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  • 7 weeks ago
A look at the challenge Japanese-style capitalism poses to the US market, followed by a Robert Krulwich-led discussion into the issue.

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00:00:00Frontline is a presentation of the Documentary Consortium.
00:00:06Tonight on Frontline, a critical essay on the Japanese challenge to American business.
00:00:14If you're an American business in a high-tech industry competing with the Japanese, you are in the business of going out of business.
00:00:21Some critics say Japanese companies are practicing predatory capitalism.
00:00:26Others argue they're only beating us at our own game.
00:00:31We need a desert storm for American industry.
00:00:34Tonight on Frontline, losing the war with Japan.
00:00:45With funding provided by the financial support of viewers like you.
00:00:51And by the Corporation for Public Broadcasting.
00:00:56This is Frontline.
00:01:07Good evening. I'm Robert Krolwich.
00:01:10Earlier this month, President Bush canceled a trip to Japan in the Far East to concentrate his attention on what's happening here at home.
00:01:17Ironically, one of the purposes of that trip was to discuss trade policy with the Japanese.
00:01:23A trade policy that some believe is causing many of the problems we Americans face at home.
00:01:28According to the people that you will meet in tonight's report,
00:01:32Japan is mounting a carefully orchestrated attack on American industry,
00:01:37driving many American companies out of business, and driving many Americans out of good jobs.
00:01:41It's an attack, say these experts, that few Americans understand,
00:01:46but they warn the ramifications for all of us are profound.
00:01:50Later, I will be joined by three guests who offer some contrasting points of view.
00:01:54But first, tonight's film is called Losing the War with Japan.
00:01:59It is produced and reported by Martin Kuhn.
00:02:01Fourth of July, in the year of Desert Storm.
00:02:17The celebration America had been waiting for since Vietnam.
00:02:21The loudest applause this day was for the heroes of the Gulf War.
00:02:33The men and women who proved what everyone knew in their hearts.
00:02:37That Americans and American technology can't be beat.
00:02:41That America is still number one.
00:02:43But the victory in the Gulf helped disguise a disturbing fact about American power.
00:02:50The United States has been fighting another war.
00:02:53A war it wasn't ready for.
00:02:56A war that it is losing.
00:02:59The Gulf War was showing off our smart bombs in order to disguise our dumb VCRs.
00:03:05Professor Chalmers Johnson from the University of California, San Diego, studies Japanese business.
00:03:10We've been fighting against Karl Marx since the late 1940s.
00:03:16We got Karl Marx. He's dead.
00:03:18But some guys that weren't playing that game have blindsided both of us.
00:03:22I mean, the Cold War is over and Japan won.
00:03:23Japan's success has made the Japanese America's wealthiest foreign visitors.
00:03:44They spend seven times more than the average tourist.
00:03:50But what do they buy?
00:04:02This is the Capital Boutique, a store just two blocks from the White House.
00:04:07Luke Sakaguchi opened it a year ago.
00:04:09The clientele is almost entirely Japanese tourists.
00:04:12This is a Japanese custom.
00:04:16Whoever goes abroad, we must buy souvenirs.
00:04:19Not a cheap one, a nice one.
00:04:21Unfortunately, the people have only half an hour.
00:04:23It's a panic. It's a war.
00:04:24The buying frenzy at the Capital Boutique suggests one reason for the growing tension over the trade deficit with Japan.
00:04:32Japanese may visit America, but they don't buy American.
00:04:37I see all these are imported goods, huh?
00:04:39We have also the American goods as well.
00:04:42But unfortunately, we don't see many Americans' jeans.
00:04:48You make a nice jean.
00:04:49We have a beautiful T-shirt from America.
00:04:53To most Japanese, made in America simply means cheap.
00:04:57If you make a better one, we like to buy, yes.
00:05:00Yes.
00:05:00If Japanese don't want to buy American, Americans are not reluctant to buy Japanese.
00:05:20One out of every three cars sold in America is Japanese.
00:05:25And that, along with the recession, spells big trouble for U.S. automakers.
00:05:30Chrysler Corporation has already lost more than a billion dollars this year.
00:05:37And the trouble is likely to get much worse.
00:05:42We believe in open markets.
00:05:44We believe in free trade.
00:05:45Lee Iacocca is the chairman of Chrysler.
00:05:48But the world has changed.
00:05:50There are a lot of guys that aren't playing by those rules.
00:05:53And we're getting our head handed to us.
00:05:54We're getting clobbered.
00:05:55When automakers have trouble, so do the suppliers of steel, textiles, plastics, rubber, every basic industry in America.
00:06:05As the American car industry shrinks, auto parts makers must sell to other automakers.
00:06:12The most important are the Japanese.
00:06:15We build fantastic parts that we sell all over the world.
00:06:18The U.S. sells 15 billion in auto parts to Germany, sophisticated countries, France, Italy.
00:06:24We can't sell any in Japan.
00:06:26Why?
00:06:27Well, they claim our quality and costs aren't good enough.
00:06:29Well, if they're good enough for Mercedes, why the hell aren't they good enough for Toyota?
00:06:31Early this year, Iacocca, along with the chairman of GM and Ford, went to the White House to ask for help against what they call unfair Japanese competition.
00:06:43Roger Porter is assistant to the president for economic and domestic policy.
00:06:48The administration has no plans to assist a particular firm in any industry, whether it's Chrysler or anyone else.
00:06:58In Washington, the guiding principle that shapes national economic policy is the separation of business and government.
00:07:06At the White House, it is close to a state religion.
00:07:10The administration believes that American business can fight foreign competition alone.
00:07:14We have a history in this country of dynamic American entrepreneurs.
00:07:22It is something that I hope we never lose in this country.
00:07:26America is and has been and I hope will always remain a frontier of opportunity.
00:07:33There was a time when American cars were the envy of the world.
00:07:40But today, the reputation for quality and reliability in the world market belongs to Japanese cars.
00:07:47The change represents the triumph of Japan's national industrial policy,
00:07:52which mandates that business and government work together for national objectives.
00:07:56For an American businessman facing Japanese competition, the results can be devastating.
00:08:03Al Pace found out the hard way.
00:08:08They're working to a script we're not.
00:08:11We're an event and they're a blueprint.
00:08:12That's the difference between the two.
00:08:14We're an event and they're a blueprint?
00:08:16Certainly.
00:08:16Al Pace was the president and owner of Variety Stamping,
00:08:24a supplier of auto parts to General Motors for 50 years.
00:08:29It was very much a family business.
00:08:31Wife Betty handled the books.
00:08:33Daughter Diane was the computer operator.
00:08:36Son Mark supervised production.
00:08:38They worked together every day until two years ago,
00:08:40when everything fell apart.
00:08:43It's something I don't enjoy reliving.
00:08:46It just went from bad to worse.
00:08:50He had the hardest time.
00:08:53He had the hardest time.
00:08:54I mean, I think it all hit him.
00:08:58He just lost a part of himself.
00:09:00We all did, but more so Al, because that was his American dream.
00:09:12I was born in Cleveland, educated in Cleveland,
00:09:15invested my money and my energy in Cleveland.
00:09:18And the proudest thing I did was that I employed Cleveland people.
00:09:25We had a reputation as a trouble-free source.
00:09:28We were the kind of people that you went to,
00:09:30and if we said it would be there, it was there.
00:09:33Al Pace built Variety Stamping into a $25 million company
00:09:37with over 200 jobs.
00:09:39But there was a problem.
00:09:41General Motors' business was starting to shrink.
00:09:44If Variety was to keep growing,
00:09:46it would have to make parts for the only expanding market,
00:09:49the Japanese automakers who were building new plants across the Midwest.
00:09:53Al Pace went on the offensive.
00:09:58He even made a video in Japanese.
00:10:01It seemed to work.
00:10:10Honda Motor Company was under pressure to buy American parts
00:10:13for its new factory in Marysville, Ohio.
00:10:16Variety was offered a big contract from Honda, with one catch.
00:10:21They would share the project with a Japanese partner, Kikuchi.
00:10:25We were awarded the programs, and we had quoted the tools,
00:10:30but we weren't given the opportunity of building the tools.
00:10:34The statement was that you just didn't feel that American suppliers
00:10:37would be capable of delivering the tools on a timely basis.
00:10:41So the tooling was awarded to Kikuchi, my partner from Japan.
00:10:47So you bought the tools from your partner.
00:10:48That's correct.
00:10:50I truly believe that we were being set up,
00:10:53that there was no intention ever to make Al their partner,
00:10:57and that there was no intention of having a long-term relationship with Variety.
00:11:01Jim Gale supervised the Honda contract at Variety.
00:11:05He says the tools supplied by Kikuchi were defective.
00:11:09The result? Production delays and bad parts.
00:11:12Gale believes Kikuchi had good reason not to try.
00:11:16Kikuchi actually could be construed as a competitor of ours.
00:11:20In Japan, we're making the same parts that we were making here.
00:11:24But when I found out that we were also paying them a royalty for technical assistance,
00:11:29I was really stunned.
00:11:31Absolutely couldn't believe it.
00:11:34Kikuchi was not just any competitor,
00:11:36but part of Honda's corporate family, or Keiretsu.
00:11:39Like other Japanese industrial giants,
00:11:43Honda is actually a complex web of companies that hold shares in one another.
