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Tuesday, Feb. 11, 2003

Sacrifices for material gain


In the 1980s, Japanese economists used to boast of their country's economic prowess and deride U.S. economic decline. To be sure, the U.S. manufacturing industry in those years fell into a miserable condition, and the nation suffered from ever-expanding trade and budget deficits. Yet things began changing dramatically in the spring of 1991, and the U.S. economy went on to stage an amazing recovery.

The 1980s for the United States were a transition period from an industrial society to a postindustrial society. It suffered growing pains while experiencing dramatic changes in its economic structure. In the early 1990s, the U.S. overcame the pains and successfully shifted toward a postindustrial society. After climbing the flight of stairs of the industrial society, it stood on a landing, ready to begin another flight of stairs -- the postindustrial society -- at a fast pace.

In the postindustrial society, the manufacturing industry reactivates itself by reforming production and management processes with the aid of information technology, while the nonmanufacturing industry -- such as the financial, information and telecommunications sectors -- controls the nerve center of the economy.

Thanks to information technology, the U.S. manufacturing industry recovered from its serious decline in the 1980s, while the nonmanufacturing industry strengthened its domination of the international market. The new high-tech manufacturing industry and the nonmanufacturing industry, the forte of U.S. business, helped the country run up the stairs of the postindustrial society.

So when will Japan start moving from the landing to the stairs of the postindustrial society? Transforming Japan into a postindustrial society won't be easy. Japanese structural systems and practices fit the needs of an industrial society but are not suitable for a postindustrial society. That's why Japan has remained on the landing for the past decade.

I just mentioned that, in the postindustrial society, the manufacturing industry reforms its production and management processes with the aid of information technology. But to be more blunt, the industry uses IT to drastically cut jobs. Inevitably, Japan's traditional lifetime employment system interferes with such job cuts. To shift to a postindustrial society, Japan cannot avoid reforming its employment system.

It will also be difficult for the nonmanufacturing industry to dominate the Japanese economy because Westerners' skills and related knowledge in this area are superior, with the Japanese having lost much of their competence in recent years.

In the immediate postwar years, Japan used to export movies directed by Akira Kurosawa and Yasujiro Ozu. Literature and other forms of Japanese art won international acclaim. Perhaps the phenomenon stemmed from Western interest in a culture peculiar to an Oriental island nation. But there was more to it than that. Singers, actors, movie directors and novelists in those days were far better than their counterparts today. Japanese also won many medals in Olympic competition.

The sorry state of affairs today dates back to the "income-doubling policy" announced in 1960 by the Cabinet of Prime Minister Hayato Ikeda. The policy put too much emphasis on practical science, or "science and technology" as it was called, while neglecting humanities as a useless field of study. Still, until the mid-1970s, many bright students were eager to study humanities despite a government policy of neglect.

Mammonism, however, took Japan by storm at the height of the "bubble economy" from 1987 to 1990. This led to a lower regard for the efforts of, say, engineers who toiled day and night for technical innovations, and it worsened the overemphasis on practical science.

Japanese education policy stressing practical science was successful in the late industrial society of the 1980s, when manufacturers of electronic devices and products based on those devices played a central role in the economy. Uniform education at primary and junior high schools also worked.

Japan thrived under the lifetime employment system, seniority-based wages and "keiretsu" ties among companies linked by business groups and cross-shareholdings. Government industrial policies and "administrative guidance" helped. In the early 1990s, though, the age of the postindustrial society dawned on Japan. The U.S. easily surpassed Japan because of structural differences.

Japanese economists reversed their position and started arguing that reforming the Japanese structure according to a U.S. model was the way to revitalize the Japanese economy. I don't think I am the only one surprised by the sweeping changes in economists' views.

Takamitsu Sawa is a professor of economics at Kyoto University and the director of the university's Institute of Economic Research.


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