent of that investment has been by private firms. With declining growth prospects corporation investment has fallen from the 18-19 per cent of GNP levels of the early 1970s, but was still running at a strong 15-16 per cent at the end of the decade, and soon got back to those levels as soon as the economy got into the recovery stage of what the economists count as the ninth post-war economic cycle from the trough of February 1982. A good deal of the fixed-capital formation has been financed by depreciation and reserves and retained profits of the corporations themselves, but household savings have also played a major role. Up to the oil crisis the household savings rate (which, it must be remembered, includes the business reserves of a lot of one-man businesses) was running at 14r-16 per cent, typically providing 25-30 per cent of total savings. The uncertainties of life in 1974-5 pushed it up as high as 18 per cent (at the height of the inflation!), 47 per cent of total savings, but as confidence in the future gradually recovered (if, indeed, that is the explanation) the rate steadily fell back to 13-14 per cent at the end of the decade and the beginning of the 1980s - around 40 per cent of total savings. Some of these funds are channelled through state savings and insurance schemes into public investment, or into the private sector via state banks. A high proportion is channelled into private investment through banks rather than the stock market. The resulting financial structure of enterprises, with high debtequity ratios and distinctive patterns of share ownership, has consequences for enterprise strategies. In a nutshell it reduces shareholder pressure for short-term results and enhances the sense of the corporation as a body corporate - as a nexus of co-operative endeavour of the people who work in it. These are some of the themes to be pursued in later chapters. 2 Structural change in the Japanese economy Scope The subject of this book is change and adjustment in the 'structure' of the Japanese economy. The word 'structure' can be made to mean almost anything, so it will be as well for the purpose of this chapter, to make clear what sort of 'structural changes' are intended. They are: Changes in the composition of output as between major activities. Changes in the composition of output within manufacturing. Changes in the role of foreign trade in the economy, the composition of exports and imports. Changes in the composition of the labour force and the distribution of employment between activities. Changes in the organizational and control structures of business enterprises. Changes in the distribution of income. Changes in the mechanisms and co-efficients of savings, investments, technological innovation, demand creation, etc., which determine underlying growth rates. Some of these changes are 'emergent', the cumulative, macroeconomic consequences of multiple individual decisions, as when older women increasingly decide to seek work, or wage settlements show a persistent, but possibly unperceived, pattern of differentials. The consequent structural change is willed as such by no one. It is rather the result of the working out of demographic changes, changes in values, living standards, ideals of equality, etc. Those changes in behaviour might be called 'adjusting behaviour', but, to be pedantic for a moment about the term 'adjustment', I shall try to reserve the term 'structural adjustment' only for cases where some identifiable persons - in government or business organizations or trade unions - do see some 30 An eventful decade change in structure as desirable and seek to stimulate the economic behaviour which will produce it. Metaphorical talk of 'the economy' adjusting to, say, a change in the terms of trade can sometimes be useful shorthand, but can sometimes, also, misleadingly suggest invisible hands and mysterious homeostatic functions and thereby obscure the actual adjusting microbehaviour, or the macro-level interventions, which are at work. Primary, secondary, tertiary Table 2.1 gives EPA'S figures for GNP by economic activity. (Where possible all tables will show the beginning of the decade; 1973, the last year of high growth; 1975, the bottom of the recession, and the latest available year.) Table 2.1 GNP by economic activity (Yl,000bn at calendar 1975 prices/ percentage of GNP) Agriculture and fisheries Mining Manufacturing Construction Utilities Commerce Finance, insurance Real estate Transport, communications Private services Government services Non-commercial services to households Import duties (minus) interest payments Errors and omissions 1970 1973 1975 1980 7.2 (6.1) 0.8 (0.7) 35.1 (29.8) 11.0 (9.3) 2.4 (2.0) 15.9 (13.5) 5.0 (4.2) 8.6 (7.3) 8.4 (5.7) 1.0 (0.7) 47.0 (32.2) 14.2 (9.7) 2.7 (1.9) 21.6 (14.8) 8.1 (5.5) 11.4 (7.8) 8.1 (5.4) 0.8 (0.5) 44.3 (30.0) 14.3 (9.7) 3.0 (2.0) 21.9 (14.8) 8.3 (5.6) 12.3 (8.3) 7.4 (3.9) 1.0 (0.5) 69.5 (36.8) 15.3 (8.1) 3.7 (2.0) 27.4 (14.5) 11.0 (5.8) 17.1 (9.1) 7.4 (6.2) 14.1 (11.9) 8.7 (5.9) 16.5 (11.3) 9.5 (6.4) 16.3 (11.0) 11.9 (6.3) 19.8 (10.5) 10.5 (8.9) 11.7 (8.0) 13.0 (8.8) 15.6 (8.3) 1.6 1.6 (1.4) (1.4) 1.9 1.6 (1.3) (1.1) 2.2 0.5 (1.4) (0.3) 3.0 0.8 (1.6) (0.4) 4.4 1.0 (3.7) (0.8) 6.9 (4.7) -1.9 (-1.3) 7.3 0.6 (4.9) (0.4) 9.4 (5.0) -5.3 (-0.3) 117.8 (100.0) 145.9 (100.0) 147.8 (100.0) 188.8 (100.0) Source: KY, 1982, pp. 70-1 31 Structural change Corresponding figures for employment are: Table 2.2 Employment by industrial branch (million persons/percentage of employed) 1970 Agriculture and fisheries Mining Construction Manufacturing Commerce Finance, insurance Real estate Transport, communications, utilities Services Government 1973 1975 1980 8.86 (17.4) 7. 05 (13.4) 6.61 (12.7) 5.70 0. 13 (0.2) 0.16 (0.3) 0.10 0.20 (0.4) 4. 67 (8.9) 4.79 (9.2) 5.48 3.94 (7.7) 13.77 (27.1) 14. 43 (27.5) 13.46 (25.8) 13.71 10 .06 (19.8) 11.23 (21.5) 12 .51 1.58 1.11 (2.2) 12. 42 (23.7) 1.36 (2.6) 0.43 0.37 (0.7) 0.27 (0.5) 3.53 (6.9) 7.51 (14.8) 1.61 (3.2) 3. 72 (7.1) 8.26 (15.7) 1. 80 (3.4) (10.3) (10.2) (9.9) (24.7) (22.6) (2.9) (0.8) 3.83 (6.9) 3.63 (7.0) 8.55 (16.4) 10 .08 (18.2) 1.98 (3.6) 1.96 (3.8) 50.86 (100.0) 52.48 (100.0) 52.12 (100.0) 55.41 (100.0) Source: KY 1982, p. 196 and RH 1981, Fuzoku 17 and 20 Japan is still experiencing the long-term shift in the balance of the industrial structure generally referred to as 'industrialization'. There are still considerably larger numbers of workers (of older age groups) locked into agricultural, forestry and fish production than are necessary to secure current levels of output with currently available capital and techniques. They do not easily transfer to other sectors, but on the other hand they are not replaced as they die or retire. Employment in these sectors, consequently, steadily declines. Agricultural output remained more or less constant through the decade which meant a declining share of that sector in total output, but still, since the share in employment was declining even more rapidly, a greater-thanaverage increase in productivity. In spite of that increase, productivity remains low. Eleven per cent of the labour force produce 4 per cent of the national product. (The 400,000 - 0.8 per cent - employed in real estate 'produce' twice as large a 'contribution' to GNP.) Further transfer of labour from agriculture to other more profitable industries is generally seen as a structural adjustment to be aimed at, but not an objective which can easily be achieved except as the slow result of generation transition. The problem to which that desired structural change would be 32 An eventful decade Table 2.3 Changes in percentage share 1970-80 Agriculture and fisheries Mining Construction Manufacturing Commerce Finance and insurance Real estate Utilities Transport and communications Services Government Output -2.2 -0.2 -1.2 +7.0 + 1.0 + 1.6 + 1.8 0.0 +0.1 -1.4 -0.6 Employment -7.1 -0.2 +2.2 -2.4 +2.8 +0.7 +0.3 0.0 0.0 +3.4 +0.4 Source: Ap 2.1; 2.2 an adjustment is precisely the large productivity gap which requires, in order to maintain the incomes of conservative-voting farmers at parity with urban incomes, a high level of subsidy and protection. However, the cost of this protection is something the Japanese economy has got used to affording. The problem becomes acute in an international political form only, i.e. in the form of pressure from would-be exporters of agricultural products who see the protection of Japanese markets against imports as discriminatory. That pressure comes hardly at all from developing countries (unlike the case of e.g., the European beet industry), but predominantly from the USA and Australia ove citrus fruits and meat. Reductions in the level of protection are contemplated solely in order to reduce the danger of retaliatory protectionist measures discriminating against Japanese exports to the United States. But, with 'industrialization' still incomplete, the Japanese economy is already moving towards 'post-industrialism'. Manufacturing was still increasing its share of the national product at the end of the decade (after losing ground during the recession), but losing employment at least relatively (25 per cent of the labour force compared with 27 per cent at the beginning of the decade) and, although there has been some absolute increase in recent years when output grew faster than productivity, the total remained half a million below the 1973 peak in 1982. The slack has been taken up by the tertiary industries with two-and-threequarter million extra workers being absorbed over the decade Structural change 33 Table 2.4 Growth in service employment 1972-8 (1,000 persons) Self-employed Companies, government organizations Total increase % 72.9 (2.4) 39.8 (1.3) 98.6 (3.3) Hotels Hairdressing Other personal services 2.6 15.0 7.3 70.3 24.8 91.3 Information services Advertising Legal services Services to buildings Other services to establishments 0.1 0.7 50.4 2.1 48,. 