00:11:48Like cartels, Keiretsu set prices and control profits to ensure the health of their members.
00:11:54Buying from a Keiretsu partner ultimately means lower cost,
00:11:58since Honda gets to share in Kikuchi's profits.
00:12:01I think that it is expected that Variety stamping would fail under these circumstances.
00:12:07That is, the kinds of incentives, the kinds of institutional requirements
00:12:12that Variety stamping faces compared with the Japanese requirements
00:12:17means that they are going to fail.
00:12:18When the tools supplied by Kikuchi broke down,
00:12:25engineers were sent from Japan to repair them.
00:12:28They did not speak English.
00:12:30Production slowed and costs soared.
00:12:33Our partners supplied us the weld systems,
00:12:35which did not make acceptable welds.
00:12:39We had components supplied to us by Japan
00:12:42that when put together did not create an acceptable product.
00:12:46Even when Honda inspectors approved parts at Variety,
00:12:50other inspectors would often reject them when they arrived in Marysville.
00:12:55In a matter of months, Variety stamping collapsed.
00:12:59I think that they wanted their own company producing these parts.
00:13:02I think they wanted to go through the motions of saying that,
00:13:05yes, we tried an American supplier,
00:13:07and they could not give us the quality that we needed.
00:13:09So they were building a case against Variety?
00:13:11I believe that's exactly what they were doing.
00:13:13Frontline repeatedly offered Honda an opportunity to respond.
00:13:18Honda refused.
00:13:20There is growing evidence Honda's claim
00:13:22that its cars produced in Ohio are American-made is not true.
00:13:31All of the most expensive or value-added parts are imported from Japan.
00:13:35In fact, when the Customs Department inspected a Marysville Honda engine,
00:13:41it found only 1% of the parts were made by American suppliers.
00:13:47The more value-added parts would come from Japan.
00:13:49We would, at that point, be the assemblers.
00:13:51We would take the low-end, no-brainer part of it, if you will, and do that.
00:13:56Just piece the parts together?
00:13:58Piece the parts together, sell our labor.
00:14:00And that became an American part?
00:14:02And that then is, to Honda, an American part, sure.
00:14:08Auto parts are now the fastest-growing Japanese import.
00:14:12Critics charge Honda and other Japanese transplants
00:14:15have made only token efforts to use American suppliers.
00:14:19Al Pace believes Honda deliberately misled him.
00:14:23And he said, this is the proof.
00:14:25A brand-new assembly plant built for Kikuchi by Honda near Marysville.
00:14:30Pace was told Variety would be a partner in this joint venture.
00:14:34But the only partners were Japanese.
00:14:37Al Pace learned the news from a trade magazine.
00:14:40A $60 million facility.
00:14:44Finding out from the back page of Automotive News,
00:14:47rather than your partner, does lead you to suspect
00:14:50that perhaps the relationship wasn't as open and above-board
00:14:53as it could have been.
00:14:55Al took it upon himself to try and fix everything
00:14:57and to try and make it right for his partner, Honda.
00:15:01Al Pace took them on their word?
00:15:02Al Pace took them on their word.
00:15:04And what happened?
00:15:05Al Pace is out of business today.
00:15:16American auto parts makers are going out of business
00:15:18at a rate of one every 16 hours.
00:15:21One reason, say critics, is that Japanese automakers
00:15:25practice predatory capitalism.
00:15:31The objective is not just to win,
00:15:34but to drive your competition out of business.
00:15:39We have not found one company yet,
00:15:42one Fortune 500 company,
00:15:44that wasn't under attack in some shape or form
00:15:48by the Japanese.
00:15:49By the Japanese.
00:15:50Michael Socorro was once a senior analyst at the Pentagon.
00:15:54He was the head of Project Socrates,
00:15:56a classified program in the Defense Intelligence Agency.
00:16:00The objective of Project Socrates
00:16:01was to identify and protect technologies
00:16:04critical to national security.
00:16:07Socorro's research revealed that the Japanese
00:16:09practice capitalism with military discipline.
00:16:12If you look at some of the strategies,
00:16:16the way they're written up by the Japanese,
00:16:19they don't talk about,
00:16:20we're going to go over and get a bigger market.
00:16:23They talk about funnel attacks,
00:16:24flanking attacks.
00:16:26They talk about totally envelopment strategies,
00:16:28which means you take the customer
00:16:30and you totally surround him
00:16:31with interlocking technologies,
00:16:33such that whatever direction he turns,
00:16:37he's got to use one of their technologies
00:16:39in order to satisfy his needs.
00:16:40Sounds like war almost.
00:16:42It is war.
00:16:47Project Socrates was designed to ensure
00:16:49that America's most advanced weapon systems
00:16:52did not depend on foreign-made components.
00:16:54But when the Bush administration took office,
00:16:57Project Socrates was shut down.
00:17:00The president's advisors dismissed it
00:17:02as industrial policy,
00:17:03a violation of free market ideology.
00:17:06Did anyone from the administration
00:17:08ask you why your program was important?
00:17:11No, we had no discussions with the administration.
00:17:14So why was it ended without discussion?
00:17:17I don't know.
00:17:20Advanced electronics helped win the Gulf War,
00:17:23everything from navigation systems to smart bombs.
00:17:26But it was not just American technology.
00:17:28Many of the most critical components
00:17:31were made in Japan.
00:17:44If Washington does not have an industrial policy,
00:17:47Finley, Ohio does.
00:17:49In Japan, it's known as Friendly Finley.
00:17:53Mr. Suzuki, how are you, my friend?
00:17:55Even the word Ohio means good morning in Japanese,
00:17:59and the state is working hard to live up to its name.
00:18:03Ohio and other industrial states
00:18:05are actively courting Japanese investment,
00:18:08and the Japanese companies prefer rural towns like Finley,
00:18:11predominantly white communities without unions.
00:18:17GSW Manufacturing came to Finley from Japan two years ago.
00:18:21The company assembles electrical wiring for automobiles.
00:18:25GSW is a subsidiary of Shinsei Harness Company,
00:18:29a Toyota supplier.
00:18:30The factory is in a foreign trade zone set up by the state,
00:18:33so parts and materials can be imported duty-free.
00:18:37To Finley's mayor, Keith Romek,
00:18:39the arrival of the Japanese is good news.
00:18:41In the positive attitude you have towards the city of Finley,
00:18:45I think it's great.
00:18:45I think you're great salespeople for this city.
00:18:49But leaving industrial policy to the mayor of towns like Finley
00:18:53has been bad news for the American auto industry nationwide.
00:18:57The Japanese automotive industry trumpets the fact
00:19:00that they have created 98,000 new jobs
00:19:04at transplant facilities and related facilities in the United States.
00:19:08It's marvelous.
00:19:10The only difficulty is, in the same period of time,
00:19:12the American auto industry lost a half million jobs.
00:19:15So there has been no net gain in automotive employment.
00:19:19There has been a 400,000 job decline in that industry.
00:19:25My name is Larry Crosby.
00:19:34I worked at Dana Corporation for 28 years.
00:19:37City auto stamping for three years.
00:19:39Dura Corporation for seven years.
00:19:42Champion spark plug for 20 and a half years.
00:19:44Dura Corporation, eight years.
00:19:46For every auto worker who gets laid off,
00:19:48two auto parts workers lose their jobs.
00:19:51For Dura for seven and a half years.
00:19:52Job prospects are poor for these auto parts workers in Toledo, Ohio.
00:19:57Their traditional customers, the big three, are cutting back.
00:20:01And there's little chance they'll get jobs with the Japanese transplants.
00:20:05Seven Japanese automakers built plants in the Midwest.
00:20:09They were quickly followed by their Japanese suppliers.
00:20:12Six years ago, there were only 24 Japanese auto parts suppliers in America.
00:20:17By next year, there will be nearly 300.
00:20:20It is no accident.
00:20:22The migration was encouraged by the industrial policy of the Japanese government.
00:20:27We claim to not have industrial policy.
00:20:30But every state in the union has an industrial policy.
00:20:33And it is to screw other states.
00:20:35What's the implications of that?
00:20:36Well, it seems to me that this gives the Japanese a tremendous opportunity
00:20:40to play one state off against the other.
00:20:43They go over and they say, look, I got tax money.
00:20:45I can give you $200 million.
00:20:46Come locate, because I've got to worry in my state about jobs.
00:20:50Why do these individual states compete with each other to get jobs,
00:20:52but the U.S. in total doesn't worry about jobs?
00:20:55See, Michigan has an industrial policy.
00:20:57These states have an industrial policy, but the U.S. says, oh, no, no.
00:21:00That gets in the way of our ideology.
00:21:01To convince Honda to locate in Ohio,
00:21:07the state gave Honda incentives worth over $60 million to build its Marysville complex.
00:21:13As part of the deal, Honda won't have to pay property taxes for 15 years.
00:21:21The Marysville plant led the boom in Honda's U.S. sales
00:21:24that has permanently changed the shape of the industry.
00:21:27Today, in American passenger car sales, the big three are GM, Ford, and Honda.
00:21:34They go into a cornfield.
00:21:36They don't go into any ghettos.
00:21:38They don't want any of the problems, okay?
00:21:40And what do they do?
00:21:42They have young people, farm boys they bring in.
