Japan is today our largest overseas trade partner and the primary source of competition for American industry. This article, therefore, focuses on Japan and to some extent on the electronics industries-including computers, semiconductors and other industrial and consumer electronics equipment-as typical of the high technology areas where competition with Japanese firms is most intense. Most of the measures which will help to make the American electronics industries more competitive apply equally to all American industry.

Although Japan is the focus, it is important to keep in mind that many of the problems touched on in our trade with Japan apply, sometimes with greater force, to our trade with other nations. Germany, the United Kingdom and France, for example, have all taken strong measures to support their high technology industries. Even before the socialists and nationalization, France was a far tougher market for American electronics companies to penetrate than Japan.

This is not a propitious moment for the multilateral trading system that has contributed so much to economic growth and prosperity since World War II. The alternative of returning to the protectionist Smoot-Hawley tariff era of the 1930s is not a viable choice. The first major country to expand broadly into protective measures is sure to be met with retaliation by its trading partners. A spiraling down of world trade is all too likely to occur, unless those of us who believe in the benefits of the free trading system are willing to work hard to preserve it from the attacks of industries that suffer from imports taking over their markets, and from legislators who quite naturally respond to the pressures of their voters, particularly when unemployment is a major problem.

II

The strength of the Japanese economy, and in particular its electronics industries, is a product of Japanese government policy which has created a consistently favorable climate for Japanese business and taken special measures to help the Japanese electronics industries. Each of these areas needs a careful look.

Japan starts with the advantage of knowing that she has to export to survive. That focuses the minds of government officials and businessmen, to an extraordinary degree, on the need to be competitive internationally, to be competitive against the world's best firms.

In a little more than a hundred years, Japan changed from a self-sufficient, largely agrarian society, most of whose people lived close to subsistence, to a wealthy, highly industrialized nation whose demand for food, energy and many industrial imports far outstrips the extremely limited natural resources of the Japanese islands. Between 1885 and 1935, the Japanese economy grew at the average rate of three percent per year, a credible sustained growth rate over a half-century. The astonishing Japanese recovery, after the devastation of World War II, is now a well-known story. The high growth of the 1950s and 1960s, averaging about ten percent per year, slowed sharply after the first oil crisis of 1973-74, but the Japanese have so far managed the transition to lower growth effectively, restraining inflation and quickly correcting the trade deficits which followed each of the oil crises.

Through this whole period, the Japanese people, starting from early youth, have been indoctrinated with the importance of international trade and the need to export in order to secure the imports without which the Japanese economy as presently structured literally could not function.

The strength of the Japanese economy begins with the people and their society. There are those attributes for which Japan is renowned: a dedication to hard work and high productivity; the drive to reverse her pre-war reputation for shoddy quality; a high level of education, particularly in engineering and science; innovative management; a goal-oriented work force; and good labor-management relations.

The Japanese also have the highest savings rate among industrial countries, making available a relatively larger pool of capital for investment than other countries enjoy. Roughly one-fifth of disposable income is saved by individuals, which is roughly four times the American rate. Many explanations for this high rate of savings are put forward, such as the bonus system which may supply up to 50 percent of income in one or two lump sums per year, the need to save for large expenditures since consumer finance is relatively underdeveloped, and a social security system that until recently provided only modest benefits. In the end, however, most conclude that the Japanese are, by nature and history, a fiscally conservative people who have a strong belief in saving for a rainy day.

The homogeneity of the Japanese population is another great source of strength. The Japanese have learned to work together without constant resort to courts, to recognize their mutual dependence, and to support national goals. Our more confrontational lawyer-ridden nation uses up a great deal of national energy and talent in nonproductive internal debate. The Japanese have their intense internal debates too, but the fact that we have roughly 20 times more practicing lawyers per capita than Japan and that the Japanese with half our population are training more electrical engineers each year should tell us something.