0 10.6 0.2 102.9 48.1 11.3 50.6 105.0 (1.6) (0.4) (1.7) (3.5) 13.2 104.1 117.3 (3.9) 0.1 -9.5 -9.4 (-0.3) 191.6 -4.1 0.8 154.9 99.2 210.9 346.5 95.1 211.7 (11.5) (3.2) (7.0) 279.8 907.7 1187.5 (39.5) Wholesale commerce -27.0 291.6 264.6 (8.8) Retail commerce 205.7 716.6 922.3 (30.7) Eating & drinking establishments 372.3 261.9 634.2 (21.1) Total commerce 551.0 1270.1 1821.1 (60.5) Total services and commerce 830.8 2177.8 3008.6 (100.0) Entertainment services Medical services Educational services Other public services Total services Source: RH 1980, Appx 113, 115 based on the Establishment Census into private and government services - an increase of 3.4 per cent in their share of employment- without, however, any increase in their share in the national product: the reverse, in fact; their share fell by 2 per cent. Commerce, too, absorbed a good deal of additional employment without a comparable increase over the decade in output share - in fact, output share has stagnated since 1973, the period in which the bulk of the increase has taken place. Finance, insurance and real estate are the only branches of the 34 An eventful decade tertiary sector which have increased their share of output faster (considerably faster) than their share of employment which is in any case small. Unemployment on a scale which has plagued other industrial economies has been avoided in Japan, but at the cost of crowding more people - albeit a large proportion of them women, secondary earners with relatively low income expectations in the first place - into relatively low-income service and commercial occupations. However, as is shown in the previous table (derived from a different source and obviously non-matching, though the different periods used preclude one from knowing how much), if not all of this tertiary expansion is in the famous information industries, etc., neither is it all in the proliferating bars and fast-food shops. Medical and educational and other professional services also claim a respectable share of the employment growth. The structure of manufacturing production The decade of the 1970s saw a considerable shift in the interindustry pattern of production, as is evident at the simplest level from table 2.5. Table 2.5 Manufacturing and mining production indices (1975 = 100) 1970 94.3 91.0 101.3 83.3 90.2 2973 123.4 120.1 130.5 109.2 102.7 1975 100.0 100.0 100.0 100.0 100.0 1980 148.0 150.7 120.6 225.1 122.8 2983 (157.3) (160.8) (108.1) (264.5) (134.7) Production materials (total) mining products steel products non-ferrous metals chemical products oil and coal products textile products — — 93.8 92.9 — — — 120.1 112.5 117.7 127.7 120.6 108.1 120.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 134.6 102.9 122.8 143.4 127.2 90.2 107.7 (138.6) (99.0) (109.5) (138.4) (126.2) (64.7) (103.4) Total 92.5 117.0 100.0 142.4 (149.4) Final consumption goods (total) capital equipment construction materials consumer durables consumer perishables Source: KY 1981, pp. 116-17; 1984, pp. 100-01. (The 1983 figures are in brackets because they are a hybrid of the old index based on 1975 price weightings and the new index based on 1980 price weightings.) Structural change 35 The general pattern is easily summarized. The strong sectors which most effectively recovered their growth dynamism after the 1975 recession are consumer durables and to a lesser extent capital equipment - both, but especially the former, buoyed up by export demand - and the non-ferrous metals which feed into them. Consumer perishables also show relatively healthy and continuing growth, as did chemicals for the latter part of the 1970s, but it has begun to suffer the general fate of the basic materials industries since. The decline of oil and coal products is a measure of the substitution and energy-conservation policies with which Japanese industry responded to the rise in oil prices. Steel, in the teeth of world over-production, did actually recover 1973 production levels in 1979, but has suffered from the general decline in demand (thinner, stronger and more refined substitutes for large lumps of crude steel) as well as from the competition, in export markets, but also in domestic markets, of developing country producers. Such competition has been a major force determining the relative stagnation of the textile industry, of course, and has had some effect, too, (fertilizer exports) on chemical products. Looking in more detail at differential growth between industries, Table 2.6 lists some 