00:21:45They're healthy.
00:21:46They don't use health care.
00:21:48They won't have a pension problem for 20 to 25 years because they're so young.
00:21:51You take those two loads, you say, well, why don't you do that?
00:21:54Why don't you wipe out all your plants and start over again?
00:21:56No, wait a minute, I've got a workforce in downtown Detroit.
00:21:59I'm putting a billion dollars in that.
00:22:01Japanese would never do that.
00:22:03But at some point, you've got to weigh what your obligations are
00:22:05to your company, to your city, states, to society.
00:22:10Japanese come in clean and say, no, no, we're not going to buy your problems.
00:22:13We're going over here.
00:22:17Priceless problems are real, and their implications ominous.
00:22:21The company is saddled with old factories in inner cities.
00:22:24The average age of its workers is over 40.
00:22:28And at a time when losses are mounting, Chrysler owes its workers' pension fund over $3 billion.
00:22:35If all the jobs go, the tax base erodes.
00:22:39Forget making a buck and eating and sleeping well.
00:22:43Who's going to take care of the roads and the environment?
00:22:45Who pays for all this stuff if there's nothing left to tax?
00:22:48That's why any country who doesn't protect its industrial base is crazy.
00:22:52You know, I've mostly been looking for a job, right?
00:22:54There's not enough jobs for everybody laid off in the city of Toledo.
00:22:58I have a house note, car payments, insurance.
00:23:01At this moment, no health benefits.
00:23:03If I get sick, goodbye.
00:23:06That's it.
00:23:07The loss in tax revenue multiplies.
00:23:10Unemployed workers pay few taxes.
00:23:12They require social services.
00:23:15And the Japanese transplants export most of their profits and taxes to Japan.
00:23:19If we need all these stereos and VCRs and cars and motorcycles and snowmobiles and everything
00:23:26else that we're buying that's made in other countries, if it was made right here, we'd
00:23:29all be working and we'd all be getting a dignified income.
00:23:32All your hatch releases are here for your back.
00:23:34This is for your headlight covers.
00:23:38Power mirrors and a door.
00:23:39You elect the side, right or left.
00:23:40This is for your fog lights.
00:23:41The next circle dial behind you is temperature control.
00:23:45Blue is cold.
00:23:46Red is hot.
00:23:47Christina Schindeldecker is buying a new car.
00:23:49Good side now.
00:23:52She's unhappy with her old one, a Plymouth from Chrysler.
00:23:56My dad told me a lot about Japanese cars.
00:23:58He said that they're made very well.
00:24:00She's decided to buy a Mitsubishi Eclipse.
00:24:04How'd you like that?
00:24:06Oh, it's great.
00:24:07Nice car?
00:24:08Very nice.
00:24:09Very nice.
00:24:10But sometimes the difference between Japanese and American cars is less than consumers think.
00:24:16In fact, the Mitsubishi Eclipse is identical to this car, the Plymouth Laser.
00:24:22They're both manufactured in the same factory in Illinois.
00:24:26Yet in America, the Mitsubishi Eclipse outsells the Plymouth Laser two to one.
00:24:31Consumer demand for Japanese cars built in modern factories subsidized by state tax incentives is accelerating the decline of the U.S. auto industry and the jobs that depend on it.
00:24:46The states are, unfortunately, engaging in self-destructive competition.
00:24:51Clyde Prestowitz is a former Commerce Department official and an expert on Japanese business.
00:24:57They're being played off one against the other.
00:25:00And they are, in a sense, subsidizing the destruction of a large part of the U.S. auto and auto parts industry.
00:25:11Do the Japanese think we're fools?
00:25:14Yes.
00:25:16The short answer is yes.
00:25:19I can't tell you how many times Japanese from the government, Japanese from academia, Japanese from industry, say to me, Prestowitz, son, don't you Americans know what's happening to you?
00:25:36And it's not just Japanese.
00:25:38I've had the same comment from Koreans, from Singaporeans, from Hong Kong Chinese, from Taiwanese, from Frenchmen, from Germans.
00:25:46The rest of the world thinks we are absolutely nuts.
00:25:50Let me underscore that this is a public informal hearing, which is not...
00:26:00The world finds U.S. trade policy a bit crazy, because it gives American business few weapons to fight the trade war with Japan.
00:26:08Without fair pricing in the marketplace, the industry will not fulfill its potential.
00:26:13Indeed, it may not survive its infancy.
00:26:15The petitioners at this Commerce Department hearing know how tough a fight it can be.
00:26:21They claim Japanese dumping or selling below cost destroyed their industry.
00:26:26They represent the last remaining U.S. manufacturers of flat panel display screens, which are most commonly used in laptop computers.
00:26:35But the future possibilities are vast.
00:26:38There are many areas into which this technology will go.
00:26:40It's not just computers.
00:26:42We're going to have flat panel displays for our television sets.
00:26:45We're going to have flat panel displays in our automobiles.
00:26:48Radar screens in control towers and in aircraft are going to be flat panel displays.
00:26:54Medical imaging is going to be flat panel display.
00:26:56It's going to be a pervasive technology.
00:26:58Dominance of that flat panel display technology is going to be a big step towards achieving dominance in laptop computers, television sets, radar displays, automobile displays, medical displays, and so forth.
00:27:12So this is a critical component we're talking about.
00:27:14It's a very important component.
00:27:16This is a very difficult case and a very critical industry.
00:27:20The flat panel case is in its 11th month of hearings, economic studies, and legal briefs.
00:27:26It is a slow process.
00:27:28On page F3, under the listing property and equipment net...
00:27:32The business of dumping is highly technical.
00:27:35Few understand the mechanics, and even those who do often have trouble defying the terms.
00:27:41You accept the concept of partial BIA...
00:27:45Proof is often difficult to obtain, and every point's subject to endless interpretation.
00:27:50In order to go into a yield calculation, the material has to go through the end of the process.
00:27:55While the hearings and appeals drag on, the dumping and the damage continue.
00:28:02The technology was invented by American companies 30 years ago.
00:28:07But it was Japanese companies, with the support of their government, that spent the billions necessary to create the industry.
00:28:14The Japanese now control 90% of the market.
00:28:17They are charged with selling their screens for as little as one-third what it cost to make them.
00:28:23And they have spared no expense defending against the charges.
00:28:27We estimate that the Japanese spent more at one hearing than we have budgeted for our entire case.
00:28:34For the whole case?
00:28:35For the entire case.
00:28:36I would say probably we're going to be outspent about 100 to 1.
00:28:39If there is a pool effort, and this of course we have seen in the camera industry, we have seen it in the home electronics industry, we've seen it in the car industry.
00:28:51If there is a concerted effort for international market share, Japanese large corporations are virtually unbeatable.
00:28:59Carol van Wolferen is a Dutch business journalist who lives in Japan.
00:29:03Since large Japanese corporations do not go bankrupt, it means they can always, in their campaigns for market share, out-compete everybody else.
00:29:17They'll always win.
00:29:19It means that American or European companies cannot really compete.
00:29:26Is there going to be a thing that was going to blow up the ball?
00:29:30Ah, good shot.
00:29:31Jim Hurd is a classic American success story.
00:29:35Eight years ago, he saw the opportunity to create a new product.
00:29:39He founded Planar Systems of Beavid in Oregon.
00:29:45Now the nation's largest maker of flat panel displays.
00:29:49Hurd wants to compete for the booming laptop computer market.
00:29:53Yet despite Planar's success, he can't find investors.
00:29:56If you're an entrepreneur trying to raise money for a company that is going to take on the Japanese or compete with the Japanese in one of their targeted markets, you won't raise money.
00:30:08What you're saying is that the capital markets believe that if you're going against Japanese competition, you don't have a prayer.
00:30:14Absolutely.
00:30:16Planar manufactures highly specialized screens for the Department of Defense.
00:30:20To enter the consumer market, Planar would have to invest a hundred million dollars in new facilities.
00:30:27But the numbers just don't add up.
00:30:30Can we sell this particular display at the prices that we had laid out?
00:30:35At the current market price, Planar would lose money on every screen.
00:30:40A disaster for an American company, but not for a Japanese company in a target industry.
00:30:47When Americans ask, is Hitachi making a profit on semiconductors, you always want to say to them, even if we had the information, you've asked the wrong question.
00:30:57Hitachi doesn't care.
00:30:58They're carrying semiconductors because it's the industry of the future.
00:31:01It is an industry they know they have to be in, and they're going to be in it.
00:31:07The greatest pressure on them is format change versus performance enhancement.
00:31:11To Jim Hurd, Japan's low-price strategy has a single objective, to ensure that no one can make a competing product and stay in business.
00:31:21The Japanese, contrary to popular opinion, don't have any interest in losing money.
00:31:26So what they want to do, the strategy is very clear, you want to go into these markets, you want to drive competition out, you want to come down the cost curve as fast as possible.
00:31:38But as soon as the competition is gone, and the users of the displays have no choice, the price goes up.
00:31:43As it stands right now, if you're an American business, in a high-tech industry, competing with the Japanese, you are in the business of going out of business.
00:31:54The department should use the best information available.
00:31:57The Department of Commerce found the Japanese guilty of dumping flat panel displays.
00:32:02But for Jim Hurd, the fight is not over.
