The relentless revolution: a history of capitalism (53 page)

The 1980s also brought wrenching changes to manufacturing in the homelands of capitalism. The worldwide circulation of people, investment, and goods took an unexpected turn when multinational corporations sought out countries with cheap labor to build new plants. The enhancement of global communication made this easier to do. The United States, in particular, lost high-paying factory jobs that had boosted millions of families into a prospering middle class. Soon the steel centers that stretched from Buffalo, New York, to Gary, Indiana, lost out to Mexico, China, South Korea, and Brazil. Cheap imported steel entered the country from Japan and Europe. The land of smokestacks became a Rust Belt. Millions of jobs were opening up in finance, computers, and the service sectors, but Americans were used to their manufacturing might. And the new areas promoted an income split: minimum wage work in fast-food outlets and nursing care facilities and higher wages for the denizens of Wall Street and Silicon Valley.

The novelist Tom Wolfe commented recently that we were witnessing “the end of capitalism as we know it.”
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That’s a statement that could have been made many times in the past two centuries, for capitalism is a system constantly reinventing itself, a set of prescriptions peculiarly open to disruption, a work in progress. It looks the same only if you examine the categories instead of the participants and practices. For instance, people have long insisted that market economies flourish only in open, secular societies where property rights are enforced and individual ambition is cultivated at the knees of mothers. Seven success stories in the second half of the twentieth century suggest that capitalism can take hold in diverse social contexts under government supervision and within communitarian cultures—that it is, in fact, always adapting.

The Formidable Economic Power of Japan

First among the countervailing examples is Japan, which started its economic transformation more than a century ago. Next, the Four Little Tigers—Singapore, Hong Kong, Taiwan, and South Korea—charged out of their traditional cages in the 1960s and 1970s. Sometimes called the East Asian NICs (newly industrialized countries), their takeoffs diverged from that of Japan’s as Japan’s had diverged from those of Western Europe and the United States. India and China, coming along more slowly, portend even greater influence in the global economy, as befits the first and second most populous nations, with 37 percent of the world’s people.

Japan appeared an unlikely candidate for industrialization, much less for rapid industrialization. An East Asian island of thirty million people in the mid-nineteenth century, deliberately cut off from the world, it burst into prominence as a military and economic power at the end of that century. In a report card for worldwide economic development between 1820 and 1970, Japan placed first. Its GDP grew twenty-fivefold, a growth spurt unique in human history.
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Starting at the most advanced level in 1820, Great Britain multiplied per capita income ten times, Germany fifteen, and the United States eighteen. The Western sequence of industrialization went from textile making and mining to metallurgical industries, railroad building, and heavy industry generally, its source of energy from waterpower to steam created with coal fires to electricity powered by generators. Consumer goods slowly diverted investments from the production of capital goods, the whole accomplished in a more or less trial and error fashion, through the decisions of entrepreneurs and investors.

Japan did not reverse the process, but its deviations from the pattern set in the West shows the diverse paths that capitalism can follow. Japan lacked the raw materials that mattered in heavy industry, meaning that it would have to import its iron and coal. The government outlined a program of exporting textiles, shoes, and trinkets that could pay for these essential imports. Hastened by its ability to borrow foreign technology and guided by a very determined elite, it did everything fast. Its traditional industries like cottage silk reeling, food processing, and various handicrafts used waterpower well into the twentieth century, but electrical motors replaced steam engines so quickly in the first decade of the twentieth century that you could almost say that Japan skipped the steam age. It also followed its own traditional path in placing the modernization of production and finance in the hands of a very few families like the Mitsuis, Mitsubishis, and Sumitomos, who in turn launched joint-stock trading companies in different sectors of the economy like steel and automobile-making. These family concerns formed pyramids from the top down, unlike the United States, where managers usually came up from the bottom rungs of business. The great industrial families exercised tight control from the center and cultivated a privileged group of insiders. They also blocked investment opportunities for foreigners.
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Even with military expenditures, government spending in Japan represented only 7 to 11 percent of the total annual investment in the economy, compared with 28 percent in the United States. It played a much larger role in capital formation—probably 30 to 40 percent—until private investments took off during World War I. As would be expected, Japan had its Wedgwoods, Watts, Carnegies, Rockefellers, Thyssens, and Siemenses, who laid the corporate foundation for Japan’s successful industrialization. Sakichi Toyoda, like Thomas Edison, was a natural inventor and an even better business organizer. Born in 1867 into a family of carpenters, he set out single-mindedly to design a better power loom and devoted his life to this goal. In his province almost every farmer had a loom in his cottage for the family to earn extra income weaving cloth, so he was familiar with its construction and operation.