Government policy in Japan has promoted a favorable climate for business. Important advantages, often not well understood here, flow from the capital markets and financial system promoted by the authorities.

-First, the high savings rate in Japan is encouraged by tax incentives which enhance the other reasons for saving.

-Second, borrowing for consumption, including housing, is discouraged, simply because the consumer lending and mortgage markets are underdeveloped. This is in contrast to the United States, where mortgage and consumer-credit markets are highly sophisticated, government underwrites housing loans, and consumer and mortgage interest are tax-deductible.

-Third, Japanese companies tend to be much more highly leveraged than American and, to some extent, European companies. Their high ratio of debt to equity capital is supported by the banks and, in turn, by the Ministry of Finance and Bank of Japan.

-Fourth, return on shareholder's equity and quarterly and annual earnings results are of less concern than in the United States in measuring corporate performance. Management is freer in Japan than in the United States to accept lower profit margins and to invest for long-term results. Sales growth and market share are more important than earnings per share. Dividends are generally measured as a return on capital at par value rather than as a percentage of earnings. Acceptance of lower profit margins means that more money is available for Research and Development (R&D) by three or four percentage points; indeed, some studies suggest that Japanese companies, relying heavily on borrowed funds, have a five to six percent advantage over American competitors with their greater dependence on equity markets.

The net result of these financial differences is that Japanese firms can finance their growth with net profit margins in the two-percent range, far below what is required by an American company to attract the capital to finance growth.

These factors, which favor Japanese industry in worldwide competitive markets, are going to change very slowly if at all. For American industry, it is important to understand the financial advantages enjoyed by Japanese competitors, and then to see what can be done on our side to give us a more competitive position.

Another financial factor which has worked to help Japanese exporters in recent years and which is partially the product of Japanese government policy is the weak yen. This weakness, with the corresponding relative strength of the U.S. dollar, is an immediate and major source of advantage to Japan in exporting. At the same time, of course, it results in a higher cost of importing products from the United States, as well as petroleum from OPEC which is priced in dollars. Japan has been accused of managing the exchange rate in a way that keeps the dollar high relative to the yen, but there is little evidence to indicate that this is the intent of Japanese foreign exchange policy. Rather, a weak yen is the result of a number of external and internal factors-many of them systemic-that determine interest and exchange rates.

External factors include principally the high rates of interest in the United States, which have attracted massive short-term capital flows from Japan. This has increased the demand for dollars in terms of yen and kept the yen weak. As U.S. interest rates decline toward Japanese levels, the parity will shift in favor of a strengthening of the yen, and toward a more realistic yen/dollar relationship.

Perhaps more important over the long run, however, is the conscious insulation of the yen from world interest-rate trends. The high Japanese savings rate makes available a very large source of capital for investment. Deposit of these savings in demand-deposit, low-interest postal and other savings accounts; traditional frugality in borrowing for consumption; emphasis by government-sponsored intermediaries, such as the Japan Development Bank, on channeling funds toward business investments; and tax and financial-measurement systems that favor industrial over consumer borrowing-all these factors help make large sums available at low interest rates for productive investments in industry. Low interest rates are further encouraged by the Ministry of Finance. For example, it still limits certain capital inflows as part of a domestic monetary policy which has consistently stressed low interest rates.

The net of it all is that as long as Japanese interest rates remain below those in other leading industrial countries, and as long as government policy partially insulates Japan from free international capital flows, the yen will tend to remain weak. In addition, inflation in Japan remains low, which helps to keep interest rates low. From Japan's point of view, low inflation and low interest rates interact to reinforce each other and to encourage domestic investment. This favorable (from Japan's point of view) exchange rate results in exports being more competitive and imports more expensive, an outcome comforting to a country that must export to survive.

Japanese industry has also been protected from foreign competition. Japan ended World War II with its industry destroyed and capital wiped out. Strong protectionism fostered by the Ministry of International Trade and Industry kept out more competitive American and European products and restricted incoming investment while Japanese industry was rebuilt. High debt levels, financed by short-term bank borrowing underwritten by the Ministry of Finance and the Bank of Japan, restored the capital base.