00:32:06He must now go to another federal agency and prove the dumping actually hurt his business.
00:32:16I welcome you to this hearing on behalf of the U.S. International Trade Commission.
00:32:24The hearing is on investigation number 731, TA-469, final involving high information content, flat panel displays, and sub-assemblies thereof from Japan.
00:32:37The final chapter of the flat panel case.
00:32:39It has taken one year.
00:32:42The purpose of the investigation is to determine whether an industry in the United States is materially injured or is threatened with material injury.
00:32:50Jim Hurd and his fellow entrepreneurs are facing new opposition.
00:32:54Only this time, the opponents are not Japanese.
00:32:59If you don't have the right technology, you're not going to make my cut.
00:33:02And if you don't have the ability to produce that in volume so I can make some money out of it, then you won't make that cut.
00:33:09American computer companies buy their flat panels from Japan.
00:33:13They claim the Americans don't make the products they need.
00:33:17Our experience in sourcing flat panels from the U.S. has been a series of dead ends.
00:33:22But Jim Hurd claims companies like IBM, Apple, and Compaq had a chance to buy American.
00:33:29No company, Japanese or American, had those displays readily available at all.
00:33:35They were all new developmental items that had to be developed for those applications.
00:33:39U.S. companies were every bit as capable of developing those products as Japanese companies.
00:33:44The motive, says Hurd, was profit.
00:33:48The Japanese promised to supply huge quantities of laptop screens to American computer companies at half what it cost to make them.
00:33:56Indeed, if you're an American consumer, it is a good buy in the short term.
00:34:02In the long term?
00:34:02In the long term, it's probably a disaster.
00:34:04The same Japanese companies that make these flat panel displays also make computers.
00:34:10So the U.S. computer companies have become dependent on some of their major competitors for key components of their own products.
00:34:20It can get to the point where the American company is dependent upon the Japanese technology,
00:34:27and therefore the Japanese can dictate terms to the Americans on what they will and will not do.
00:34:33They can cut off their supply.
00:34:35That's right, cut off their supply.
00:34:37And if they, the United States, do, does not have the technology, then they can't make the products.
00:34:45The companies that we once thought were great manufacturing companies, IBMs, Compaqs, Apples,
00:34:52are really very much hollowed out compared to what they were.
00:34:56They are now really repackagers or assemblers.
00:34:59Seeking short-term profits from dump components, the U.S. portable computer manufacturers have all ended up buying components from the same Japanese suppliers.
00:35:07Look on the back of Compaq's flagship model, LTE 386.
00:35:11It proudly proclaims, assembled in the U.S.A.
00:35:15When Jim Hurd made his case to the International Trade Commission, the room was filled with over 30 top Washington trade attorneys.
00:35:25Nearly half once held senior positions in the U.S. government.
00:35:29All were working for the Japanese.
00:35:32The Japanese call it putting an American face on Japan's position.
00:35:35The Japan lobby is literally able to dominate politically virtually any issue that it chooses to take on.
00:35:45Pat Choate is an author who has written extensively about the Japan lobby.
00:35:49Since 1972, one half of our trade negotiators have become foreign agents after they left office.
00:35:58What we find today is that most of these officials are literally planning on becoming foreign agents when they go in to the position.
00:36:09Their public position is a way for them to develop a client list.
00:36:12To defend their position at this hearing, the Japanese hired former officials of the U.S. Trade Representative's Office,
00:36:20the Department of Justice, the Department of Commerce, and the International Trade Commission itself, the ITC.
00:36:27Certainly you could look at like product and come out differently than commerce did.
00:36:32Bill Allberger represents Compaq.
00:36:34His treatment at this hearing is uncommonly polite.
00:36:38Hope you enjoyed your lunch.
00:36:40Very pleasant, thank you.
00:36:42One reason is that Allberger is on familiar turf.
00:36:46He was once chairman of the ITC.
00:36:49Commissioner Allberger with you on the question that Commissioner Rohrer was asking.
00:36:53Japan's case against the American entrepreneurs is based entirely on the economic analysis of this woman, Paula Stern.
00:37:00Her opinion carries weight here too.
00:37:03She also chaired the ITC.
00:37:05How do you respond to critics who feel that it's inappropriate for a former ITC chairman like yourself
00:37:11to lobby for foreign firms?
00:37:12I'm not lobbying.
00:37:13This is a quasi-judicial agency of the U.S. government.
00:37:19I am an expert witness combining my economic and my legal and my capabilities and background.
00:37:26In fact, there are others here too who have appeared before me who have been lawyers.
00:37:31I am not a lawyer, but I have administered this law for nine years and I have the economic skills and the background in analyzing industries.
00:37:43This is not lobbying.
00:37:44If a former Japanese government official went through the revolving door as American officials do,
00:37:51that official would become a social leper in Japan.
00:37:55Their family would be ostracized in Japan.
00:37:58And several generations from now, their great-grandchildren would be left to explain why their predecessors did that.
00:38:08It's just enormous social pressure and it's not done.
00:38:12We are here to compete.
00:38:14We can only compete worldwide if the U.S. government enforces fair trade laws.
00:38:19Jim Hurd and his fellow entrepreneurs proved Japanese dumping hurt their business.
00:38:25The ITC agreed to impose stiff duties on the Japanese flat panel industry.
00:38:29But the victory may prove meaningless.
00:38:35To avoid the high duties, American computer makers plan to move assembly of laptop computers offshore.
00:38:43The result?
00:38:44Fewer American jobs.
00:38:47The Japanese now exercise nearly total control over the most advanced display technology.
00:38:52A technology that was invented in the U.S.
00:38:55A technology the American computer industry depends on.
00:39:00The technology which is the center of their ability to actually produce the product
00:39:05is being pulled out right through the back door by their adversaries.
00:39:10And that's what they will use to attack them to push them out of business.
00:39:13Does all this scare you?
00:39:15It scares the hell out of me.
00:39:17Why?
00:39:18Because I see that the whole pace of this whole attack, this whole thing, is getting faster and faster.
00:39:25They will continue to get more and more control in the United States.
00:39:31They can call the shots on exactly what the consumer gets.
00:39:39What companies are making the products.
00:39:42And they will have financial control.
00:39:44Oh, I just blew that sucker up.
00:39:48It kicked their butt.
00:39:49If the dangers of monopoly control seem far-fetched, consider the case of video games.
00:39:55We're continuing to maintain our retail sales plan at the $4 billion level.
00:40:034.5 million units in hardware.
00:40:0745 million units in software.
00:40:09The SNES continues to have a unit sales projection through December of 2 million units with 6 million units of software projected.
00:40:22The men sitting in this room control the American video game industry.
00:40:27Nintendo, the most successful Japanese company in America by at least one measure.
00:40:32Nintendo controls 85% of the U.S. video game market.
00:40:37We can't underestimate the value of 60 million players.
00:40:41And Toys R Us, the world's largest toy retailer.
00:40:46They're meeting to plan for the all-important Christmas season at the annual Consumer Electronics Show in Chicago.
00:40:53The most important trade show in the industry.
00:40:55Even in a business known for flash and glitz, the Nintendo exhibit is something special.
00:41:09A $6 million display of pure market power.
00:41:14Nintendo Entertainment System is the frosting on the cake.
00:41:17To marketing vice president Peter Main, selling Nintendo is easy.
00:41:22They come, they try, they like, and they buy, and it's a fun business.
00:41:27Especially fun if there's no competition.
00:41:33Companies that try to compete with Nintendo have an uphill fight.
00:41:37When you're the batter, these control moving yourself forward and backward.
00:41:40Dan VanElderen is the president of Tengen, one of Nintendo's few competitors.
00:41:46Tengen can't get major retailers like Toys R Us to even carry its products.
00:41:51VanElderen says Nintendo is the reason.
00:41:54In a matter of three or four months, they were able to, one by one, contact all major retailers
00:42:00and convince them or intimidate them or induce them not to handle Tengen products.
00:42:10Richard Frick is also trying to take on Nintendo.
00:42:16These factory workers in San Jose, California, are manufacturing video games for his company,
00:42:22American Video Entertainment.
00:42:25We can't match them dollar for dollar, but we can match them game for game.
00:42:29How many of the top 20 retail toy stores are your products in right now?
00:42:34None of the top 20 retail toy stores. None at all.
00:42:37Richard Frick says you can't buy his games in stores because retailers fear retaliation from Nintendo.
00:42:45The fear they have of not receiving future products into their stores, which they very much count on for their profits.
00:42:51Fear that Nintendo will cut them off?
00:42:53Would cut them off or not ship them or undership them the products that they need, the new hit products.
00:43:01What's the response you get from Toys R Us?
00:43:02Well, they try to be very careful about what they say.
00:43:06They don't want to do anything to get themselves in trouble.
00:43:10And more than anything else, they just say that we're not a vendor that they can deal with at this point in time.
00:43:16Toys R Us refused Frontline's request for an interview.
00:43:19It's no surprise Toys R Us tries not to offend Nintendo.
00:43:27Competitors claim Nintendo games represent 15% of Toys R Us revenues, but 25% of its profits.
00:43:34It tastes kind of expensive.
00:43:36But you know, kids want it, so you've got to get it for them.
00:43:39Parents may wonder why there's almost never a Nintendo sale.