43 industries representing some 40 per cent of total manufacturing production, chosen because they were the industries for which it was possible to match the categories of the industrial census (the 2- to 4-digit categories listed in the table) with the categories used in MITI'S summations of business indicators for manufacturing enterprises (for a purpose to be discussed below.) Perhaps the most striking thing is that only eight industries actually experienced a decline in real value added (if one uses the general wholesale price index as the deflator (1970/79 equals 100/175) a procedure with obvious disadvantages, vide the way in which the much larger increase in oil prices inflates the increase in value added for oil refining). Those eight absolutely declining industries were (i) the industries affected by Japan's declining competitiveness in textiles, cotton and wool spinning, textile machinery and chemical fibres; (ii) industries badly hit by energy or naphtha prices - aluminium refining and, again, chemical fibres, and (iii) capital goods industries of former export strength badly hit by world recession - machine tools, ball bearings and above all ship-building. Those that experienced 50 per cent real growth or more (163 per cent nominal) numbered 15. Some owe 36 An eventful decade Table 2.6 Chlanges in capital, employment and valine added by indu;stry Classification a\nd name of industry I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 (2711) (264) (3021) (3216) (3611) (263) Oil refining Chemical fibres Cement Aluminium refining Automobile Resins, organic compounds (2652) Detergents (2697) Films Paint (2654) Blast furnace iron-making (311) Wires and cables (325) Chemical fertilizer (261) Tyres (2811) (262) Soda/inorganic chemicals (3123) Ferro-alloys, ferro-nickel Glass (301) (352) Domestic appliances Communications (354) equipment Machine tools (3441) (3494) Ball bearings (3641) Ship-building Aluminium products (3233) Industrial machinery (346,347) Office machinery (2481) Printing (25) Castings steel alloys (316) Paper pulp (24) Electrical metering (356) equipment Textile machinery (345) Heavy electrical (351) equipment (3612, 3613) Automobile bodies, components (222-2224) Building materials (3022, 23, 29)Cement products Cameras (3752) Prefabricated buildings (2223) Perd entage increase Value cidded per 1[970-9 inc worker fixed capital 1970 equipValue EmployYm ment added ment 10.10 6.10 5.95 5.57 5.46 + 142 +19 + 102 + 106 +94 +369 -38 + 151 +35 +151 +30 -43 -32 -43 +13 5.40 5.36 4.23 3.32 3.85 3.63 3.58 3.28 3.41 3.36 3.19 2.81 +76 +150 +207 + 112 + 180 +50 -6 +92 +55 +88 +80 + 172 + 138 + 186 + 116 +252 +280 +85 + 101 +163 +197 +98 + 123 +246 -17 -9 -8 -9 -14 -20 -37 0 -34 -43 -9 + 12 2.72 2.68 2.65 2.62 2.57 2.55 2.48 2.27 2.24 2.22 +76 + 19 +78 + 126 + 185 +71 + 195 + 131 +48 + 127 +85 +62 +67 -8 +376 +95 + 137 +215 +76 + 136 -10 -35 -19 -41 +29 -17 -12 +9 -30 -12 2.19 2.04 +66 +27 + 119 +31 -17 -47 1.99 +95 + 153 -2 1.88 1.88 1.80 1.63 1.63 + 125 +85 + 169 + 174 +350 +247 + 139 +273 +166 +469 + 12 -17 +7 + 15 +50 Structural change 37 Tab!le 2.6 contd Classification and name of industry 36 (357) 37 (377) 38 (28-2811) 39 (304-309) 40 (3482) 41 (2023) 42 (204, 205) 43 (2021) Value Perceintage incr>ease ad ded per liUO-9 inc. icorker Fixed 1970 capital equipValue iEmployYm ment added ment Electronic components Watches Rubber products other than tyres Ceramic products Sewing machines Wool and worsted spinning Knitting and other textiles Cotton spinning 1.59 1.53 +102 +189 +139 +230 -16 +13 1.50 1.47 1.44 +107 +81 +29 +170 +146 +104 -14 +12 -24 1.34 1.11 1.11 +8 +37 +17 +22 + 105 +71 -56 -28 -48 Sources: Tsusansho Waga Kuni Kigyono Keiei-bunseki gyoshu-betsu, 1970, or Koygo tbkeihyo, 1970 and 1979. much of that growth to export strength - cameras, watches, automobile parts, tyres, domestic appliances; some are growth industries as a result of the evolution of domestic consumer tastes - printing, aluminium products, paint, prefabricated buildings, and perhaps detergents and rubber products. The remainder, oil refining, inorganic chemicals, iron-making and cement, are probably spuriously represented in this category because their prices have been forced by energy costs well above the average wholesale-price increase. Using these 43 industry categories the attempt was made to discern some overall pattern in the time trends. Is there any tendency for growth in value added between 1970 and 1979, or growth in fixed capital equipment, to be greater in those industries which, in 1970, had: A higher ratio of fixed capital equipment per worker. A higher value added per worker. A higher return on capital employed (in major firms). A higher profit margin on sales (ditto). A lower proportion of value added paid to labour (ditto). A higher