Japan, however, kept the protectionist walls up too long. Tariffs, quotas and other forms of import restrictions have come down only gradually, and after intense pressure and threats of retaliation from Japan's trading partners. Voluntary export restraints by Japanese industries have generally been implemented after employment levels in U.S. or European industries were threatened or actually declined, and political pressure mounted for protection.

Japan would have better served her cause as a major beneficiary of the postwar movement toward a free-trade system if concessions had been negotiated in anticipation of the employment dislocation caused by excess exports to other markets, rather than after the dislocation occurred. The examples in textiles, steel, television and, most recently, autos are well documented. A major threat to the U.S. electronics industry is clearly a present danger.

As of today, the argument can be made that Japan is as open as any industrial market except the United States, and that the remaining barriers to freedom to import are being reduced. However, it should be pointed out that legal and administrative barriers still remain. Those barriers have been well documented elsewhere, most recently in a report by the U.S. Trade Representative, "Japanese Barriers to U.S. Trade." They include quotas on certain products (which are illegal under the General Agreement on Tariffs and Trade-GATT), two-tiered tariffs, arbitrary use of standards and testing procedures on imports, customs delays, and labeling regulations. Participation of foreign firms in Japanese government R&D projects is still difficult. It is at least suggestive that only seven percent of U.S. electrical equipment exports go to Japan as compared to 44 percent going to Western Europe.

The Japanese anti-monopoly law has not been vigorously enforced in the past, and provides for exemptions that permit the creation of cartels in certain cases. Administrative guidance is also a common practice to encourage informal cartels, which might be prohibited by a strict interpretation of the antitrust laws. Recent examples are in the soda ash and aluminum-smelting industries, where imports have been restricted, inefficient domestic producers protected from foreign competition, and guidance provided to buy domestic products.

The 1980 foreign exchange law liberalized foreign direct investment in Japan. However, in certain sectors and 11 designated firms, the amount of foreign direct investment is still limited. More important, foreign investors still have to file a detailed notification describing the scope of the investment with the Ministry of Finance, which reviews the investment with other affected ministries. The government has 30 days for review, and if no action is taken, the investment can proceed. This is a long step toward liberalization from the days when every investment required lengthy screening and positive approval, but it still leaves open the possibility that an application will be rejected on political or bureaucratic grounds.

When and if all the remaining legal and administrative barriers are removed, however, there still remain what can be called systemic or cultural obstacles that will make it difficult for foreign companies to do business in Japan. Among these are:

-a multi-tiered and inefficient distribution system;

-a tradition against acquisitions;

-very different employer-employee relationships than we are used to in the United States;

-the tradition of exporting, importing and trading internally through trading companies, which in turn are tied back through banks to groups of operating companies;

-long, close and not easily changed vendor relationships;

-a historical distrust of things foreign and a resulting "buy Japanese" tradition.

Finally, the Japanese government has helped to create within the Japanese business community a sense of direction and priorities which worked particularly well while Japan had the clear goal of catching up with the West. Through an elaborate structure of consultative committees, the government brings together industry leaders for fairly continuous discussion with government bureaucrats on the future of specific industries and the outlook for the economy as a whole. Priorities are set and key firms, with encouragement from government, are brought into cooperative arrangements to develop basic technologies in the industries of the future. As the basic research reaches the stage where commercially useful products can be foreseen, the cooperating firms resume their usual fierce competition with each other for domestic and international market shares.

The electronics industries in Japan have received special encouragement from the Japanese government, with the Ministry of International Trade and Industry playing a key role. MITI is not always omniscient, as evidenced by its resistance to Sony's request to import transistor technology when it was first developed. And there have been other MITI failures. However, MITI's record on the whole is impressive in helping to guide and stimulate Japanese business.

