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The Empire Strikes Back
Reports of Japan's death as the world's leading economy were premature
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IT WAS hardly surprising Tony Blair, putative future UK prime minister, was to be found in Tokyo last week. After six years of financial winter Japan is back in the global economic driving seat.

The consensus is that 1996 will be Japan’s most prosperous year since the financial bubble burst in early 1990. The stock market has already jumped by almost a third over the last four months in anticipation of the recovery.

The ultimate symbol of Japan’s fundamental economic strength is its unstoppable export performance. According to Ronald Bevacqua, an economist with Merrill Lynch, Japan’s exports in 1995 totalled $ 424 billion ( pounds 282bn) – up more than 10 per cent on 1994.

The increase is more impressive because its 1994 exports were up 45 per cent in dollar terms on 1989, the last year of the global boom. Over the same period Britain’s exports rose 34 per cent and the US’s 41 per cent.

Japan’s export growth has been achieved against the backdrop of a persistently strong currency – the yen has risen more than 35 per cent against the dollar in the 1990s.

Yet repeated predictions from Western economic analysts that this strength would trigger insolvencies and massive lay-offs in Japan have proved wrong. Not a single major Japanese exporter laid off permanent workers, let alone closed its doors.

Japan has now overtaken the United States to become the world’s largest exporter of manufactured goods. And it pays the world’s highest wages: roughly 40 per cent higher than American and nearly twice Britain’s.

A key factor has been high industrial investment. Despite financial tribulations, corporate Japan has invested two to three times as much per worker as the US and around four times as much as Britain.

This investment has been funded by Japan’s strong savings performance. Figures from the Paris-based Organisation for Economic Co-operation and Development show Japan created new savings of $ 832 billion in 1994 – 34 times Britain’s total of $ 24bn and nearly five times America’s $ 179bn.

But also powering exports has been the way that the Japanese are now the world’s only significant suppliers of a wide range of vital products.

With leadership in such products, Japan has come to dominate the world manufacturing ‘food chain’, giving it power over pricing.

This monopolistic position is partly attributable to the concentrated ownership of many key global industries. As companies have succeeded they have been able to outspend their rivals in research and development. This has enabled them to mop up or marginalise weaker players.

Many of Japan’s most significant resulting quasi monopolies are in core materials (such as carbon fibre for the aviation industry) and vital components (such as the laser devices used in CD-Roms and laser pictures).

Less visible but perhaps more significant is Japan’s dominance of production machinery such as semiconductor ‘steppers’, which make microchips.

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As calculated by the Tokyo-based consultant C Tait Ratcliffe, one-third of Japan’s exports are accounted for by ‘hard’ monopolies – products which can be sourced only from Japan. But Japanese exports also enjoy many ‘soft’ monopolies; where it is the supplier of key components.As Ratcliffe points out, Japan has long ‘targeted’ monopolistic industries.

Perhaps the most ‘culture-neutral’ assessment is the OECD’s comparisons of national economic output at current exchange rates.

These provide a startling rebuke to those who would write off the Japanese economy. Japan’s economic output in 1994 was $ 4,651bn, up almost 62 per cent on 1989, the last boom year for the global economy.

By comparison, Britain’s output rose just 3 per cent to $ 1,014bn, while the US’s rose 26 per cent to $ 6,638bn.

The explanation lies partly in currency movements. Britain’s internal growth has done little for its position in the world because the pound has been weak.

By contrast, although the Japan’s internal growth has been slower, its global position has burgeoned thanks to the booming yen. Food for thought as the great single currency debate gathers force.

Eamonn Fingleton is the author of Blindside, an account of Japan’s hidden strengths (Simon & Schuster).

 
• Category: Economics • Tags: Japan 
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