proportion of value added spent on purchasing patents (ditto). Table 2.7 Distribution of planned investments 1980-81 Industry Printing and publishing Beer and wines Milling Aircraft Rubber products Precision instruments Plastics, soap, paint Pharmaceuticals Non-ferrous metals Glass Electrical machinery Inorganic chemicals Oil refining, oil products Capacity expansion 76.6 62.4 55.8 50.3 47.6 46.2 43.7 42.6 41.9 40.7 39.9 39.7 39.5 Purpose of investment Rationalization Research Repair Antipollution & labour-saving development replacement 1.9 15.8 1.8 1.6 13.2 8.9 2.9 1.0 15.7 2.7 16.3 4.4 7.4 1.7 5.9 10.8 8.4 24.2 9.2 1.8 23.2 13.0 11.8 8.5 11.4 19.8 4.0 9.0 1.3 13.3 7.8 27.9 17.6 5.1 12.6 4.5 16.2 3.9 12.3 3.6 28.2 0.7 4.9 17.6 10.7 13.9 5.0 4.0 10.3 1.1 14.1 14.6 Energy saving 0.0 1.6 0.4 0.3 3.2 8.2 1.9 0.8 5.1 8.5 0.5 8.0 7.8 Other 2.2 10.0 4.6 23.5 5.6 16.1 10.2 6.5 13.2 14.7 8.2 8.9 12.6 Foods not elsewhere specified * Organic chemicals Livestock products ** Edible oils General machinery Automobiles * Wood products Paper and pulp Ship-building Railway equipment Sugar refining * Cement ** Textiles Steel Fertilizers 39.3 37.3 35.8 34.5 25.8 23.2 22.5 19.0 18.1 18.1 17.0 16.0 15.8 13.0 6.5 14.7 18.6 17.9 19.5 33.2 22.0 34.5 32.7 34.0 43.9 22.7 14.6 37.4 31.7 26.7 5.5 8.3 6.6 4.3 11.2 11.5 5.3 1.1 4.0 1.6 3.7 2.6 7.0 4.3 7.7 22.9 13.9 16.5 22.5 13.1 5.6 23.7 24.0 33.9 23.9 15.6 11.7 23.7 22.0 33.0 * 19-25 per-cent increase ** 25-43 per-cent increase Source: Nihon Kaihatsu Ginho (Japan Development Bank), Chosa No. 47 (Bessatsu) September 1981. 6.1 5.0 4.4 4.1 2.0 4.1 4.4 5.5 2.4 3.5 9.0 8.7 2.8 5.3 3.5 1.6 8.0 2.8 8.7 1.0 1.0 5.0 6.5 0.8 1.7 2.3 33.5 6.7 15.4 17.1 9.8 8.9 16.0 6.4 13.7 32.6 4.7 11.3 7.0 7.2 29.6 12.9 6.6 8.4 5.5 40 An eventful decade A higher proportion of value added spent on depreciation (ditto). A higher proportion of profits retained with the firm (ditto). A higher (or lower) debt-equity ratio (ditto)? The answer is that any systematic tendencies discernible are faint. There is a slight tendency (r = 0.3) for capital investment to increase more in the industries already least labour intensive, and also in the industries where there is a higher return on capital employed (r = 0.5). The increase in value-added has a small correlation with gross value added per worker in 1970, but this may well be the spurious effect of the fact that the high valueadded-per-worker process industries had the biggest increases in nominal value-added due to energy-price increases. If these industries are excluded the correlation disappears. Investment levels at the end of the decade were lower than at the beginning. The 1970 Manufacturing Establishment Survey showed the year's total investment in buildings and equipment to be equal to 31 per cent of the capital stock (again of buildings and equipment) at the beginning of the year. In 1979 that figure was down to 18 per cent. The above-average sectors are starred in table 2.7: two stars for the seven most heavily investing industries ranging from aircraft with a 43 per cent increase in capital (from a tiny base, however) to electrical machinery with a 25 per cent increase, and one star for the seven whose capital stock grew by 19-25 per cent. High levels of investment can, however, be a function of a variety of considerations: intensified competition in declining markets, de-manning investment to reduce costs, rapid obsolescence of equipment through technological change, investment to adjust to changes in cost structures (especially changing weight of energy costs, but also of labour costs) as well as competition for expanding shares in expanding markets. Certainly, as the rest of table 2.7 shows (it is based on a sample of 2,800 leading firms), there is no correlation between the total volume of investment (as a proportion of capital stock) as indicated by the stars, and the proportion of that investment primarily devoted to capacity expansion which is reflected by the rank order of industries in that table. Clearly the categories of the table must be to some extent overlapping - some investment for the repair and refurbishing of existing capacity may well have had some labour-saving implica- Structural change 41 tions; some energy-saving investment may have replaced equipment which would soon have had to be replaced anyway, etc. And without an indication of the relative volumes of investment which are difficult to measure meaningfully given the problems of the sample which forms the data base for this table, the figures are difficult to interpret with any sensitivity. Nevertheless, the difference between the industries at the top of the table which are facing expanding markets, and those facing shrinking or declining markets and tougher price competition at the bottom, is clear. The former put a large