Lessons for Britain From the Japanese Model

LESSONS FOR BRITAIN_______ FROM THE JAPANESE MODEL Kevin Woodfield .MONG THE MORE PUZZLING ECONOMIC DEVELOPMENTS in the postwar period must surely be Japan's astonishing success and Britain's almost equally astonishing decline. It is worth recalling that Britain emerged from the war with an empire that still enabled her to corner a quarter of world manufacturing trade. In the mid-1950s the value of Britain's manufacturing exports was two-and-a-half times that of imports but by 1981 , for the first time, manufacturing exports failed to cover the import bill.1 Japan, in 1945 a war-wrecked and semi-feudal country, went on to record the postwar world's highest economic growth rates, building an economy which today is second in size only to that of the United States. Japan's economic take-off has been the subject of intense scrutiny by developed and developing economies alike, while Britain's experience has been studied as a cautionary tale on how not to manage a modern industrial economy. Successive British governments have tried to copy French-style central economic planning or to mold Britain's fragmented industrial relations system along more coherent German lines. More recently, attention has been diverted eastward, to see what can be borrowed fromJapan. Britain's Labour party leader Neil Kinnock is the latest in a long line of admirers gazing in awe atJapan's Ministry of International Trade and Industry (MITI). He wrote recently: "For thirty-five years Japan has had a state agency to promote industrial modernization — MITI ... In Britain we must take heed of these institutions, and fashion 1 . Trade in manufactures remains the barometer of Britain's economic performance. North Sea oil revenues can provide only a short-term cash windfall. In the long run, Britain must return to its traditional reliance on a surplus in manufacturing trade for prosperity. The author, a 1986 SAIS M.A., is a former industrial affairs correspondent for the Coventry Evening Telegraph. 177 178 SAIS REVIEW our own implements for planning, with the market, to ensure that resources are available and used in a way that will maximize the efforts of inputs and the consequent outputs."2 But can successful Japanese practices be transplanted to Britain, culturally a very different nation, with more success than the past somewhat half-hearted attempts to copy the French and the Germans? On the face of it, Britain and Japan have a number of common features : Both are offshore island nations that have to rely heavily on imported food and raw materials, to be paid for with exports of manufactured goods. In the 1930s both countries set up closed trading blocs, the British Imperial Preference System and Japan's Greater East Asian Co-Prosperity Sphere, in order to ensure secure markets. Today, Japan has adopted the historic British position of defending free trade to guarantee open access to markets. What we are concerned with is what happened in between, when heavily protected Japanese enterprises became highly competitive on world markets, while Britain's protected industries failed to adjust. Britain's imperial legacy (perhaps better termed "empire hangover") has shaped its postwar economy in two fundamental ways. First, the Imperial Preference System permitted British manufacturers to enjoy protected markets where their goods met with limited competition. Firms maintained profit margins simply by passing on higher costs through higher prices. The Japanese, without imperial markets to exploit, had to break into export markets the hard way, through price competition. This compelled firms to find ways to keep costs down. The prevailing attitude among British management provided favorable conditions for union power to grow. This was reinforced in the 1950s and early 1960s by more or less full employment and even, at times, a labor shortage. British unions could and did bargain with government, resulting in the "great consensus" policies in which wage restraint on the union side was traded for a government commitment to policies of full employment, social welfare, and job protection. This was the seed-bed out ofwhich Britain's unique union structure grew. The power ofindustrywide collective bargaining was gradually undermined and eventually usurped by the plant-level bargaining of shop stewards.3 These part-time, unpaid...