Working through the consultative mechanism of MITI, the Japanese government in the late 1950s identified transistor technology as a high priority for the future of Japanese industry. This was followed in the 1960s by computer technology; in the 1970s by integrated circuits; in the 1980s by very large integrated circuits; and now by fifth generation very large computers. ICs and now VLICs are, of course, the essential elements of the microelectronic revolution which is fueling Japanese domestic and export industries. ICs have been likened to oil as the essential input of twenty-first century industry. Teams of companies have been organized with modest financial help from government to tackle such fundamental problems as producing and developing new generations of computers, enhancing software, and designing and producing VLICs. These programs certainly helped Japanese firms build an R&D base, and in turn a competitive electronics industry on a world scale. It was no accident that Japanese exporters were ready to capture 70 percent of the commercial market for 64K RAM chips in the United States, when U.S. manufacturers failed to export capacity fast enough to meet demand.

MITI and Nippon Telegraph & Telephone in the mid-1980s have each established programs to produce the fundamental technology to make it possible for Japanese companies to develop the fifth-generation computer. This computer is intended to be a gigantic leap forward in computing power which will vastly exceed the most powerful computers on the market now, and will incorporate artificial intelligence. These programs involve the cooperation of a number of the top electronics firms in Japan. It is noteworthy that IBM, which produces in Japan through a large Japanese-run affiliate and which has an important share of the Japanese computer market, has been excluded from these efforts. There is doubt whether the Japanese can achieve their ambitious goals, but there is no doubt that the computer technologies available to Japanese companies will be greatly strengthened.

III

A number of factors are at work which may reduce Japanese competitive strength in international markets. Of immediate importance is a possible strengthening of the yen. Japan's expected large current-account surplus will push exchange rates in that direction this year. A further narrowing of interest rate differentials between the United States and Japan would help even more. In the meantime, experiments with joint intervention in the exchange market by the Ministry of Finance and the U.S. Treasury are a welcome development.

In the next few years, Japan's policy of administered low interest rates will be of rapidly diminishing effectiveness. This is not because the Ministry of Finance has been convinced of the virtues of interest rate liberalization. It is mainly because the national bond issues that have financed budget deficits since 1975 are now nearing maturity. This has the effect, first, of creating a continuing very large volume of short-term securities in the secondary market, free of interest rate controls. (The broadening of the secondary market also will make Japan more attractive to foreign investors, which will hasten the internationalization of the yen.) Then, too, the need both to finance the ongoing deficit and to refinance maturing issues will call for a wider and more flexible market in which the issue terms of government bonds will have to take into account basic market forces. The effect of all this will be to liberalize greatly the whole domestic interest rate structure.

In addition to these developments, there are a number of longer-term trends that are working to reduce the competitive advantage enjoyed in export markets by Japan's highly productive industries.

-Long-term economic growth is slowing as the Japanese economy matures. A number of industries such as textiles, clothing, chemicals, nonferrous metals and shipbuilding are weak. Japanese agriculture and the distribution system are notoriously less productive than their American counterparts.

-The large inflow of workers from the countryside that provided the hands for industrial growth is no longer available.

-Japanese workers are demanding more leisure. Two-day weekends are becoming common and longer vacations are being taken.

-The population is aging, and all the burdens of supporting it have not yet been faced by the government. The process is occurring in Japan a good deal faster than in any other large industrialized country. In France it took 175 years for those over 65 to increase from five percent to twelve percent of the population and in West Germany, 80 years. This same change is occurring in Japan in 40 years. Within a generation or so, Japan may have the highest proportion of people over 65 of any nation in the world.

-The economy is becoming increasingly service-oriented. Like the United States, more than half the employed population is now in service industries.

-Demands for improved housing, public services, roads and medical facilities, plus a rising military expenditure, will all put inflationary strains on the government budget and tend to limit resources for the private sector. Japanese housing now being built, for example, is 20 percent more than a decade ago. A recent survey in The Economist describes Japan's infrastructure as "little better than a developing country's."

