Government-Business Relations in the United States and Japan


The manufacturing industry has been of significant importance to many countries around the world. In the United States, the manufacturing industry trend has been of significant importance to the nation just like other countries. Japan has also experienced mercurial growth in its well-organized manufacturing sector, attributed to the heavy involvement of the government in the restructuring and operations. In the United States, manufacturing seems to be concentrated towards oligopoly systems. Even though small firms remain significant in this industry, they only have the role of niche players. The government’s open involvement meant that large players moved forward to dominate the industry to make it completely difficult for small players to penetrate (Cashman, 1988).

On the other hand, Japan’s government involvement is even more prominent considering the historical aspect of the two entities. In essence, the historical perspective of their strong manufacturing industry was based on the principle that to catch up with the developed nations, the government had to involve itself with the manufacturing industry not just at the peripheral stage by at the core of everything (Ogasawara & Hirofumi, 1996). They had therefore assumed the responsibility of defining the policies that would define the industry and help it advance through whatever means available. This paper compares the two countries, the United States and Japan, in terms of how their respective governments relate with the manufacturing industry, creating a varied dimension of business ethics, strategies, and success.

The United States Government- Business Relationship

Historical Perspective

United States’ manufacturing industry is characterized by a strong display of big manufacturers who dominate the entire sector. A hotly debated topic in the United States is whether the government played a role in the rise of big manufacturing industries at the expense of small unit manufacturers. At least to the knowledge of many, small firms did not play a serious role in establishing the manufacturing industry due to their inability to penetrate the big player-dominated sector. Studies indicate that between 1972 and 1988, plants with at least one hundred employees accounted for two-thirds of jobs created in America small manufacturers created more jobs than large ones (Cooper, 1990). However as time went by, small firms went out of existence at the expense of big players, thus declining job opportunities (Blackford, 2008). This was attributed to the weak relationship that the government established with the big firms. It is therefore stated that the trend went towards an oligopoly sort of business, where large companies used their large economy of scale to establish themselves in the 1990s.

The United States’ Government Deregulation

The restructuring reached the core of real government-business relations. Many observers in the manufacturing industry believed and still believe that deregulation would spur economic growth and business development (Blackford, 2008). The deregulation was specifically begun by President Jimmy Carter’s government and later continued by President Ronald Reagan (Gould, 1988). Its main aim was to eliminate what many viewed as excessive federal governmental regulations from almost all industries, manufacturing being one of the most affected. One of the most affected manufacturing industry sub-sectors was electrical utilities manufacturing.

As the 21st Century was ushered in, it was too early to elaborate on all the impacts created by deregulation in the United States manufacturing industry (Blackford, 2008). It was clear that some of the effects were never expected and their occurrences led some observers to believe that it was somehow a failure. While the governments’ approach to pull off from any heavy involvement in the operations and activities of many industries was lauded to have led to having boosted economic growth and jobs, it was evident that quite a good number of people believed it was not the best thing to do. This is because it was seen as a way in which the government was running away from the responsibility of taking care of the public welfare. That aside the industry became dominated by large independent industries; leading to stiff competition and spurring growth.

The US Industrial Policy: Present Status

The United States’ industrial policy is hinged on its federal system of government. From the 1980s, the issue of federal industrial policy was a hot topic as the country faced stiff competition from its trading partner, mostly from Europe and Japan (Hawley, 1999). Unlike Japan that had long ago adopted collaboration between government and private sector, US policy was hinged on a freehand approach as the private sector was allowed to operate on their own without any form of mainstreaming or control, albeit comparatively (Hawley,1999). Many observers see the free-market policy adopted by the government, which entailed reduced corporate taxes as well venturing into more energy production are the best way to revitalize the manufacturing sector of the United States economy.

The United States is seen as not having implemented the clean production technology that is being advocated all over the globe. Its corporate tax is considered relatively high for the manufacturers’ hence increased financial burden to the industries and insufficient funds for research and development (Hawley, 1999). The federal governments have the regulatory mechanism to control the trade between states as well as exports outside the US (Milkis & Jerome, 1999).

Government-Business Relations in Japan

Historical Perspective

The partnership between the government of Japan and business had been institutionalized from the Meiji Restoration in 1868 (McCormick, 2007). During this time, the new government took it upon itself the responsibility to develop the country within the shortest time possible through industrial restructuring. The government noticed that the only way they could match their western counterparts was through political and economic transformation. This was manifested in their slogan, “rich country-strong army” (McCormick, 2007, p.752). It was realized that lack of private capital, modern commercial skills, and techniques, a modern economic infrastructure led to the belief that the only way to initiate economic growth is to involve the government in all the aspects of developmental initiatives (McCormick, 2007, p.753).

The then economic control channels meant that the government had to involve itself more in the transformation of the Japanese economy. The reform measures taken by the Meiji government even strengthened the role of the government when it allowed the government to borrow private capital and direct its investment towards strategic manufacturing industries such as shipbuilding and textile (Ogasawara & Hirofumi, 1996). When these enterprises matured, the government transferred them to selected private firms. This large-scale transfer was seen as the beginning of the states’ effort to privatize the industries. The defeat of Japan in World War II did not change the government-business relations in any significant manner.

The Present Government-Business Relationship in Japan

Japan has three major players in the manufacturing industry. These are bureaucracy, business, and the LDP (Ogasawara & Hirofumi, 1996). These players have developed a comprehensive relationship through a triangular form of communication.