proportion of their investment into the expansion of capacity and rather less into repair and replacement; the latter vice versa. But, even that latter group of industries, declining or, in the Japanese phrase 'structurally depressed' though they might be, are still 'progressive' industries in the sense that they are putting a fair proportion of their investment into rationalizing - labour-saving and cost-cutting - as well as into replacement investment, and some of those industries, like cement, are still among the heaviest investors. The changes in the structure of manufacturing production revealed in the tables given above are only partly the result of deliberate structural adjustment - as we shall see in the next chapter. They are only in part, that is to say, a consequence of the fact that there was a consensus prevailing in Japan from the early 1970s to the effect that Japan ought to expand production in the 'knowledge-intensive' industries and reduce the importance of energy-intensive, pollution-prone, labour-intensive industries, and of the fact that certain policies to encourage the growth of the former and encourage exit from the latter industries were adopted. But they are also in part a consequence of the fact that the consensus also formed business firms' expectations of where future profits were likely to lie, and those expectations, confirmed by initial experience, had a powerful effect in directing investment behaviour. A precondition for both of these mechanisms having a marked effect on the industrial structure was the high rate of investment. With business firms' fixed capital investment running at 15-17 per cent of GDP, an industrial structure can change fast. That the policies deriving from the consensus were successful or at least that the consensus 'ought7 has been translated, partly through policy, into 'is' may be granted. Such success is certainly claimed for the economy in a recent MITI document which compares the growth rates of those industries singled out in the early Table 2.8 Annual growth rates 1970-78 quantities and/or values All manufacturing (quantities: value-added weights) " " (value) R & D intensive industries fine chemicals (value) computers and related equipment (value) nuclear power equipment (value) semi-conductor, I.C. (quantity) " " " (value) aircraft (value) industrial robots (value) Sophisticated assembly industries plant engineering (value) (1975-8 only) Growth rate p. a. Quantities Value 3.7 11.5 31.8 13.4 14.4 35.0 23.1 9.9 22.4 13.1 Whether faster before or after 1975 After Before After After Before After After Before After pollution-control equipment (value) electrostatic reproducers (quantity) (value) desk calculators (quantity) » » (value) NC machine tools (quantity) » " " (value) prefabricated housing Fashion-type industries Apparel industry (value added) (1970-75 only) stereo sets, etc. (value) electronic organs (quantity) n n (value) Knowledge-intensive industries Information-processing/software (value) Source: MITI, 1980a, p. 341. 21.7 52.8 22.5 15.4 28.8 4.2 20.4 1.3 9.7 16.5 13.3 Before After Equal Before Before After After Before 19.6 After Before Before 35.3 Before 44 An eventful decade 1970s forecasting documents as the ones which ought to expand, with the average. The categories used in table 2.8 are MITI'S own. Some of these industries behave 'conventionally' in the sense that demand increases at a period of high growth and falls during low growth - electronic organs, for example, where growth before 1975 was greater than afterwards. Others are at an advanced stage of the product cycle with a slowing rate of growth of demand - like desk calculators where the astonishing rate of cost and price reduction is reflected in the discrepancy between the 53 per cent increase in the quantity sold and the 4 per cent increase in value. One industry, at least, faces an inelastic demand - pollution equipment for which a once-for-all change in standards led to a once-for-all rush to equip - largely before 1975. But there remain others - semi-conductors, computer numerically controlled machine tools, computers, fine chemicals, industrial robots - which are at an early stage in the product cycle with an accelerating rate of growth, where the growth rate has been greater after 1975 than before. These are the frontier industries where the capacity to innovate and to absorb innovations rapidly is a prime determinant of international competitive strength, and where Japan's possession of precisely that capacity has enabled exports as well as domestic demand to contribute substantially to rapid growth at a time when the overall growth rate had fallen to a lower level. Note that the aircraft industry does not come into this category. It is an industry held, as it were, in reserve. Japanese manufacturers