-Japan is feeling competition from industries that fueled her economy in the past but which now turn out products at lower costs in Korea, Taiwan, Hongkong, Singapore and Malaysia. Pressure from the People's Republic of China will soon be felt.

A final change which will affect Japan's international trade, although not necessarily Japan's competitive strength, lies with the consumer. Until now Japan has remained a substantially closed market more because of buying habits than regulatory protection. But the proclivity to protect Japanese industry from foreign competition and to "buy Japanese" is changing. Coca Cola, McDonald's and IBM are prominent names in Japan. American and European exporters to, and investors in, Japan will find growing acceptance of their products-as the Japanese travel and develop a taste for non-Japanese products and, more important, as more American and European companies have the patience and willingness to take the investment risks of providing products that meet Japanese desires for quality, styling and performance.

The 1980s will see a shift in Japanese buying habits to parallel the earlier shifts in the United States and Europe toward true openness in preference for style, quality, price and performance, regardless of the source of the product. In addition to the natural evolution in this direction within Japan, however, much effort and investment of money and time by American and European companies will be required to tap the very large Japanese domestic market.

IV

America is still the world's largest and most productive economy. We have enormous resources in people, natural resources and accumulated capital. We have encouraged the entrepreneurial spirit as evidenced by the many new firms springing up, especially in the field of high technology. A very large part of the technology which Japan uses today was first developed in the United States.

In the electronics industries, Japan has made great advances, but the United States still retains an edge. The United States dominates the world computer market, as it does the semiconductor market, with the exception of the commercial market for the 64K RAM chip. (In addition, IBM for its own use makes more ICs than any other firm in the world, and Western Electric is close behind.) The struggle for the 256K RAM chip market is just starting, and it is by no means clear that Japanese semiconductor manufacturers will dominate it.

There are two recent examples which illustrate how cooperation within industry can further the objective of strengthening American ability to compete in international semiconductor and computer markets:

First, the Semiconductor Industries Association created the Semiconductor Research Consortium. The goal is to increase private-sector support for those university research programs that have the greatest potential for strengthening the U.S. semiconductor technology base. The SRC has about 30 members, whose contributions are based on their integrated-circuit use and/or sales. The director and the board will distribute the Consortium's funds in response to proposals from universities and will initiate new research in areas most needed by U.S. industry. (Incidentally, many electronics companies are also independently funding microelectronic and computer studies in universities, quite apart from the SRC.)

Second, a group of U.S. semiconductor and computer companies under the leadership of Control Data Corporation has established the Microelectronic and Computer Technology Corporation (MCC). There will be a small headquarters located in Austin, Texas, with a full time chief executive officer, retired Admiral Bobby Inman. Each of the participating companies will be part of one or more research programs in areas such as computer-aided design, software, packaging and new computer architectures.

The objective is to provide a mechanism for industry to conduct joint long-term research with special attention to areas that have been targeted by the Japanese. The research will be conducted by MCC personnel and results will be available for licensing. Development of this research into competitive products will be carried on outside of the MCC, by the individual participants. This is similar to a limited partnership for R&D in which companies combine to form a vehicle to perform the R&D at arm's length and then license the results to avoid antitrust problems.

Even faced with the tough challenge from Japan, the American electronics industries can compete effectively. A number of American companies have already demonstrated that they can get ahead in the Japanese domestic market. These firms have generally been in Japan a long time, have combined understanding parent-company support with competent Japanese management, and have been patient in waiting for their investments to pay off. A few examples of American electronics companies that have succeeded in Japan for decades are IBM, Texas Instruments, Sperry, Xerox, Burroughs, NCR and Honeywell. These companies have all participated profitably in the Japanese economy, as effective competitors and responsible public citizens.

V

There is a great deal that we can do to further strengthen the competitiveness of American industry and that of the electronics industries in particular.

