How can US and Japan compete -- and still play fair?

The debate between Japan and the United States over industrial policy goes to the heart of important differences between the two economic superpowers. To the Japanese, industrial policy is synonymous with good economic management. It is usually associated with policy guidelines issued by the Ministry of International Trade and Industry (MITI) to encourage healthy competition and sound growth of selected industries - often known overseas as ''picking winners.''

To the Americans, the term suggests unfairness and manipulation. Industrial policy as practiced by Japan is often regarded in the US as an established instrument for either shielding domestic industries from import competition or building beachheads in foreign markets for eventual domination - otherwise known as ''industrial targeting.''

US Secretary of Commerce Malcolm Baldrige took up the theme of this debate in talks with Japanese government officials here this week. But to avoid the impression that Washington was singling out Japan for special criticism, he gave the issue a more international context.

An industrial policy involving aid to specified industries can be seen in a number of countries, like France and Canada, he said. Acknowledging that any government has the right to foster domestic industries, Mr. Baldrige said objections would arise if the result was to increase unemployment in other countries.

The commerce secretary proposed that the industrial policy question should be seriously studied by an appropriate group set up to produce an acceptable set of international rules.

MITI officials express concern at the growing American criticism of Japanese industrial policy. They feel the US is shooting at the wrong target, in effect tryin' to shift the blame for American economic failures. TheiB concern stems from the percepTion ztx h zyh x ZO he US attack is really Japan's entire national decisionmaking process, something that fundamentally reflects the historical and cultural development of the country.

Americans often complain that the Japanese are ''playing by different rules.'' (One says, ''We are playing baseball, but they are practicing karate.'') But some Japanese feel it is extremely pres /s, if not downright arrogant, for Americans to impose their ways of doing things onto a country that has developed in a different way.

Says former government minister Kiichi Miyazawa: ''The economic game is far more complicated than baseball or golf. It involves the national way of life deeply related to a country's history and society.''

In a recent justification of Japanese industrial policy MITI minister Sadanori Yamanaka declared: ''Industrial policy is the cornerstone of national economic development and is practiced in all states, although under different names and in different forms.

''In Europe, many companies are nationalized and huge sums are spent by government to subsidize high technology companies or to help industries with structural problems. In the United States, NASA and other government agencies funnel vast sums into technological research and development.''

Noting criticism that the Tokyo government is ''lavishing'' immense sums on target industries, MITI spokesman Katsuhiro Nakagawa replies that, as far as nondefense research and development is concerned, the Japanese government's contribution is now 26.9 percent of the national total, compared with 34.7 percent for the United States, 47 percent for France, and 43.5 percent for West Germany.

''Many critics then say that it is not so much the actual amount of money as the moral support which is important. Yet just as government subsidies cannot bankroll failure, neither are government-targeted industries automatically assured of good management, heightened competitiveness, and growth. Japan is not a totalitarian state, and the government is just not that powerful.''

Ironically, say a number of Japanese analysts, although American critics believe their country does not have an ''industrial policy,'' in fact it is there in different guises. Furthermore, with the competition heating up in high technology, it is often said here that American industrial policy is being strengthened.

Prof. William Ouchi of the University of California at Los Angeles, author of ''Theory Z - How American Business Can Meet the Japanese Challenge,'' is one who disparages the idea that, in his words, ''MITI knows all, sees all and tells everybody what to do.''

''The truth is just the opposite,'' he says. ''The Japanese government intervenes far less directly in economic policy than the US government does.''

According to Prof. Kotaro Tsujimura, vice-president of the Japan Association of Theoretical Economics, the key point about industrial policy is not the amount of government spending or other forms of encouragement, but the fostering of extremely keen domestic competition.

In fact, although the US prides itself on being the land of free enterprise and competition, Mr. Tsujimura believes Japan could lay claim to the title. Japanese government industrial policy from the 1950s onward has been premised on the idea of high economic efficiency: getting more out of a ton of raw materials at a lower price, constant refinements in the product to bring down its production costs and consumer price.

''When Americans picture competition in the marketplace, they apparently visualize a Western gunfight. In Japan, government, management, and labor acts as referees to stop the fight before it leads to death,'' says Tsujimura.

He argues that the American gunfight method of waging industrial competition is not acceptable in a world that is economically so complex.

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