are modestly extending their capacity in this field, but not yet making a big push - as they are in the whole range of electronics - to challenge the world leaders. Trade patterns The composition of Japan's foreign trade shows a quite rapid evolution corresponding to (and as just mentioned, often as a precondition for) the evolution of the structure of production. Tables 2.9 and 2.10 give the figures for major categories. The very strong growth in total exports, more than a doubling during the decade and a nearly 60 per cent increase in the six years following the oil crisis, has matched - and was encouraged (if only by exhortation) in order to match - the serious rise in import bills after 1973 in a country whose dependence on imported oil (82 per cent of all primary energy in 1978) was greater than that of any other industrial nation. One telling statistic may Structural change 45 Table 2.9 Exports and imports - volume indices 1965-82 - principal items 1965 1970 1973 1975 1982 EXPORTS Total exports foodstuffs yarn cloth garments chemical products non-ferrous metal products metal products machinery 100 100 100 100 100 100 202 139 268 128 121 280 273 116 284 119 69 364 323 93 292 155 52 383 541 105 290 171 52 420 67.5 13.6 -0.6 10.4 0.1 9.4 100 100 100 114 184 263 107 205 423 111 192 215 328 529 1070 71.2 52.3 102.0 100 100 100 100 100 222 126 244 171 255 320 148 324 192 308 268 103 279 171 231 353 113 294 231 222 22.5 9.4 5.6 35.1 -4.0 100 100 100 100 100 100 100 107 162 243 239 342 216 269 244 244 313 429 463 305 461 198 217 296 267 495 190 372 221 306 285 716 699 405 687 11.1 41.5 -3.6 168.6 41.6 113.2 85.1 IMPORTS Total imports textile raw materials metal ores oil seeds timber Total materials (excl. fuel, food) Food Fossil fuels chemical products machinery metal or metal products Total manufactures Growth 197582 (%) Source: KY 1981, 1982, pp. 276-7, 1984, pp. 260-61 be taken as a measure of the intensity of the export drive. Japan had to double her exports in real terms between 1973 and 1982 in order - because of the relative price changes - to import 7 per cent more in real terms. Price shifts cost 8 per cent of 1975 GNP (se table 2.19b on page 57). As for the pattern of growth there has been a steady trend towards a heavier proportion of high-value-added products. The highest growth rates of exports are in machinery and non-ferrous metal products. The growth of car exports from l.lm units to 4.7m units between 1970 and 1979 is an example: so is the eight-fold increase in exports of scientific and optical machinery 46 An eventful decade ($0.5bn - $3.9bn) over the same period. At the same time there remains continuing strength in the 'heavy and chemical industries', the growth of which was the dominant feature of the 1960s. Steel exports reached 34m tons in 1977, nearly double the 17.5m of 1970, and were still not much below 30m tons five years later in spite of the world recession - the growth of the Chinese market which took 40 per cent of exports being one major factor. Ships declined with the world recession, but with only a modest loss of market share. Others of the leading export growth items of the 1960s - radio receivers (38m sets in 1970,37m in 1979) and synthetic-fibre fabrics (1.3bn m2 in 1970,1.6bn in 1979) were marking time (by dint of quality improvements). Of the items in which the NICS are most directly competing with Japan in third markets, as well as at home, garments is the only one of those separately listed in that table, exports of which have fallen below the 1965 level; the other textile categories are declining more slowly for reasons which will be discussed in chapter 4. The volume indices for imports show that, while raw material imports have increased to feed the growing volume of industrial production, a much greater growth of imports has occurred in machinery and chemical products. Manufactured imports as a whole have increased at nearly double the rate of total imports. That price changes reverse these weightings when values, not volumes, are considered is clear from table 2.10. Raw materials made up 61 per cent of the value of imports in 1979, compared with 56 per cent in 1970, though one additional element in this is the increasing tendency to import semi-processed rather than unprocessed raw materials - zinc or nickel or lead ingots rather Table 2.10 Exports and imports: major categories b]Y value 1970-82 Exports Food Raw materials Light industry products Heavy and chemical indu stry products Other 2970 3.4 1.0 22.4 1982 1.0 0.7 12.1 Imports 1970 1952 13.6 11.0 56.0 64.1 5.5 6.6 72.4 0.8 85.1 1.1 24.3 0.5 16.3 2.0 100.0 100.0 100.0 100.0 Source: KY 1982: pp. 262-3; 19184, pp. 246-7. Structural change 47 than ore, etc. Non-ferrous ore imports increased in value by 2.7 times between 1970 and 1979; imports of