It may not be entirely surprising that at a conference on trade issues bringing together American and German politicians and economic experts the "phenomenon of Japan," as one of the Germans put it, was a dominating theme.
With its growing trade surpluses with every major nation (except with the OPEC oil producers), Japan is a source of envy in this country, Western Europe and Asia. All accuse Japan of unfair trade methods as it penetrates Western markets while practicing closed-door protectionism in its own markets.
But the Japanese surplus has deeper roots than just the protectionism enforced by the Japanese bureaucracy. Former trade ambassador Bill Brock once put it in perspective: "I have this bad dream, in which the Japanese abandon all their restrictions and do everything we've been asking them to do, and they still have an enormous trade surplus."
Clyde Prestowitz of the Commerce Department has put together a theoretical list showing increased U.S. sales of at least $14 billion if all barriers were lifted. But against a Japanese surplus that Prestowitz projects at $50 billion this year, that would be far from a solution of the problem.
During three days of talks here organized by the Center for National Policy, a group supported by liberal Democrats and trade unionists, and the Friedrich Ebert Foundation, representing the German Social Democratic Party, one revealing clue to Japanese success was offered by Merton J. (Joe) Peck, a Yale University economist.
Peck, who recently spent three months observing the workings of the Japanese Economic Planning Agency, said that Japan has developed a bold method "to handle the losers in industry" -- something that the United States and Europe have never been able to do. In the absence of a rational way of phasing an industry down and out, the tendency in this country and in Western Europe is to protect it with quotas and other artificial means. Usually, the effort is to shield the industry from foreign competition rather than to provide an incentive to adjust to a lower level of operations. Aid to the steel, textile, auto and other industries hasn't been conditioned on the companies' and workers' becoming more efficient.
"The United States doesn't have a good adjustment policy," Peck said. "There are losers in international trade, and they are losers because of developments for which they're not at fault. How should we deal with them?"
The Japanese example provides an answer: "They have become efficient at creating an industry when it is competitive and discarding it when it is not competitive." For example, the Japanese built its aluminum industry to the point in the early 1970s where it became the second largest in the world, then "tore it down" by 1980 when it was no longer competitive.
What did the Japanese do? According to Peck, beginning in 1978 the Japanese government developed legislation to deal with "structurally depressed" industries. First, there is the matter of definition: In Japan an industry can be designated by the government as "structurally depressed" simply if it is in trouble. The troubles don't have to be the result of international competition.
Once so defined, the government can direct the industry to reduce capacity. To take the case of aluminum, at the same time it was told to cut capacity, the industry was ordered to raise prices, forcing consumers to share the costs of the contraction with workers and the banks. The extra revenue was used to pay off bank loans and to provide generous severance pay (five to six times annual salary for top-paid workers).
In addition, the Japanese policy of dealing with industrial losers places most of the burden on the employer for relocating workers, with some government supplements in terms of unemployment compensation.
"Japan has faced these problems better than we have and better than the other OECD countries," Peck said. "They understand that you have to reduce the size of some industries so others can grow. But they haven't placed their reliance just on the force of the market."
Such a bold -- perhaps cold -- industrial policy might not fit here and in Western Europe, where governments lack such control of the business community. But the idea of "letting go" instead of "hanging on" to industry when someone can do it better or cheaper is crucial -- provided that the problems of human dislocation are dealt with. Most of the Americans -- including union spokesmen -- and Germans here agreed that better adjustment techniques must be found. But there is a problem of pride and ego: For all its successes, Japan is still regarded (especiall Europeans) as an annoying upstart whose techniques and ideas needn't be copied or adapted.