After decades of work Toyoda caught the attention of the British firm Platt Brothers, which dominated the world market in textile machinery. In 1929 he sold it the right to manufacture his G-type automatic loom. The contract rewarded his genius and tenacity and signaled the progress of Japanese technology. For cotton cloth makers his loom looked like a good investment. It cost three times the price of a conventional loom and increased tenfold the output of one operator, but it failed to catch on. The failure of Toyoda’s loom for Platt Brothers uncovered a central weakness in the British textile industry: the strength of organized labor. Few manufacturers bought the Platt-made Toyoda loom because their workers objected to being displaced. By acceding to them for short-run peace, the British industry lost its preeminence in the world market. Between the 1880s and 1930s, Britain’s market share dropped from 82 to 27 percent while Japan’s climbed to 39 percent. The ability of Japan’s association of textile makers to buy cheap raw cotton contributed to this rise in market share. Eventually Japan lost out to countries with cheaper labor but retained the lucrative business of making the textile machinery.
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You probably already realize that the Toyoda Automatic Loom Works would not be getting this attention were it not for its parentage of the Toyota Motor Company. Sakichi Toyoda, on his deathbed in 1930, advised his son Kiichiro, another inventing genius, to find his own passion. Having been astounded by the mass production of Model T Fords when he visited the United States, Toyoda pushed his son in the direction of automobile making with a pot of cash to get started. At that time Ford and General Motors dominated the Japanese automobile market. Kiichiro Toyoda built his early automobiles on the technology developed for the family’s automatic looms. He changed the name of his car from Toyoda to Toyota for reasons pertaining to Japanese calligraphy.

In 1936 the Japanese government, already well advanced in an aggressive colonial policy, used a new licensing law to throw most of the automobile business to Toyota and Nissan. Both became giant holding companies in the 1930s. Their executives were military men who based their market strategies on advanced technology. They used state funds rather than banks for their capital, though Toyoda did extract working money from Toyoda Loom’s accumulated earnings.
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The decision of the Japanese government to go to war in 1894 and 1904 and a generation later in 1937 and 1941 put Japanese industry on a war footing. The country’s industrialists had been the most ardent supporters of the doomed Greater East Asia Co-Prosperity Sphere and Japan’s aggressive prewar foreign policy. American bombing raids during 1945 destroyed Japan’s war machine, but not the know-how that had built it.

From the point of view of the history of capitalism, Japan’s capitulation to the United States in 1945 was more portentous than its earlier, but short-lived, imperial successes. Having accepted “unconditional” surrender with the one condition of maintaining the emperor, the United States was free to rebuild Japan in its own image. General Douglas MacArthur, the supreme commander for Allied powers in the area, took charge of the occupation. His thoroughness and the absence of atrocities from American troops stunned the Japanese. The country was demilitarized; jails were cleared of dissident liberals, socialists, and Communists; and political parties and labor unions encouraged to participate in the hoped-for establishment of a postwar democracy.

When the Japanese were slow to produce a constitution, General MacArthur’s staff did it for them, investing power in a legislature like that of Great Britain and giving women equal political rights with men. Land reform placed more than two million acres in the hands of nearly five million tenant farmers. The rural economy began to blossom. Turning their attention to the manufacturing sector, the occupiers became intent on breaking up the giant holding companies of the prewar period.
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World politics then intervened.