00:43:44In six years, the price hasn't gone down at all.
00:43:47Not at all. Not at all.
00:43:48But every consumer product I can think of, TVs, VCRs, CDs, the price always goes down.
00:43:54Oh, I believe that the manufacturing costs of these products have gone down significantly for Nintendo.
00:43:59They've just kept all that money instead of passing it on the consumer.
00:44:02There's no reason for them to. There's no competition for them.
00:44:05Richard Frick says he can sell his games for less than $20 and still make a big profit.
00:44:11The Federal Trade Commission recently discovered how Nintendo keeps its prices high.
00:44:16Nintendo fixed prices with their dealers, wouldn't allow dealers to discount,
00:44:20and as a result, consumers that tried to comparison shop were just wasting their time.
00:44:26The FTC found Nintendo guilty of price fixing.
00:44:29As part of the settlement, the company agreed to refund up to $25 million to consumers.
00:44:35It will pay the fine by offering $5 discounts for the purchase of future Nintendo products.
00:44:41Introducing the next generation from Nintendo.
00:44:45It's a bit more exciting, a bit more challenging, a bit more graphic, a bit more colorful, a bit more realistic,
00:44:50a bit more levels, a bit more secrets, a bit more enemies, a bit more friends.
00:44:54And a lot more expensive.
00:44:56The new improved Nintendo system was introduced to the press this summer.
00:45:00It cost twice as much as the old Nintendo.
00:45:02Nintendo, now you're playing with power, super power.
00:45:06Do you see that price coming down in the future where these games will not be that expensive?
00:45:12I'm not certain.
00:45:13There may be some prices below that.
00:45:16There well could be prices above that.
00:45:19Nintendo of America denied Frontline's request to interview its president, Minoru Arakawa.
00:45:25I think his English is fine, but I think he's a little bit shy.
00:45:29And I think he would rather have some of his other people conduct the interviews.
00:45:34Howard Lincoln is senior vice president.
00:45:36We decided if we could make a video game system with quality games, that we would be successful.
00:45:42We took that gamble.
00:45:44And now, I think it's appropriate for us to reap the rewards of that gamble.
00:45:48That is capitalism.
00:45:50Everything that's on the shelf is made by Nintendo.
00:45:52There is absolutely no competition to make the prices cheaper.
00:45:57And that is one of the reasons why Nintendo is afraid of us, is we have an alternative source of product that's completely legal, that plays well, and they don't want to have any competition at all.
00:46:09That's what a monopoly is all about.
00:46:11Nintendo doesn't have anything to do with the choice that retailers make as to what products they're going to carry.
00:46:18And there is absolutely no evidence that I'm aware of that Nintendo has kept any of these other companies out of the marketplace.
00:46:26While Nintendo insists they have done nothing wrong, Frontline has learned of several active federal and state investigations, examining evidence that Nintendo has monopolized the video game industry.
00:46:38The message that's being sent is that if you want to play in the Nintendo world, you need to play by Nintendo's rules.
00:46:43And if you don't want to play by Nintendo's rules, it's going to be a very, very hard struggle.
00:46:59Nintendo has captured the imagination of America's children.
00:47:02But critics claim it's near total control of the market, gives it the power to decide what products reach consumers, and at what price.
00:47:13It's a matter of the American public having a choice as to what they can and can't do.
00:47:18Suppose Sony decided to take and make all of the Columbia Picture movies compatible only with Sony videotape players.
00:47:25There would be a situation very similar to what Nintendo's trying to do with us.
00:47:28When you start applying that to movies, or books, or magazines, or TV shows, I think it's very clear how that can be really significant.
00:47:38It begins to affect what's seen, what's done, what's shown, and we know who's boss.
00:47:46That is to say, if you don't think ownership matters, you're not playing capitalism any longer.
00:47:52And the Japanese would be the owners of these companies.
00:47:55But you seem to be suggesting that somehow this Japanese ownership could abridge free speech in this country.
00:48:03Oh, I think no question about it.
00:48:04No question about it.
00:48:05I mean, that is to say, money does talk.
00:48:13Control of the video game market has given Nintendo the opportunity for immense profit.
00:48:19Its cash reserves alone exceed a billion and a half dollars.
00:48:22But money is not the only measure.
00:48:26The reason to be in high-tech industries these days is not to make a profit.
00:48:30The reason to be in high-tech industries is those are good jobs for your people.
00:48:37At Nintendo of America headquarters in Redmond, Washington, most jobs aren't exactly high-tech.
00:48:44There are no manufacturing jobs.
00:48:46All Nintendo games are made in Japan.
00:48:48The only work here involves loading and unloading trucks.
00:48:53A nation that doesn't make anything is a nation that has a pretty poor spirit.
00:49:03The United States is increasingly a nation that doesn't make things.
00:49:06And if we are going to pass on to our children the heritage that we received,
00:49:12if we're going to pass on something that's rich and full and growing,
00:49:16the opportunities, the ability to be the nation that we have been for most of our history,
00:49:22we're going to have to produce something.
00:49:23Nintendo of America doesn't produce games,
00:49:32but it does have a research and development group.
00:49:35We're roasting him.
00:49:38This is an R&D team at work.
00:49:40Only they don't really develop games, they play them.
00:49:44Most of the R&D is done in Japan.
00:49:47See if you get a second star now.
00:49:49Nintendo Gameplay, this is Sean. How can I help you?
00:49:51Hello, Jima.
00:49:52The largest number of workers are game counselors.
00:49:56They log 150,000 calls a week.
00:49:59Continue to the right until you get to this real big drop-off.
00:50:02That's when you want to use the umbrella.
00:50:04Looks sort of like a balloon with a plus sign on it.
00:50:07You want to try to shoot for the head.
00:50:09Well, then you have to go and fight Astos.
00:50:11If you go down to the bottom right-hand corner, you can walk through the wall.
00:50:15You want to freeze him by hitting him in the head.
00:50:17Oh, okay.
00:50:18Okay, but then you want to spear him kind of midway through his body.
00:50:20All right.
00:50:21So it kind of cuts him in half, basically.
00:50:22All right.
00:50:23Okay?
00:50:24Is there anything else they can help you ask?
00:50:25No, there will be.
00:50:26Thanks a lot.
00:50:27You get all that then?
00:50:27Yeah.
00:50:28Okay.
00:50:28All right, bye.
00:50:29Thanks for going.
00:50:29These inner-city students in Washington, D.C. are learning about Japan.
00:50:49The program, funded partly by a Japanese foundation, is one of thousands of such grassroots educational
00:50:57efforts paid for by the Japanese government and Japanese corporations.
00:51:01The objective is to help shape how young Americans view Japan.
00:51:05They have a factory in the U.S.A. and many Americans work for that factory, so they are very happy.
00:51:16The Japanese are investing, at this point, tens of millions of dollars in elementary, secondary,
00:51:21and higher education to make sure that the next generation of Americans think the way
00:51:26about Japan that the Japanese want them to think about Japan.
00:51:30Japanese philanthropy is seen by most as a gesture of goodwill, but some see it as part
00:51:40of a deliberate campaign to blunt criticism of Japan.
00:51:44We cannot have an honest discussion about U.S.-Japan relations or our own future because
00:51:50too many people that are participating in the debate are either afraid to be candid or they
00:52:00have a money interest in advocating the Japanese point of view, or at least not offending them.
00:52:05Pat Chode is one of those critics labeled a Japan basher.
00:52:10For a nice brother or sister.
00:52:11Check.
00:52:12Clyde Prestowitz is another.
00:52:14He and his family have lived and worked in Japan.
00:52:17The term Japan basher is an all-purpose smear word which is used as a McCarthyist tactic to
00:52:23cut-off debate.
00:52:25And I detest the word and I detest its usage.
00:52:30What do they accomplish by using that label?
00:52:32What's the purpose behind it?
00:52:33It cuts off debate.
00:52:35If you can pin the term Japan basher on someone, then you have painted him as illegitimate.
00:52:43It means that no one should listen to this person.
00:52:45You don't have to respond to his arguments because obviously he's ill-intentioned.
00:52:49So what we're going to do now is to dress some of you in one of these Yukata here.
00:52:55Today we're seeing the largest unilateral transfer of wealth that the world has ever experienced
00:53:01from the United States to Japan.
00:53:03What's the significance of that?
00:53:04It means that we're going to be a much poorer nation.
00:53:08It means that in the late 1990s, the first part of the 21st century, we're going to have
00:53:13fewer choices.
00:53:14It means a declining standard of living for our children, if not for ourselves.
00:53:18While critics worry the U.S. is losing the trade war with Japan, the White House remains
00:53:26confident of America's strategy.
00:53:29If you believe that Americans have the kind of ingenuity and know-how that will allow us
00:53:33to compete with anyone around the world, then you're not fearful of competition.
00:53:39And you are convinced that the American worker and American management and American companies
00:53:43can compete with literally anyone in the world and that we are going to do it.
00:53:47Keep your eyes down.
00:53:49Sayonara!
00:53:51One more time.
00:53:52Sayonara!
00:53:53Fourth of July in the year of Desert Storm.
00:54:11Celebrations of American supremacy make the economic challenge seem far away.
00:54:15Come on, guys!
00:54:16Look it up here!