The bureaucracy began in the formation of the Ministry of International Trade and Industry in 1949 was the beginning of the strengthening of the three institutions (Shimada, 1983). This ministry is responsible for the structuring of the industries, especially manufacturing ones to adjust the possibly disjointed aspects of the sector (Shimada, 1983). It also helps to guide the industry development and their distribution, coordinate Japan’s foreign trade activities, management of raw materials such as electricity and water for the manufacturers. The other part of bureaucracy is the Ministry of Finance, which controls the important aspects of industrial development through industrial policies such as budgeting, offering cheap government loans to the manufacturers, and giving a selective tax cut to the critical manufacturers to motivate them (Schaede, 1995).

The Business part of the Japanese is dominated by big businesses popularly known as Zaikai (business world) (Schaede, 1995). They include the Federation of Employers’ Associations, the Federation of Economic Organization, the Committee of Economic Development, and the Japan Chamber of Commerce and Industry. These large industrial groups embrace various industrial sectors and they are known to account for almost a third of the total economy of Japan. In the 90s the manufacturing industry was dominated by the ‘big six’, comprised of “Mitsubishi, Mitsui, Sumitomo, Fuji, Dai-Ichi Kangyo, and Sanwa” (Ogasawara, & Hirofumi, 1996, p.83). The representative of the various companies participated in the President’s clubs, where they mainly focused on policy issues as related to manufacturing and trade issues. At the lower end of the manufacturing business are small and medium-sized firms that have formed small inter-firm initiative groups (Ogasawara, & Hirofumi, 1996, p.83). These firms are subcontractors. Schaede (1995, P.21) states that the importance of this system in the government business relationship is reflected in the “dependence on the ‘in house’ bank, which is influenced by the bank of Japan about monetary policy, credit, and loans rationing”.

The LDP is a political party that has been in existence for decades and has been winning elections until very recently when its simple majority lead was regarded as a disaster in the making (change, 1995). The party has never been interrupted in its past decades of elections and this ensured a stable and conservative relationship between the government and the business, particularly that of the manufacturing industry seen as the Japanese strength. The LDP obtains its votes through chains of personal connections that are seen until the precincts of the local influential figures (Suzuki, 2003). To obtain big government contracts, private businesses or consortiums give gifts to influence the decision-making processes (Suzuki, 2003).

The Japan Government and the Industrial Policy Instruments

The Japanese manufacturing industry has received consistent high priority since the end of World War II (Wiebe, 1992). Since this period, the government-industry could be described as the government industrial guidance model, where the government-controlled most of the subsidization, preferential capital as well as allocation of license (Wiebe, 1992, p.121). However, as time went by, the government’s control waned as pressure mounted for more liberalization of Japan’s economy, more initiatives to protect the environment, and the reduction of the role played by the government in the management of the manufacturing sector (Wiebe, 1992). It was reflected in Mitsubishi’s decision to form a joint venture with Chrysler, against the will of the government, which had a prior arrangement for the Mitsubishi- Isuzu venture (Ogasawara & Hirofumi, 1996). Following these developments, the government had to adopt another way of controlling the industry, thus the development of more stringent policy instruments.

The Policy instruments and the manufacturing industries

The Japanese government has immense control of policy instruments governing the manufacturing industry. This approach is regarded as strategic, as the industry has become the candidate of both ‘protective and nurturing’ instruments (Chen, 2004), p.179). The protective aspect of this arrangement involves policies that control trade tariffs, imports and foreign capital restrictions, and more importantly, the commodity tax system favoring the locally produced goods. Similarly, the nurturing policies took care of the below-market interest rates on loans from public and private financial institutions, which supported “tax exemptions, subsidy grants, authorization of foreign currency to import an important foreign technology, and the exceptions from import duties on the needed machinery and pieces of equipment” (Chen, 2004), p.179, p.179).

Japan’s industrial output is being controlled by several formed cartels, with specific emphasis on market share and investment criteria (Berenbeim, 1994). These cartels are focused on achievements of specific goals, among them, rationalizing of the production process, vertical integration management promotion, allocation of short-term production strive to excess production, and improve export prices for its products particularly during slow economic times (Berenbeim, 1994). However, the changes made in reducing the powers of cartels have in recent periods not affected the manufacturing industries in any big way as they remain powerful entities in the control of the economy of Japan (Berenbeim, 1994).

The Impact of the Different Strategies of the Two Countries

The declining state and power of the American manufacturing sector were attributed to its poor policy industry development. Notably, the decline in industrial productivity is seen as the product of insufficient research and development which eventually caused the decline in labor productivity. For example, from 1960 through to the 1970s, the productivity of industrial workers in American manufacturing experienced a mere 2% per year. In 1979, the labor productivity fell by 0.92% and to further 0.3% the following year (1980) (Altman, 1988, p.379).

While American productivity continued to decline, the Japanese on the other hand continued to its ascending ladder. Japan’s industrial productivity rose by 7.4% per year during the same period (Altman, 1988, p.380). Although some observers claim that the American declining labor productivity was a result of workers’ failure to take pride in their works, the whole scenario presents a different picture, even if the historical perspective was observed. The inadequate industrial policy meant that the manufacturers were left with little to venture into research and development, which has proved to be the competitive advantage for Japan. As stated earlier, Japan’s direct government involvement as a success is a clear manifestation of how close-knit between government and business of a country can spur economic growth and caution against harsh economic climate. Furthermore, the American government’s free-hand policy in developing its industrial sector meant that the industries could not be profitable enough to improve on their asset development. For instance, in 1980 the factories in Japan used 10,000 robots to fasten their work processes, far more than the American 3,000 (Blackford, 2008, 233).

There is nowhere in manufacturing productivity between American and Japanese industries big gap as it is in the heavy industry. For example, in the 1980s, Japanese companies were able to produce a subcompact car for $2,000 less than what Americans produced (Blackford, 2008, 234). The difference is associated with the Japanese lower wages and greater productivity, a trend that has continued to date.

Reference List

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