As a start, U.S. negotiators should maintain firm pressure on Japan to continue the process of opening her markets. As a result of such pressure from the United States and other countries, and in response to the Japanese recognition of the need to support the international trading system, much has been accomplished in recent years.

The easing of Japanese trade barriers in 1982 and 1983, accompanied by Prime Minister Nakasone's admonition to look favorably on imported products, and the accelerated tariff reductions and legislative measures passed by the Diet in the spring of 1983 to ease testing and other import procedures, have gone a long way toward completing the opening of the Japanese market-on paper at least. Japan has the lowest industrial tariffs of leading industrial nations, and instructions have gone out to the Japanese bureaucracy to simplify customs and testing procedures for imports. Some progress has been made to increase imports of tobacco products, but more remains to be done to liberalize the sale of imported cigarettes, and to deal with continued protectionism in such products as beef, citrus, leather, aluminum, lumber, soda ash, cosmetics, telecommunications equipment, and others. Also, the decline of administrative guidance impeding imports-a bureaucratic habit in many countries but particularly in Japan-has to be seen and not just talked about. Liberalization progress is still needed in some service industries.

There is also machinery in place to resolve trade disputes. The American Chamber of Commerce in Japan and the Japan-U.S. Trade Study Group have made progress on specific issues, as has the intergovernmental Trade Facilitation Committee. The Japanese Office of Trade Ombudsman in the Prime Minister's office, while needing more enforcement tools, offers importers and investors a direct route to deal with bureaucratic obstruction. American businessmen have to learn how to use the OTO effectively, but the intent of the Japanese to make it an effective mechanism to blunt criticism was at least clearly stated in the Prime Minister's declaration setting up the office. There is a U.S.-Japan Working Group on High Technology, in which trade officials from both countries discuss impediments on both sides of the Pacific to trade in high technology products. And there are two business organizations that have been meeting together since 1961 to discuss and make recommendations to governments on bilateral trade problems-the Japan-U.S. Economic Council in Japan and the Advisory Council on Japan-U.S. Economic Relations in this country-as well as a number of inter-governmental study groups dealing with specific industries.

There remains much that we should do in the United States. We should start with the proposition that exporting is not only important but essential to the economic health of our nation. We have to earn the foreign exchange to pay for a rising volume of petroleum and other imports in the decades ahead. In the expanding world market, Americans are increasing their taste for competitive products from other countries, which means a further step-up in import bills and further pressure on noncompetitive domestic industries. And, while exports are sources of jobs and contribute to domestic prosperity, it should be remembered that imports also create jobs.

VI

Our national experience has been different from that of the "export or die" countries. But in recent years the requirement for imported raw materials has steadily increased as our own once-bountiful domestic supplies have diminished. It was the oil shock of 1973 that made us at least associate members of the fraternity of international traders, along with our European and Japanese allies. Thus a trade war, a prospect everyone should fear, becomes not just a danger to the system of free world alliances but a threat to America's economic well-being.

While the focus of this article is on Japan and American-Japanese economic relations, the wider problem threatens the whole open trading system. Japan, seen as an ultra-strong competitor and as a closed market, has triggered most of the protectionist measures now before the Congress. Of these, the proposed "local content" legislation is by far the most dangerous. Strongly backed by the United Auto Workers and aimed at a dramatic reduction of Japanese automobile imports, the passage of this legislation would have disastrous consequences. Other American industries would seize upon the automobile precedent as a basis for insisting on similar protection. The European Community could be counted on to employ the arguments advanced in Congress to support additional restrictive policies-but aimed at American competition. The Japanese would unquestionably insist on compensation or retaliation, with consequent high cost to American farmers and exporting industries. A possibly fatal blow would have been delivered to the GATT.