00:54:17If critics of U.S. trade policy are right, America is in for some very hard times.
00:54:24Free enterprise means something different in Japan.
00:54:29Al Pace learned that the openness and individualism that are the strengths of American free enterprise
00:54:35can become weaknesses.
00:54:37No Japanese business is an individual.
00:54:40It's a team.
00:54:41When you talk to a Japanese businessman, you might as well be talking to their government,
00:54:45to their finance ministers in banking, to their trade representatives, to their industry representatives.
00:54:53You're dealing with a plan, a blueprint.
00:54:57The war for global markets is about more than just jobs.
00:55:01It's about the kind of choices and opportunities there will be for America's children.
00:55:10America won the war in the Gulf.
00:55:13The question is, will America win the economic war that will shape its future?
00:55:17The American public, the American government, is capable of enormous response.
00:55:24Desert Storm is an example of that.
00:55:29We need a desert storm from American industry.
00:55:31Al Pace says we need a desert storm for American industry to meet the Japanese challenge.
00:55:58Well, joining me to discuss Al Pace's remark and the documentary you've just seen
00:56:02are Robert Lawrence, professor of international trade and investment
00:56:06at the John F. Kennedy School of Government at Harvard University,
00:56:09Jim Fallows, Washington editor of the Atlantic Monthly.
00:56:12Mr. Fallows was based in Japan from 1986 to 1989, where he wrote on East Asian affairs,
00:56:18and Dr. Kichi Mochizuki, a Japanese businessman.
00:56:21He is chairman of the Pacific Institute, a think tank,
00:56:24and former president of Nishin USA, a $4 billion Japanese steel company.
00:56:30Let me start with you, Robert Lawrence.
00:56:32You've just seen the film.
00:56:34Do you agree, as the film quite clearly states,
00:56:38that we are at war with Japan and that Japan is a threat to our economy,
00:56:43our industry, and really to all of us?
00:56:46No, I don't.
00:56:47I think it's a very misleading image to look at economic relations as if they were a war,
00:56:54as if they had a winner and a loser.
00:56:57I think it is quite possible, indeed, in the case of the interaction between Japan and the United States,
00:57:03I believe that we are both winners.
00:57:05I think what this film fails to let us in on is, firstly, that we are also consumers.
00:57:14And it's very clear, indeed, it's mentioned in this movie,
00:57:18that Americans are willing to pay a lot more for Japanese cars.
00:57:22The fact is they're building better cars.
00:57:25So we get benefits as consumers that aren't brought out here.
00:57:28I think, in addition, given that we prefer these Japanese cars,
00:57:33we are much better off as a nation if they produce those cars in the United States
00:57:38using American labor than we would be if they produce them in Japan.
00:57:43And that's taking place today.
00:57:45But nothing in the film made you angry?
00:57:47Not the fate of Al Pace?
00:57:49Not the conduct of some of these companies?
00:57:50Not the scenes that you saw?
00:57:52Well, I do think that the film, for instance,
00:57:55shows us that there is a potential danger of monopoly.
00:57:59The whole story of Nintendo is verified by the fact that our legal authorities
00:58:05have made it necessary for them to pay compensation.
00:58:09But I think what else emerged in that Nintendo piece
00:58:12was the fact that, by and large,
00:58:16our consumer electronics industry is run by the Japanese, essentially,
00:58:22and yet we haven't seen monopolistic practices of higher prices.
00:58:27We find declining prices for televisions, declining prices for VCRs.
00:58:31So I think what the film has concentrated on is an exception rather than the rule.
00:58:37Okay.
00:58:37Well, let's turn it over to you.
00:58:38Dr. Mochizuki.
00:58:40Yeah.
00:58:40You saw the film.
00:58:41Well, I see a couple of points here.
00:58:43One first from Japanese point of view.
00:58:46This is sort of one stage of a long dialogue between the two nations.
00:58:52First, the trade was a big issue,
00:58:55and people complained about too much export to the United States,
00:58:58and people losing jobs.
00:59:00And at that time, people wanted investment here.
00:59:03They had too many goods coming from Japan to America.
00:59:05Coming from Japan to the United States,
00:59:07thereby U.S. workers losing the jobs.
00:59:11And the demand to correct that situation
00:59:23is to have the investment from Japan to the United States
00:59:26rather than shipping the goods to the United States
00:59:28so that the local jobs will be maintained to produce those goods.
00:59:33And Japanese responded to that over the past 20 years and so on.
00:59:37And then there's a problem of the Japanese business practices and so forth,
00:59:43and at least we look different.
00:59:45And their practices, I admit that in certain areas, they're different,
00:59:49particularly the effort of localization of the invested transplants here
00:59:55should be more vigorously pursued.
00:59:58The localization of the plant?
01:00:00Of the transplant I used, the Japanese plants here,
01:00:04or the American plants invested by Japanese.
01:00:06Right.
01:00:07And...
01:00:08So you were a little bit off-put by the fact that Mr. Pace's...
01:00:12I think it has to be...
01:00:13This current situation has to be taken in perspective of the long history.
01:00:18And then there's a criticism here for the investment.
01:00:22And then I think Japanese will react to it and improve one by one, I am sure.
01:00:28But it takes a little time.
01:00:30It took a little time for the investment to replace the...
01:00:32What makes you so sure that Japanese conduct will improve one by one?
01:00:36Because in my mind, at least to my knowledge, and I would like to think I know quite a bit about what's going on there also as well as here,
01:00:43that is, there's no vicious intention or anything, just sheer, honest effort to make business.
01:00:53And yet it's taken differently sometimes because, I admit, there are certain factors, differences.
01:01:03Therefore, this is the time of the process to sort of readjust each other.
01:01:09Japanese has to learn.
01:01:10But the Americans has to learn, too, that the problem, the economic problems here in the United States,
01:01:16obviously, is not because of the Japanese only, at least.
01:01:20It's the self-generated problems.
01:01:23A lot of institutions and the pension plans, education, all the systems and so on,
01:01:28has become sort of outdated by this time after 30 years, 40 years after the war and so on.
01:01:33And that has to be, those has to be re-examined and reworked on, including myself, yourself, system, everything else.
01:01:41Plus, this is a new phase for the United States, which collected a lot of immigrants and foreign forces
01:01:48to stimulate the United States throughout the history.
01:01:50And this is the first time that Asians, although this is not immigration,
01:01:54the foreign investment here from Japan is a new factor in the history of this country.
01:02:00And this country has grown, and it's a very special country,
01:02:03because it was able to digest all those new stimuli and digest them and make them into its nutrition.
01:02:13So this is the time.
01:02:14Digestion problem.
01:02:14Digest it and make it better for the United States.
01:02:18All right, Jim.
01:02:20I think the right question to ask after seeing this film is not whether Japanese investment is good or bad,
01:02:25or Japanese trade is good or bad, or either whether Japan is good or bad,
01:02:28but rather to see it as raising questions about a process that has been going on for 10 or 20 years.
01:02:33And that is gradually the shift of assets and technology and industrial power and market share from the U.S. to Japan.
01:02:40Now, this film raises several questions about that process.
01:02:43One is whether it has consequences for America.
01:02:46I think this film suggests some of the ways in which there are consequences.
01:02:49There are the displacement of people like Al Pace, about whom I know nothing.
01:02:53Maybe he deserves his fate.
01:02:54I don't know.
01:02:54But there are larger numbers of people who are displaced in the loss of certain jobs that were important to America.
01:02:59Certainly there are benefits to consumers, as Robert pointed out, in having these cars.
01:03:03But life does not run by the lowest VCR price alone.
01:03:06Societies have other things on their minds.
01:03:09And so, first, it asks us whether this matters, this shift.
01:03:13Second, it raises the question of whether this shift will naturally correct itself.
01:03:18And this is important because implied in most economic logic and in the kind of political logic
01:03:22that the White House representative was expressing is the idea of natural balance.
01:03:26We know that 20 years ago the French were all upset about America taking over Europe, and that looks silly now.
01:03:32And so this film, however, raises the question that perhaps it will not naturally correct itself.
01:03:38What will not naturally correct?
01:03:40What I meant was that when the French were upset about the Americans buying up Europe,
01:03:45they seemed to omit the various adaptations that would take place.
01:03:48The IBM in France would have a lot of Frenchmen in it.
01:03:50They would have local supplies, et cetera.
01:03:52So the worry looks silly now.
01:03:54This film suggests that perhaps it may be different in the case of Japanese investors.
01:03:58They may be slower for various reasons to open themselves up in that way.
01:04:02In Japan, but it also, that we will not reach a nice, friendly, a digestion, as it were,
01:04:07an equilibrium in America without some...
01:04:09The default state, if you will, the natural extrapolation may be a continuing shift of control
01:04:14over technology and over business decisions from Americans inside America to people outside the borders.
01:04:21And this brings up the third question, which is whether there is something distinctly different
01:04:26about Japan's multinational practices.
01:04:29The answer the film suggests is that so far, apparently, there is some difference.
01:04:34So far, they may be behaving differently from Dutch firms or German firms.
01:04:39Now, there are exceptions to this, of course.
01:04:40Mr. Mochizuki's own Japanese steel industry was very advanced in localizing,
01:04:44and perhaps the trend will follow his example.
01:04:50But the film suggests that maybe there may be some long-term difference in how the Japanese companies behave.
