The Rise and Fall of Japanese Industrial Power

With all the predictions of American decline this last few years, it's almost amazing to see this article, at the New York Times, "Declining as a Manufacturer, Japan Weighs Reinvention":

AMAGASAKI, Japan — A few years ago, the densely built-up coastal region around this port was called Panel Bay because of its concentration of factories making the sophisticated flat-panel screens that were symbols of Japan’s manufacturing prowess. But now the area has become a grim symbol of its industrial decline.

In recent months, many of those plants have been closed or partially sold off, as the once seemingly invincible electronics industry has lost out to Chinese and South Korean challengers. Panasonic alone shut down two of its three factories here in March while Sharp, desperate to cover losses from its $10 billion flat-panel plant in nearby Sakai, accepted a bailout from a Taiwanese technology company — a stunning reversal in a nation that once prided itself on being Asia’s economic leader.

The demise of Panel Bay is the latest sign of what many Japanese fear is the hollowing out of their heavily industrialized economy, which has been in a gradual but relentless decline since the bursting of its twin real estate and stock bubbles in the early 1990s. The decline is largely a result of growing competition from Asian rivals, an aging work force and merciless gains by the yen. But many officials and business leaders now fear that this trend has accelerated since last year’s nuclear accident in Fukushima, which has raised the prospect of higher energy prices and even power failures.

“We already had a sense of crisis about the loss of manufacturing and manufacturing jobs,” said Tetsuya Tanaka, a director of manufacturing promotion at the Ministry of Economy, Trade and Industry, or METI. “Now we are afraid the concerns about electricity could give manufacturers the excuse they need to move offshore.”

The increased price pressures have wounded many of Japan’s corporate giants. Last week, Sony — the Apple-like innovator of the 1980s — forecast a $6.4 billion loss amid reports it may cut 10,000 workers, a drastic step in a nation where layoffs are still seen as socially unacceptable. Even Japanese carmakers like Toyota, which last year handed back the title of world’s largest auto company to General Motors after the supply disruptions from the tsunami, fear that they are becoming vulnerable to game-changing competition in electric cars or just lower-cost producers in South Korea and elsewhere.

The reversals have gripped Japan with a sense of national angst over its future, though economists are divided over how much the nation will actually deindustrialize — and whether a shift away from factories is really such a bad thing. Most economists agree that Japan, which rose to economic superpower status in the 1980s by building compact sedans and color televisions, has outgrown the “Asian Miracle” template and needs a new economic strategy. What that approach should be, though, is the subject of intense and growing debate.

IMAGE CREDIT: That's the cover art from Paul Kennedy's, The Rise and Fall of the Great Powers (1987). The United States was was supposed to go the way of previous great powers, like Great Britain. Hasn't worked out that way, apparently.