Beyond the specific dangers of this and other restrictive proposals lies the short-sightedness of unilateral action. With the world shrinking into a tighter and more complex entity, the only effective response to major trading problems must be international consultation and cooperation. Yet the mood of Congress seems blind to this requirement and a few legislators are bent on attempting, unilaterally, to determine what the answer should be to the problems that confront us. To embark on such a course of national action can lead only to the kind of economic anarchy that marked the 1930s.

We have a large body of foreign trade laws enacted to protect threatened industries. Remedies provided in this legislation include duty increases, other import restrictions, countervailing duties to offset subsidies, anti-dumping duties, vigorous enforcement of patents and copyrights, and enforcement of rights under trade agreements. The government has made clear that it will act aggressively to use existing laws and international agreements to protect American industry from unfair trade practices. More can be done to expedite the complaint process. The Administration should continue its efforts to engage members of the GATT in the extension of provisions to cover services and investment.

Nothing is more important to American economic health, and that of our national industry, than fiscal policies that encourage saving and investment, and monetary policies that assure long-term, non-inflationary growth. The budgetary deficits that lie ahead ensure an overvalued dollar, with the most harmful consequences for American exports. Furthermore, the massive federal deficit means that industrial demands for credit in an expanding economy must compete with government borrowing, signaling higher interest rates and a return of inflation.

Another subject of increasing interest here in the United States is industrial policy. We have been criticized for the absence of such a policy and the Japanese praised for having one. The complexity and diversity of our political system suggests the impossibility of selecting target industries to encourage on a national basis. Some modest action to this end may be useful if undertaken at the state level; indeed, this is being tried with some success. There are many opportunities within the federal R&D budget to help specific industries, and funds to help industry retrain displaced workers can be of some use. The best industrial policy, however, is to let the market decide which industries should expand and which should contract.

Research and development now gets 5.6 percent of the federal budget, the largest part going to the Department of Defense, National Institute of Health, the National Aeronautics and Space Administration, the Department of Energy (largely nuclear-related R&D) and the National Science Foundation. The Administration's proposals to increase funding to universities through the NSF is a good sign, as that budget has shown no real growth over the past four years. There are suggestions that the federal government should set long-range goals and strategies for the nation's future and then target R&D for all agencies to accomplish these objectives in broad terms, rather than negotiating R&D on an annual basis through countless line items in the budget. The political difficulties in this proposal are evident, but it deserves careful consideration nonetheless.

I have tried to make clear that, while the Japanese are strong and determined competitors, they have their weaknesses and their society is undergoing rapid and unpredictable change. Japanese businessmen are not ten feet tall. They are not invincible, as some superficial observers believe.

VII

Japan has become an American obsession, attracting and repelling. It is neither the perfect model of the future nor the perfect villain of the present. To cast Japan as a principal cause of our domestic and international trading problems is to do ourselves and Japan a profound disservice.

The facts do not support this charge. But facts have been known to be ignored when fear and passion ride high. Fear can cause us to lose sight of what we, Americans, have gained from modern Japan. Japan provides a major and growing market for American products. Japan has forced us to think in new ways about management techniques, about relations with the work force, and about producing products of high quality.

We cannot serve our own interests worse than to designate Japan as a scapegoat. (We can be sure that Western Europe will be even more ready to cast the Japanese in that role.) To do so not only risks the loss of an irreplaceable Asian ally; self-deception of this sort would make it infinitely more difficult to carry out successfully the basic adjustments we must make in our own economy.

Foreign competition merely highlights the economic changes now in process and that we must face. Indeed we should feel indebted to the Japanese for their contribution in turning our minds to what we should in any event be doing to make America a more productive, efficient and humane society.

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  • Edson W. Spencer is the Chairman of Honeywell Inc. He worked in Japan for five years as Far East Regional Manager for Honeywell, and was a member of the intergovernmental Japan-U.S. Economic Relations Group in 1979-81. He is currently Chairman of the Advisory Council on Japan-U.S. Economic Relations, comprised of businessmen from both countries.
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