Interesting Interview

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a devoted listserver shares this interview with us...

John




Mon Sep 27, 1999 8:45 pm

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John,
Interesting interview. Thought I would send it your way.
Malcolm

America's Postindustrial Nightmare?
>
>
> A conversation with Eamonn Fingleton
>
> Just when everything seems to be going right in the American economy,
> Eamonn Fingleton steps to the plate. In Praise of Hard Industries is
> Fingleton's warning that America's foundation in key manufacturing
> industries is crumbling because of its focus on postindustrial activities
> such as finance, computer software, and Internet services. Currently
based
> in Tokyo, Fingleton is a former editor at The Financial Times and Forbes.
> Amazon.com recently spoke with Fingleton about the loss of manufacturing
in
> the U.S. and the real strength of the Japanese economy.
>
> Amazon.com: What's the biggest reason that American business has let
> manufacturing slip overseas? Is it the pressure from Wall Street for
> short-term profits, which discourages the kind of investment necessary to
> promote a manufacturing base, or government policy?
>
> Eamonn Fingleton: It is ideology--the belief that if everything is left
to
> free markets, things will work out fine. That philosophy was sound in the
> 18th century and it still is today in many areas of economic policymaking
> where the matters at issue are purely domestic. But, given that we now
must
> contend with a highly globalized market in advanced manufactured goods, a
> complacent laissez-faire approach is a recipe for allowing foreign
> governments the right by default to shape America's future economic
> destiny. Other nations have identified key advanced manufacturing
> industries as pillars of their future prosperity. The immediate result is
> that margins come under severe pressure in such industries. Obeying the
> laws of the market, American players cut back on investment and begin
> sourcing more and more from abroad, to the point where today many of them
> are little more than design and marketing operations. I won't mention any
> names, but anyone who analyzes U.S. trade figures can easily see that
most
> of America's formerly world-beating high-tech manufacturers are now
> hollowed-out hulks that depend heavily on higher-wage nations for their
> most sophisticated manufactured inputs. The most obvious such nation is
> Japan. Despite everything you have heard about Japan's financial
> difficulties in recent years, Japanese wages are 20 to 40 percent higher
> than American levels. Yet Japan is the principal source of the components
> and materials and entire finished products that make up such a big part
of
> America's supposed manufacturing output these days.
>
> Amazon.com: Is globalization an excuse for American business to focus on
> short-term profits?
>
> Fingleton: In globalized conditions, American corporations often stand to
> gain handsomely from sourcing abroad even as they lay off thousands of
> American workers. In the electronics industry, for instance, the big
> American players have increasingly been sourcing from the Japanese. The
> result is that they have moved from what was a bitter competitive
> relationship to a cozy cooperative one. In effect there is a global
> division of labor here in which the Americans come up with designs and do
> the marketing and the Japanese do all the heavy lifting in terms of
> devising ways to mass-produce the products to high-quality standards and
> competitive prices. The net effect has been a powerful boost for the
> Americans' profit margins. But you don't create a rich nation merely
> because your big corporations make fat margins. Just ask the Mexicans.
What
> is being forgotten here is that the United States is falling rapidly down
> the wage league. I don't blame the corporations, because they are
> preprogrammed to maximize their profits. But the media, which should look
> out for society's overall welfare, should be pointing out that, at
current
> exchange rates, the United States now lags behind several
> manufacturing-oriented nations in wages. Not just Japan and Germany but
> countries such as Singapore and Denmark.
>
> Amazon.com: The picture of Japan that most Americans see is that of a
very
> sick economy. Typical of this view would be Lester Thurow's when he
writes,
> "Japan is the sickest country on the Pacific Rim. Japan's crash occurred
in
> 1990, yet eight years later it has made no progress toward recovery"
(from
> Building Wealth). Your picture of the Japanese economy is much different.
> What gives?
>
> Fingleton: What gives is that I have been in Tokyo since 1985 and,
> therefore, have a big advantage over Lester Thurow. Although I have the
> greatest respect for him, in writing about Japan, he is a victim of what
he
> reads in his morning paper. The American press has imagined that because
> Japanese stocks staged a 1929-style crash, the Japanese economy should
> follow the American script of the 1930s. This logic does not apply at
all,
> because the Japanese economy is so different. I was one of the few
> commentators who predicted the crashes in both Japanese real estate and
> stocks and I can therefore claim to understand what has been going on
> better than most. The truth is that although a tiny, if highly visible,
> minority of previously plutocratic Japanese citizens has been
impoverished
> by the financial turmoil, the vast bulk of Japanese people have never had
> it so good. Just look at the quality of the cars on the roads in Japan
> these days. Look at how many more Japanese citizens are taking foreign
> vacations these days. The numbers are up nearly 70 percent since the
1980s.
> The American press ignores all the real numbers on Japan. As the Economic
> Policy Institute economists John Schmitt and Lawrence Mishel have pointed
> out, in the first eight years of the 1990s, per-capita gross domestic
> product actually grew faster in Japan than in the supposedly booming
United
> States.
>
> Amazon.com: The subtitle of your last book, Blindside, was "Why Japan Is
> Still on Track to Overtake the U.S. by the Year 2000." Do you stand
behind
> this prediction, and, if so, in what ways will Japan overtake the U.S.?
>
> Fingleton: As conventionally defined, an economy's size is its total
output
> converted at current exchange rates. Thus, on a conventional view, the
> dollar would have to fall to around 70 yen for my prediction to be
> fulfilled. Although I am strongly bearish about the dollar over the
longer
> term, I doubt we will see a move on this scale so quickly. That said, on