01:04:55Well, let's take the first question first.
01:04:58Is there a real difference between American and Japanese business practices that is not resolvable,
01:05:05that there will be no digestion, that there will be no equilibrium,
01:05:08that we will be, in some final sense, at war with winners and losers?
01:05:13You don't think there will be winners and losers in the end, do you?
01:05:16No, I think there are major differences.
01:05:19And there are major frictions.
01:05:21Actually, I think the most important of these, from an economic standpoint, are not presented in this film.
01:05:26And that has to do with the economic behavior within Japan itself.
01:05:30I think one reason that many people have strong feelings, let's say, about Japanese investment in this country,
01:05:37is the fact that foreign investment in Japan is so small that Japan itself has been very slow in globalizing as a country.
01:05:46And therefore, we see an America which is open to Japanese investment, and I think it should be,
01:05:51and a Japan which is very closed to foreign investment.
01:05:55Now, I think that we have to have a continuous dialogue.
01:06:00Indeed, we may have to bring a lot of pressure on the Japanese.
01:06:04If they are going to be of this world, some of their institutions may well have to change.
01:06:08But how long should we wait?
01:06:10Al Pace's fate may be sealed, and then his child may grow up, and Japan's market still may not be open.
01:06:16And at some point, you say, forget about it.
01:06:19Now we're going to set up a set of rules to account for this incorrigible behavior.
01:06:23Now, can I get in there?
01:06:26That's what they seem to be talking about.
01:06:29It's going to take some time, and I have my best sympathy for Mr. Pace.
01:06:35And yet, the history is such that when you have to change the entire social practices that he's referring to,
01:06:42it will take a long time.
01:06:43And individually, not everyone is having the immediate cure.
01:06:49I'm sorry about it, but I think it has been happening in history.
01:06:53And that doesn't mean that we will delay the effort.
01:06:55We will make the best effort.
01:06:57The Americans have been doing it.
01:06:58The Japanese have been doing it.
01:06:59Maybe not quite enough, but we should accelerate the effort.
01:07:04But it will take some time because it comes from the banks.
01:07:06It's going to take some time.
01:07:07I don't know what Americans are supposed to do.
01:07:09What answer to that?
01:07:09There are a couple of suggestions possible, but Jim, go ahead.
01:07:13Let me try to define what this difference is we're talking about.
01:07:15I think the essential difference in the business practices of the two countries is what you could call closedness to newcomers.
01:07:22The Japanese system, as a rule, is difficult for newcomers to enter.
01:07:26This is true on a business sense where you have familiar partners you deal with.
01:07:30It's true in a national and ethnic sense, too.
01:07:33Japan is essentially closed to non-Japanese people in leadership positions.
01:07:36And I think we'd all agree that this will take some time to correct.
01:07:40The question is what we do in the meantime.
01:07:42We all agree we should put pressure on them to change.
01:07:45But should we have policies that assume it will change soon and that will fail if Japan does not transform itself dramatically?
01:07:53Or should we have sort of protective policies that say until Japan does change, we'll have this or that system to try to protect some of our interests?
01:08:02Well, the great problem is if we move with policies, let's say, that try to manage trade, that say, look, let's just insist that the Japanese buy X from us.
01:08:13The great problem with those kind of policies is that they could actually be counterproductive.
01:08:17The only way Japan can ensure that it buys a certain amount from us is, in fact, to organize itself in a cartel buying arrangement, which is exactly what we're concerned about in the first place.
01:08:28So I think we do need policies and we do need to change our policies currently.
01:08:32But we should be very careful that they're compatible with the kind of Japan we're trying to achieve in the end.
01:08:37Well, you leave me a little hungry for a solution.
01:08:39If we can't go ahead.
01:08:41Let me suggest a couple of things.
01:08:42I agree with Professor Lawless in the sense that it shouldn't be a managed trade because it kills the whole thing.
01:08:48I suppose the Americans, that kills Americans also.
01:08:50So the point is how to fly open the society.
01:08:55The Japanese society?
01:08:56The Japanese society.
01:08:58SII has been one of the better efforts, I think.
01:09:01Who?
01:09:01SII.
01:09:03Structural Impediments Initiative.
01:09:05Structural Impediments Initiative.
01:09:07What is that?
01:09:07That is the government-to-government negotiations about to poke their heads into each other's social and economic systems to demand to make it more palatable to each other.
01:09:21Where is the success?
01:09:22This documentary suggests very little in the way of success.
01:09:25Well, it takes time, and the success has to be obtained by your own effort making your productivity risen, your product quality better, your education better, American products.
01:09:38If Americans, it's the problem for Americans, and I think it's the problem for Americans.
01:09:42Well, Jim, I'm just curious.
01:09:43Where do you come out of this?
01:09:44It seems to me you're close to some kind of managed something.
01:09:47I think it's important to think clearly about this managed trade issue because we often discuss it as if it's something that we would never even think about at all, and it has no connection to our current policy.
01:09:57And because, whereas, in fact, a great deal of the trade between the U.S. and Japan is already managed, and in various ways, the automobile export restraints, the semiconductor deals, various agricultural deals.
01:10:07And I think we would come out in a better position for us and for Japan and for our consumers and for the interest of amity between the nations if we thought, yes, this trade is not going to be completely free.
01:10:18We've never had it be completely free.
01:10:19So let's think intelligently how we can use some of these restraints instead of doing it in a kind of stupid backdoor manner, saying, well, our sugar beet farmers are the ones we really have to protect.
01:10:28Let's protect them.
01:10:29If we realized this was inevitable and natural, at least for the foreseeable future, we'd do it in a more careful and sensible way, I think.
01:10:36Can you give me a smart tidbit?
01:10:38Well, I think that it is, you mean, on the managed trade?
01:10:40Yeah.
01:10:41I think it is not, the semiconductor deal, I argue, is not bad for America.
01:10:45I think that saying that the Japanese and American governments expect that American suppliers will get 20% of the Japanese market in a few years, that gives the big Japanese electronics companies a goal of what they have to do.
01:10:58Yes, it will be organized as a cartel, as Robert says, but it's organized in a cartel now.
01:11:01It might as well be a cartel in the short run we are part of.
01:11:04Well, let me hear about that.
01:11:05Terrible idea.
01:11:06Terrible idea.
01:11:07What we did in the semiconductor market was basically to institute a global cartel.
01:11:14We raised the prices of semiconductors all over the world.
01:11:18And the great American strength, actually, is in computers.
01:11:22And many of our consumer companies who consume those semiconductors have found that the cost of their basic material went up.
01:11:29That's also demonstrated in this film.
01:11:31American government policy forbade, now, liquid crystal display panels from coming in here at the prices which they were formerly being sold at.
01:11:42And what you saw there was that they dealt a rather major blow to our computer producers.
01:11:49So it seems to me we have to be very careful when we manage.
01:11:52Let me just make sure I understand.
01:11:53Now, you looked at the scene of that fellow, the American who wanted to create those panels, who seemed to be on his last legs.
01:12:00Because he, I guess, technically wins the legal battle, since there is a dumping is found.
01:12:06But are you satisfied that that is going to resolve things, that America will have a future by that route, by legalism?
01:12:12I think we have terrible dumping laws, that they're written so it is very easy for someone like him to get a positive finding.
01:12:20And I think what that has done is, in fact, to disadvantage the users, just as the semiconductor agreement has disadvantaged the users.
01:12:29Go ahead.
01:12:30Bob, Bob, the thing here is that there are a lot of businesses and people in the United States who are benefiting from Japanese investment, even at the time of trade.
01:12:43And those are not shown.
01:12:44Those are all sad cases.
01:12:46I am sorry about them.
01:12:48But there are a tremendous number of people who are benefiting.
01:12:51Americans benefiting who are not in this document.
01:12:53From Japanese investment.
01:12:55And you wanted immediate, immediate, immediate solution to the problem.
01:13:01And immediate solution.
01:13:02I'm not asking for immediate, but slower than never.
01:13:04Okay, short-term solution.
01:13:06But the solution with people's effort has been investment.
01:13:11And invested plants, transplants here.
01:13:14Look, this is American corporation.
01:13:18American plant.
01:13:19Okay?
01:13:20But equity is...
01:13:21Well, not so fast.
01:13:22How can you say that?
01:13:23Let me say this.
01:13:24Equity is Japan.
01:13:28Okay?
01:13:28Equity, meaning the investment.
01:13:30The stock is owned by Japan.
01:13:32And owners are Japanese.
01:13:34But a lot of company, corporations like that from European, European equity also.
01:13:40So that, what is the problem here?
01:13:42The problem is, the problem is, the problem is, the problem is, that's a rhetorical question.
01:13:47The problem here is that the Japanese are not, Japanese transplants are here, here are not localized.
01:13:54In terms of management, in terms of management, in terms of central directions from Tokyo, maybe, too much of it.
01:14:02So why don't we think about how to really localize Japanese transplants?
01:14:08That will make it, American corporation, just like a Volkswagen in the United States and so on.
01:14:13Jim, could the Japanese, as they're presently made up, given their natural constitution and their predilection for taking orders from Tokyo and getting things from Tokyo, could they become localized, like he said, become more Kentuckian or Tennessean?
01:14:29There are many ways in which people around the world are identical.