When Soviet-backed North Korea invaded South Korea, the United States led a United Nations action against the invaders. American attention went from reforming the Japanese state to strengthening its power to resist communism. The intensification of the Cold War in the East with the emergence of a Communist regime in China deflected American advisers from their initial push for democracy.
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Becoming a frontier in the Cold War had major consequences for Japan. It sped up the end of the American occupation with a formal treaty ratified in 1952. At the same time, Japan signed an agreement to provide bases for American troops, ships, and aircraft, an act that aligned it with the West to the exclusion of Russia, China, and neutral countries in Asia. The Korean War jump-started industries, light and heavy, as Japan extended hospitality to American forces and supplied munitions and equipment to the war effort.

A remarkable American, William Edwards Deming, came to Japan in 1950 as an assistant to the supreme Allied commander and stayed long enough to impress an obsession with quality on the country’s leading industrialists. Trained in physics, mathematics, and statistics, Deming was a natural teacher, churning out such student-friendly aids as fourteen points for transforming business effectiveness, seven deadly diseases, and four obstacles to progress. The gist of his message was that manufacturing is a system that can be improved by exquisite attention to detail and made cost-efficient by constant improvements in every phase of production. He originated the famous Japanese team system, in which personnel in research, design, sales, and production worked closely together, often achieving an esprit de corps that banished tensions from the work site. Japanese leaders consider Deming, awarded the emperor’s Order of the Sacred Treasure, practically the father of Japan’s postwar industrial rebirth.

American advisers threw their considerable weight behind Japan’s conservative politicians once the Korean War erupted. Throughout the second half of the twentieth century, the Liberal Democratic Party enjoyed an almost unbroken run of dominance in Japanese politics, though in 1993 there was a temporary pause in the party’s hegemony. Bringing the occupation to an end, the Japanese government began its own program of economic reform, what it called rationalization. The goal was to make Japanese producers competitive on the world market, beginning with steel. The most modern integrated steel plant on the globe rose from land reclaimed in Tokyo Bay in 1953. It took raw materials in a continuous series of processes through to the finished products.
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Soon other Japanese steel firms copied it, demonstrating the perverse advantages of the wartime destruction of Japan’s industrial base. Obsolescence was swept away with the rubble. In defeat, its industrialists discovered the virtues of flexibility.

That flexibility did not extend to the government. Japan’s continued attachment to the American dollar has extended its dependence upon its World War II conqueror. Collusion among the bureaucracy, leaders of big business, and members of the Liberal Democratic Party have frozen out their opponents from making and implementing policies. The Socialist and Democratic parties have regularly elected members to the lower and upper houses of the Parliament but rarely exercised any real power. The big exception came in the 1970s, when the leftist parties, with a national consensus behind them, pushed the LDP to address the deterioration of the environment that industry had brought about. In this sense, they act as something of a safety valve on an otherwise closed system. This pattern of course is consistent with Japan’s prewar institutions. It is also the case that Japanese leaders have been hampered from making policy changes or responding to unfolding events because of the intransigence of a very independent governmental bureaucracy.

While Europe and the United States were enjoying those two decades of strong prosperity between 1953 and 1973, the Japanese record was even more impressive with an annual growth rate of 10 percent, then unique in the history of capitalism, but now matched by China.
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After the war, Toyota, Nissan, and Honda benefited from the growing domestic market, which the government protected from European and American competition. Under this umbrella Toyota and Nissan built new plants in the early 1960s. They pioneered so-called lean production with the “just-in-time productive system.” This program of using one machine to do several tasks was born of wartime necessity, as was the inability to produce a large backup of items. Factory managers did not have the luxury of assigning one machine to turn out, say, left fenders. They also didn’t have the space for a long assembly line. Hence they didn’t stockpile parts, and they put together their vehicles in tight quarters.