metals by 3.6 times. This is partly a response to rising energy costs and rising perception of pollution costs - with some Japanese firms relocating their smelting and refining facilities abroad - partly a response to the fact that Third World producers have installed their own downstream processing facilities and insist on selling semi-processed rather than raw materials. The involvement of policy in this process of adjustment will be considered apropos of the aluminium industry in a later chapter. The growth of manufactured imports since 1965 is a somewhat complex story. In the initial period there was a continuing surge in the import of sophisticated equipment which could not be made in Japan, or not made to the same quality in Japan. That category has diminished with Japan's increasing industrial capability - though aircraft remain an obvious example of a broad category where Japan is non-competitive and there is an increasingly complex pattern of intra-industry specialization in trade with industrial country producers of capital equipment or of consumer durables. Table 2.11 shows the changing pattern of trade specialization between Japan and West Germany in a number of items between 1970 and 1980. Table 2.11 Machinery trade with West Germany 1970-78 ($m) Japanese Japanese exports to imports from W. Germany (X) W. Germany (M) Machinery total General machinery Electrical machinery Transport machinery Precision machinery Domestic appliances refrigerators vacuum cleaners electric razors electric space-heaters micro-ovens Source: MITI, 1980a, pp. 233-4. 1970 1978 1970 267.0 93.8 105.9 20.9 46.4 10.8 0.2 1.2 0.2 0.0 5.3 2716.5 405.6 1143.2 642.9 524.8 21.4 0.4 1.4 1.7 0.0 16.2 333.9 238.0 33.4 41.8 20.7 8.5 0.4 0.0 4.7 0.5 0.0 2978 X-M X+M 1970 1978 1001.9 -11.1 46.1 435.0 -13.4 -3.5 153.8 52.1 83.2 295.4 -33.3 37.0 117.7 62.7 38.3 11.9 18.2 14.8 0.9 -36.8 -41.0 0.0 100.0 100.0 9.7 -91.4 -70.7 1.8 -100.0 -100.0 100.0 0.0 100.0 48 An eventful decade A second strand in the growth of manufactured imports is the increasing consumption of luxury consumer items; fashion goods, fancy foods and drink, etc. The third is the increased substitution of domestic production by imports of light-industry products (garments were already cited) from Third World countries with a lower standard of living and lower wage costs than Japan. In table 2.10 this third trend is made manifest in the shift in the proportion of manufactured imports - an increase in 'lightindustry' products and a decline of 'heavy- and chemicalindustry products'. Korea stands out among the other NICS as a source of such imported manufactures. According to a recent study, intraindustry specialization (taking a fairly narrow definition of what constitutes an industry, i.e., at the 3-digit level in the Standard International Trade classification) was almost absent as between Japan and Korea in 1964; 62 categories were exclusively imports from Japan, 11 exclusively exports from Korea to Japan, and for only 12 was there any kind of two-way trade. By 1977, there were no fewer than 96 3-digit categories of two-way trade; in 21 of them exports were at least half imports or vice versa (source as for table 2.12). Nevertheless, the pattern of trade still remains sharply dissimilar. Capital goods and intermediates (SITC 5-7) make up 88 per cent of Japan's exports to Korea and only 34 per cent of the trade the other way. The classification in table 2.12 from a recent Japanese study differentiates manufactures into five categories and shows a striking contrast which remains in spite of the Table 2.12 Korean-Japanese trade by labour/capital intensitivity 1964, 1977 Category of manufacture Labour-intensive materials Labour-intensive finished goods Capital-intensive materials Capital-intensive finished goods Technology-intensive high value-added goods Exports Japan to Korea 1964 1977 10.8 5.7 23.0 30.6 6.1 13.3 27.4 9.0 0.0 63.8 0.0 22.6 11.2 59.1 0.0 11.3 29.9 44.2 13.6 17.5 100.0 100.0 100.0 100.0 Source: NIRA, 1979, p. 12. Exports Korea to Japan 1964 1977 Structural change 49 change between 1964 and 1977. But these imbalances are overshadowed by the overall imbalance in trade. Japan's exports to Korea were three times imports from Korea in 1970, a little less than double - with a far larger volume each way - by 1979. The gap in visible trade was nearly $3bn. per annum. Thereafter the Koreans became more resistant to Japanese exports while imports from Korea remained fairly stable, thus reducing the gap to half that figure by 1982. But there was little amelioration of the imbalance with the other Asian NICS - a $4bn. export surplus with Hong Kong in 1982, $2bn. with Taiwan, $2.5bn with Singapore. The four Asian NICS together, with some $26bn. of trade with Japan in 1982, bore as large a share of the deficit i