01:14:31One way is they all calculate the cost and the benefits of doing certain things.
01:14:35And there's a different structure of cost and benefits that Japanese executives face, which makes it more tempting for them to remain connected to the Japanese hierarchy than, say, for IBM when it goes overseas.
01:14:47What that means for the U.S. is to change that structure, to put on different requirements in the U.S.
01:14:53Say, if you're going to come here, we expect these following five things.
01:14:56And this changes the internal incentive structure for the company.
01:14:59One suggestion here is to have, to make it a rule, law, that the certain number of board members of the transplant corporations here should be American citizens.
01:15:15Would the Japanese accept such a rule?
01:15:18Sure.
01:15:19Well, ask them.
01:15:20Ask them first.
01:15:21And they might say yes.
01:15:23It's a law.
01:15:23To interrupt, one of the geniuses of Japan, I think, is its very rapid and successful adaptation to change circumstances.
01:15:29If the circumstances change, I think Japanese corporations will adapt, as they have in Europe, to stricter rules.
01:15:34Now, let me ask you, Jim, let's take the Al Pace case.
01:15:38And let's just imagine that we had Americans on the board.
01:15:42And in fact, Honda was making those products using 95% American-based content.
01:15:51Would that help the Al Pace problem?
01:15:53Yes, that would not help Al Pace personally.
01:15:55But it would certainly change the overall situation.
01:15:58Because then, in that matter, corporate ownership doesn't really matter.
01:16:02Because you have valuable work being done by Americans in America.
01:16:07So let's be clear.
01:16:10Because what the film does is it defines, it says, that if some company is owned by Japanese,
01:16:16or indeed is even in a joint venture between Americans and Japanese, we count that as Japanese.
01:16:22And that's wrong.
01:16:23Well, you're referring to the hand which holds those parts.
01:16:25Yes, exactly.
01:16:26It says that 1% of the engine is really American.
01:16:29Yes.
01:16:29And so I think we've got to change that view.
01:16:31We're in a global economy today.
01:16:33And if the workers are American, after all, adding most of the value in America, that's, I think, where Jim and I would agree,
01:16:40then that's all to the good.
01:16:43So you all think that scene is a lie in a way?
01:16:46In fairness, it should be pointed out for symmetry that the Japanese count, say, IBM Japan as an American company.
01:16:52You know, this is not some American trick.
01:16:53If they're going to talk, often if you're talking about semiconductor sales in Japan,
01:16:58they'll count Texas instruments in Oita or wherever it is in Kyushu as being an American company because it's owned by the U.S.
01:17:03So this is not just an American peculiarity.
01:17:05I mean, if the question comes to laws, Jim would like us, would like there to be a law, let's say,
01:17:09that we should put a certain number of Americans on the boards of those companies.
01:17:13So would he suggest it?
01:17:15Okay, both of them.
01:17:16Now, the question is, should we then agree America has companies all over the world?
01:17:24Right, and in a sense, let's remember that we are the biggest foreign investors,
01:17:29that this experience that is being pointed out of receiving foreign investment may be unique to the United States in the 1980s,
01:17:36but the rest of the world has had that experience from American companies for the last 30 years,
01:17:40and I don't think that they have viewed it as losing a war.
01:17:43But they certainly have applied restrictions.
01:17:46In almost every foreign country where I believe, there have been local hire rules, local content rules, local board of director rules.
01:17:52Again, this is something in Japan, certainly there have been very strict joint venture type rules for American firms.
01:17:58Robert, you are in trouble here.
01:17:59You've got the Japanese guy saying that he would take rules, and you have him saying he would make rules.
01:18:03And you would not make any of these rules.
01:18:05I don't think, firstly, I don't think it's as yet necessary, because I do see in the Japanese plans themselves a program which is being implemented to increase the American content.
01:18:16I would monitor that.
01:18:18Point here, though, is not...
01:18:20But so far, you see, I think what Honda USA wants to be is a good corporate citizen.
01:18:26That is what it wants above all else.
01:18:28And so I don't think it's necessary, really, to get involved in the decisions of those firms,
01:18:34because I think quite naturally what is taking place is that those firms themselves are worrying about their image.
01:18:39Maybe he is correct, but the point here is not to get the consensus on one specific measure.
01:18:46There may be a lot of cases possible, but the point here is to find specific, constructive, concrete measures to make Japanese investment here acceptable to people,
01:18:58rather than going emotional.
01:19:00And I'm presenting this case as a possibility that you can find those things.
01:19:07That we, people here are not stupid.
01:19:09You can find something like that.
01:19:11There are rules that you could put in place that would work, that would solve some of these problems.
01:19:14So let's work on it rather than emotionally outbursting.
01:19:16But I have a broader question to ask you, which is that the documentary seems to say that in some very fundamental way,
01:19:23Japanese ownership robs America of its wealth, just by the fact of Japanese ownership.
01:19:29I don't want to get into the bookkeeping of the corporations, but there are such things, cash flow versus profit.
01:19:36And when you talk about cash flow, cash flow comes a lot at the beginning of the investment, regardless of the negative profit.
01:19:45Are Japanese companies making big profits now on their American investment?
01:19:49Not many, but some are losing money.
01:19:52And then when it comes to profit transfer to Japan, don't insult your internal revenue service.
01:19:58They have a good checking on the transfer pricing, and it's not happening.
01:20:02And when it happens, they have a very good means with which to check.
01:20:05Jim, is America getting poorer in this relationship?
01:20:08The question is not whether Japanese ownership makes us poor, because that's certainly not the case.
01:20:13There has been a process underway for several decades, which in net is making us poor.
01:20:19For various reasons, a process significantly involving Japan, which has made the U.S. relatively less powerful economically than it might ideally be.
01:20:29So that is the process to focus on and what we can do to improve it.
01:20:33But I don't understand.
01:20:34People come here and they buy things in the United States.
01:20:38They buy land.
01:20:39They drive the price up when they buy that land.
01:20:42They then come and they invest and they build factories here, and they transfer technology to the United States.
01:20:48They have taught us, if you go through the U.S. auto industry today, you will discover an industry which is being remade in the image of the Japanese industry.
01:20:57Not by Japanese.
01:20:58Yeah, but they collect the rents, and they do the design, and they get the best jobs, and they don't give them to us, is the sense of the documentary.
01:21:07That's right, and I think all of those are inaccurate, okay?
01:21:10Firstly, they provide it.
01:21:11Jim?
01:21:12Well, let's try a little thought experiment here.
01:21:14Suppose tomorrow Boeing went out of business, and Mitsubishi Heavy became the leading aircraft manufacturer in the country,
01:21:19and they decided to open up a plant in St. Louis or something to do some local content, and they bought a lot of real estate in New York.
01:21:25Would we be better off in that situation?
01:21:27Suppose Mitsubishi made far better airplanes than Boeing, which is where we have to begin, okay?
01:21:34Then I think it would be a difficult calculation, because we would not forget that we were getting the great advantage of superior aircraft.
01:21:41Let me add this, though.
01:21:43Through these real estate investments, most of the companies lost money.
01:21:46Sure.
01:21:47In order to, the wealth was transferred from Japan to the United States.
01:21:50Most of the insurance companies invested in treasury bills in this country in the past three years lost the money, meaning transfer of wealth from Japan to the United States.
01:21:58Lobbies being paid, Mr. Choate being paid by Japanese.
01:22:01That's transfer of wealth from Japan to the United States.
01:22:04But where this comes out, the bottom line is that both of you feel that only at the point when the United States and American companies can produce goods and services that are as good as Japanese,
01:22:14only then you get the equilibrium, and no changes in rule, in your case, no changes in rules will get us from one place to the other.
01:22:20I don't want to leave you with the impression that I think everything is okay, but as I said, I think the real changes have to be made in Japan itself.
01:22:28I think Japanese doing business in the United States subject to our rules and our laws are fine, and I think we should encourage them.
01:22:37But I think it's looking at what goes on in Japan and how difficult it is for Americans to penetrate their market that we have to use a lot of our political...
01:22:45I certainly agree with Robert on that diagnosis.
01:22:50My prescription is somewhat different because for hundreds of years, foreigners have been trying to convert Japan in one way or another,
01:22:56religiously, politically, economically, and there is precious little evidence of success in this venture.
01:23:01So it seems to me foolish to have a policy that depends on missionary efforts within Japan to bring them to our legal standards.
01:23:08I look at the evidence as very different from Jim.
01:23:10I think that, in fact, what we're seeing as a result of the Structural Impediments Initiative are changes.
01:23:18They're not taking place as quickly as we would like, but I think that there are major changes taking place in Japan,
01:23:24and I think they're occurring because the Japanese today realize if they want to play a major global role,
01:23:30they themselves have to be a more open economy.
01:23:33It's because it's in Japan's interest, and that's what the Japanese are best at doing, actions that are in their interest.
01:23:38Well, I'll believe it there.
01:23:40Thank you all for watching, and thank you for being our guests.
01:23:43I'm going to say goodbye now to Robert Lawrence of Harvard University,
01:23:46and Jim Fallows from Atlantic Monthly,
01:23:48and Dr. Kichi Mochizuki.
01:23:51Thank you for being here.
01:23:52And I'm Robert Prillowich for Frontline.
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