> several other measures of economic clout, many of them more important
than
> this conventional yardstick, Japan has indeed passed the United States.
> Take savings. In 1997, the latest year available to us, Japan accounted
for
> more than one-third of the OECD area's savings. By contrast, the United
> States accounted for less than one-quarter. Japan has now also passed the
> United States in net exports, that is, exports netted for imported
content.
> Perhaps the most stunning way in which the United States has lost ground
to
> Japan in recent years has been in the ability to project economic power
> abroad. On the IMF's figures, Japan increased its net overseas assets
from
> $294 billion to $891 billion in the first seven years of the 1990s. The
> story for the United States was very different. The United States, of
> course, no longer has net foreign assets but rather net foreign
> liabilities. And these ballooned from $71 billion to $831 billion in the
> first seven years of the 1990s. These figures are of profound historic
> importance, yet, as far as I know, not a single American media
organization
> has noticed them.
>
> Amazon.com: You view the software industry as the quintessential
> postindustrial business and yet find its growth prospects in this country
> vastly overrated. Why?
>
> Fingleton: There is no doubt software has grown enormously in recent
> decades. What concerns me is the industry's ability to export. American
> software exports are quite disappointing, given the industry's size. The
> industry's export prowess has been seriously impaired by foreign piracy,
> among several other things. Another reservation I have concerns the
> long-term outlook for American software wages. Software is a very
> labor-intensive industry, and with the plummeting of international
> telecommunications costs in recent years, American software companies are
> beginning to shift jobs to low-wage countries such as India, Russia, and
> even China. It is notable that Japan has made little effort to develop
its
> software industry in recent years, and the reason is that the Japanese
> realize that a high-wage economy has a much better chance of retaining
and
> enhancing its international competitiveness if it emphasizes
manufacturing
> rather than postindustrial businesses. The reason is that manufacturing,
at
> least the sort of manufacturing the Japanese do, is highly
> capital-intensive, and in capital-intensive industries, a high-wage
economy
> can enjoy huge productivity advantages that enable it to pay ultra-high
> wages and still dominate world markets.
>
> Amazon.com: You're not very kind to the financial-services industry in
this
> country. You call it the cuckoo in the economy's nest.
>
> Fingleton: In a previous life, I worked on Wall Street, so I know that
the
> vast majority of Wall Street people are decent and well-intentioned. But
> Wall Street is one of the key ideological mainsprings of the complacency
> that has persuaded the United States to acquiesce in the wasting away of
> its once world-beating manufacturing prowess. I am also critical of Wall
> Street for the explosion in financial activity that has followed
> deregulation. Take the many new financial instruments that have been
> invented in recent years. As Warren Buffett has pointed out, their main
> effect is to tempt people to speculate, and, therefore, in general they
> serve little or no purpose other than to line Wall Street's pockets.
>
> Amazon.com: What about the valuations in the U.S. market. Do you see a
big
> shakeout coming?
>
> Fingleton: U.S. stock market valuations are very high. Although I would
not
> rule out at least one more upward leg to the boom, anyone investing at
> these levels will be disappointed with the performance over the longer
> term. That said, I am not among those who are predicting a Tokyo-style
> crash for Wall Street. My guess is that any landing will be a soft one
and
> there is still plenty to go for, among certain small-cap stocks.
>
> Amazon.com: Is it time for Americans to invest abroad--Japan, in
> particular?
>
> Fingleton: I turned publicly bullish about Japanese stocks in October of
> last year after nearly a decade of bearishness. With the market up 30
> percent since then, that seems to have been a well-timed call, but I
would
> not be surprised to see a serious pullback soon. I would also caution
that
> Japanese stocks are difficult to analyze and pay at best tiny dividends.
> Nevertheless, I am bullish long-term. But the really smart American money
> these days is bypassing Japanese stocks for Tokyo real estate, where
solid
> rental yields of 5 percent and higher are available.
>
> Amazon.com: What will change the perception about the importance of
> manufacturing?
>
> Fingleton: That is a good question, and I'm afraid I don't have an
answer.
> It will take a major shock. A devastating crash on Wall Street might do
it,
> or a sharp rise in American unemployment. But I don't think shocks on
this
> scale are in the cards in the foreseeable future. By the time the
American
> media and the intellectual community wake up, I think, it will probably
be
> too late.
>
> Amazon.com: What do you like to read?
>
> Fingleton: I spend much of my time keeping up with my own field of global
> economics, which I find completely engrossing. I am an admirer of J.K.
> Galbraith and recently began rereading his great early work American
> Capitalism. Among the younger generation of economic commentators, I
> particularly like the work of James Fallows, Robert Kuttner, Jeff
Madrick,
> Lester Thurow, George Soros, and the British management commentator
Robert
> Heller. On Japanese issues, I like the work of Pat Choate, Ivan Hall,
Brian
> McVeigh, Clyde Prestowitz, and Iris Chang.
>
> In my spare time recently, I have been reading biographies. I
particularly
> liked Ron Chernow's recent biography of John D. Rockefeller and Robert
> Skidelsky's two-part biography of John Maynard Keynes. I am currently
> reading Robert Kanigel's biography of Frederick Winslow Taylor.
>
> Featured Titles
> In Praise of Hard Industries: Why Manufacturing, Not the Information
> Economy, Is the key to Future Prosperity by Eamonn Fingleton
> Our Price: $18.20 You Save: $7.80 (30%)
> Blindside : Why Japan Is Still on Track to Overtake the U.S. by the Year
> 2000 by Eamonn Fingleton
> Our Price: $27.50
> Building Wealth: The New Rules for Individuals, Companies and Nations by
> Lester C. Thurow
> Our Price: $19.25 You Save: $8.25 (30%)
>
>
>
> Lorraine Nelson
> Lewiston Morning Tribune
> lnelson@lmtribune.com
> P.O. Box 957
> Lewiston, ID 83501
> 208-743-9411 ext. 261

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