The Japanese and American governments' role in business can be summed up neatly using a baseball analogy. Consider two competing teams: one representing Japanese companies and the other representing American companies. When the two teams compete in the United States, the American government acts as a kind of regulator, or umpire, ensuring everyone plays by the same rules, but always maintaining objectivity (at least in theory). Conversely, when the game is played in Japan, the Japanese government sides with the home team and acts as a facilitator to artificially strengthen Japanese interests.

Japan is often criticized for being globally irresponsible (for lack of a better word) when it comes to international trade relations. Japanese markets are strongly protected, and often insulated, by the government in order to keep Japanese companies strong. Following World War II, the United States allowed such tactics because globalization was still wearing a diaper and a powerful Japan was viewed to be essential in staving off communism. However, times have obviously changed, and this kind of nationalistic approach to economics is at odds with a global marketplace.

However, is such openness to foreign competition really in a country's best interests? This is an important issue because now, possibly more than ever, there exist calls for government protection against the swell of cheaper imports. Personally, I think an open and fair marketplace is always the best route so long as a market/industry is adequately developed.

In order to better elucidate my reasoning, I have copied several emails I recently exchanged with an Australian friend of mine, Denton. This discussion first came up in one of my courses where I raised the above points about the Japanese marketplace being unfair and counterproductive to Japanese interests. Denton's writing is in red...

I've thought it over a little more and I generally agree with what you said. How it's better to break something and let it fix itself properly from scratch than to let it grow exponentially greater with flaws in its basic structure. That kind of thing, right? Please correct me if I'm wrong.

Yes, from a domestic standpoint, it is in the best interest of a country to open the market to fair competition. Otherwise, companies will become complacent, and with time, inefficient. The government is then forced to bail out the company more and more frequently, until the company eventually goes under because it can no longer compete. When global trends shift - i.e. cheaper goods are produced elsewhere and the disparity will only grow - a company should adapt and get out of that market. In the U.S., this recently happened when GE, the world's second largest company, put its $5-8 billion dollar appliances unit on the selling block because its future prospects were looking dim (cheaper goods from abroad). This means the loss of jobs and a massive write-off for lost assets, but the U.S. government will not get involved - better 30,000 jobs lost now than 60,000 later. Indeed, many would argue that GE should have seen this 5 years ago and escaped from the industry then. From a government stand point, I would prefer 30,000 jobs lost today than 30,000 jobs lost 5 years from now; those 5 years could have been used to re-train everyone.

One important fact underlies all of this: a company should be responsible for looking after its best interests, not a government. Other than ensuring companies are "playing by the rules", the less government intervention the better, and a company can better navigate its future than a government.

The second point I want to make comes through examining this from an international standpoint, whereby it is in the best interests of the international marketplace if all markets are open to free competition. I hate when people say "Buy American!" or "Don't buy Chinese!" because that is at odds with capitalistic efficiency. Such protestations ultimately come down to nationalistic feelings that do little long-term good (as is discussed above). However, there is also an important point to be made that EVERYONE PROSPERS when global markets are open to the free flow of goods. Without getting into too much detail, this ensures that the consumer has access to the cheapest goods. Such a process works its way up the ladder in that a domestic car company has access to cheaper steel, and can pass this benefit on to the consumers. For example, if GM must always buy American steel, Americans will pay far more for their cars, and GM will sell less internationally. This is entirely nonsensical: it hurts GM and American consumers. While it is advantageous to ASSIST domestic companies to become more competitive (i.e. tax breaks for research, incentives for domestic manufacturing, and so forth), the marketplace should be kept FAIR and COMPETITIVE.

The purpose of government support is to make a company more competitive; I fail to understand how prohibiting competition makes them more competitive. If a company wants to become successful in a globalized world, it cannot focus solely on domestic sales. Why insulate a company from foreign competition when this will make them less-competitive internationally, thereby losing out on far greater in potential profits? To make this point more succinctly, it is better for a domestic company to be internationally competitive (thereby becoming a global powerhouse) than for a domestic company to be domestically competitive (thereby signifying it can no longer compete with foreign companies).

However, in this case, I'm not so sure it applies to the Japanese as much as to other countries.
I agree that Japan is very unique, but arguments such as "capitalism won't work in such-and-such a place" or "globalization won't work because of so-and-so," have repeatedly proven short-sighted... Certain concepts work for good reason, and with time, there is no reason the same rules will not apply in Japan. On another note, I think Japan is especially unique in that ANYTHING CAN WORK HERE, so long as the people have leadership that directs it.

The Japanese market is no longer big enough to compete with the international market. In the past, this technique worked because companies primarily sold domestically, and foreign companies could not compete in Japan. However, by subsidizing Japanese companies (to the point of profligacy), they are doing the companies - and thus the country - a disservice. The company is losing its long-term competitiveness.

Especially in the Electronics Industry, I think Japan is undoubtedly still the best, but certainly not the cheapest. But I think everyone prefers to buy quality than some cheap Chinese knockoff which will stop working after a few days. And judging by the Japanese students here at TiTech, who mostly (don't quote me) go to the big companies in R&D, I think Japan will still be at the forefront for many years to come. I feel that's the way Japan is at the moment. Of course, eventually time will tell, but from the Japanese government's point of view, why change it now?

People prefer to buy quality, and that is unlikely to change. However, how much longer will it take for other countries, such as China, S. Korea, Vietnam, and Taiwan, to match Japanese quality with far lower costs? (I think it has already happened, in fact.) If past exponential growth is any indicator, Japan's advantage cannot be maintained much longer (similar to how the U.S. lost its electronic advantage to Japan in the 1970s).

The argument about quality engineers is valid, but misses the point: such engineers should move onto new products, above and beyond standard electronics. Many of the world's smartest students (and 50% are not American) go to American graduate schools for engineering. I promise: they do not flock to standard research and engineering departments. Instead, they are busy going in 1,000 different directions trying to find the next big thing. I prefer this kind of individualistic approach to the structured interests of bureaucratic guidance that occurs in Japan. I trust aspiring and ambitious engineers more than out-of-touch, heavily lobbied, and completely ignorant men sitting at desks in corporate offices. (One big difference between Japan and America is where the large companies came from: in Japan they came from big families with government support, whereas in the U.S. they came from people like you and me who took an idea and ran with it - everyone else be damned.) As to your later point, I am not convinced that Japanese students are superior to India's ITT grads, China's Tsinghua grads, and so on.

Why change it now? "Change. Before you have to." Japan has lost much of its competitive edge - that is an irrefutable fact that Japan, like many developed countries, has struggled to deal with. Of course, Japanese companies still hold a strong "brand image," but so did many companies before our generation. Now, who remembers the likes of Zenith or RCA (to name but two)?! If modern companies do not want to join this list, they must learn to always change, always adapt, and never settle... I am not arguing that change for the sake of change is a good idea - if it ain't broken don't fix it - but that clearly is not the case.

If a government does not support a struggling company then it could fail, resulting in the loss of jobs. This is not good for an economy, and the government should prevent it.

I agree the loss of jobs are not good for an economy, and a government should take steps to prevent this from happening. One such step is to create an open marketplace so that failing business are allowed to fail - and the quicker the better (if there is no sign of things improving). For example, even though many American companies went bankrupt in the 1980s (as was the case with TV sets, handheld electronics, and certain manufacturing industries), this served the country well in the long term: future graduates did not go into such industries, but instead developed new industries. The likes of Google, Microsoft, IBM, Apple, (etc!) would never have come about if older behemoths still existed. I suppose this could be categorized as creative destruction.