I worked for a connector company in Japan (JST) for my co-op during undergrad, and continued to work for them in Michigan for a couple of years. Without listening to the podcast, I can already say that the attention to detail and quality in Japan is incredible. American connector companies no doubt perform the same testing, but in Japan each employee has a very specific focus and will work relentlessly on that. They also have a large pool of contract workers to perform these tedious tasks, and sadly their job stability is not fantastic... In my 6 months there I went to at least 4 goodbye parties for laid off contract workers. On top of that, working 8am ~ 6 or 7pm minimum is the norm. While I was there I was the only one that would leave at 5pm (I was forced to) while everybody else would take a 30 minute lunch-like break then get back to work, sometimes until 11pm. Although, they at least would mostly all leave on Friday after a 30 minute clean-up period at 5pm.
American employees tend to have wider responsibilities and probably wouldn't be able to handle the relentless dedication to detail that is expected of Japanese employees. Even though my office in Michigan was the same company and had access to the same parts as Japan to sell to American car companies, our work force just did not compare to Japan in its devout dedication to the customer and making sure that parts are perfect in every detail, down to plastic packaging and boxing that they are shipped out with.
> our work force just did not compare to Japan in its devout dedication to the customer and making sure that parts
That is true. But a big problem with Japanese companies is the insider/outsider mentality. Japanese employees are loyal to their boss and their company before any other person. These “other people” include the general public (and their safety) and the actual stockholders of the companies.
If something goes wrong, everyone in the company will hide it. Whistleblowing is completely against Japanese culture and obedience to authority.
This mentality showed itself in numerous cases, most recently with Takata airbags (employees know about the problem but covered it up). Japanese cosmetics giant Kanebo had a product that caused permanent blemishes on the face. Even after the company was well aware of the problem, they covered it up. Other examples include the Toshiba and Olympus scandals.
Japanese quality is good, but I would never trust Japanese products in any safety related thing (such as pharmaceuticals).
PS: IMHO, Japanese universities are mediocre. Japanese corporate success is mostly due to the exploitation of their employees.
> USA companies also cover up embarassing failures, until caught our by the public.
I did not say that US companies are evil. But American employees are much less cooperative with evil companies.
Americans in general are much less submissive and obedient to authority figures. Americans also tend the view morally questionable things as wrong or right (evil/not evil), while in Japan it is more gray.
Furthermore, Americans can exit and enter the job market. If you are unhappy with how things are going at your company, you can quit and work somewhere else. That will not happen in Japan: top companies hire new graduates and someone who quit or was fired in middle age is unwanted in the job market.
In America, if your employer unfairly discriminates against you (for example whistleblowing\refusing to do morally wrong things) you can go to court. In Japan problems are solved via the existing power hierarchy, and courts are fairly inaccessible.
In America, a new CEO digs up all the wrong things that the previous CEO did and “cleans house”. In Japan, new CEOs are the previous CEO’s proteges and continue to hide their predecessors secrets (cf. Toshiba and Olympus scandals).
Lastly, in America, corrupt CEOs get send to jail (e.g. Enron). Three years after the Olympus scandal, everyone just retired.
(There is an exception: if you are a foreign executive in Japan, and you have 50 painkillers, you are held for 18 days without charge until you quit and return to your country).
> Furthermore, Americans can exit and enter the job market. If you are unhappy with how things are going at your company, you can quit and work somewhere else.
If you're an auto-worker you have two competitors to go work for and they probably do business in almost exactly the same way. Other than that you have to leave the industry.
> In America, a new CEO digs up all the wrong things that the previous CEO did and “cleans house”. In Japan, new CEOs are the previous CEO’s proteges and continue to hide their predecessors secrets
In a Japanese auto-company the new CEO is likely somebody who's worked many of the jobs in the company and has an engineering background. In America the new CEO has an MBA and little idea what their new employees actually do. This is often stated as a bad thing.
> Lastly, in America, corrupt CEOs get send to jail
In America corrupt CEOs usually get golden parachutes. It takes extreme corruption or political enemies to go to jail.
In all of this you've failed to explain why the American auto industry, with our superior company culture, can't make competitive cars.
I don’t hate Japan, I absolutely love it! This country paid for my PhD studies not asking anything in return.
But that does not mean that there are serious societal issues and it should not be criticized.
For example, the culture of forcing employees to work overtime. Is it good that so many men have no relationship with their children because of it? In what world is that good? Power harassment and maternity harassment in the workplace is absolutely sickening.
Corporate Japan’s success is built on the exploitation of its employees. Traditional Japanese companies are absolutely horrible places for most people. Do you think that the level of suicide is normal in any functional society (1)? What about the phenomena of young employees dying of heart attacks(2)?
What about the treatment of woman as second-tier employees? Do you really think the function of a grown and educated woman is to serve tea for men?
Many people have an overly romanticized view of Japan and Japanese. But the fact is that Japan is in serious need of reform in many areas. In some areas Japan competes globally (e.g. autos). But in some areas are seriously dysfunctional. Examples of this is the dysfunctional university/research system. Second example is the small scale unproductive agriculture with its over-sized political influence. Third example it the legal system: 99% conviction rate, and the extreme difficulty of getting access to the courts. Until recently, the supply of lawyers were also severely restricted.
> In all of this you've failed to explain why the American auto industry, with our superior company culture, can't make competitive cars.
I did not discuss the auto industry. One of the reasons that the American auto-industry failed was because of out of control labour unions (as the article states).
Clearly the Japanese auto-industry excels. That is due to many things, such as attention to detail and the responsible actions of employees at all levels. These are some really good aspects of Japanese culture.
(Another is cleanliness, the ability to plan and timeliness. Just compare Tokyo’s train system to Paris’ subway).
The reason I accused you of hating Japan is you seem to idealize American business while focusing on Japan's weak points.
From what I've seen and experienced 60+ hour weeks and not knowing your family are common if you're trying to climb the corporate ladder in America. Forced overtime and working yourself into a heart-attack happen here, too. And here the company has no loyalty to you beyond what's forced by the threat of lawsuit.
No offense but maybe RTFA? A lot of it's about how through NUMMI GM learned from Toyota how to treat its employees better. Ctrl-f for I saw a guy fall in the pit, and they didn't stop the line. So much of the article is about how the Japanese auto workers received more respect and how that translated into better cars.
If you want to be an activist why focus on the metrics you're focusing on? In Japan 72% of suicides are men, in America it's 78%. You mention maternity harassment but the alarming gender disparity in suicide is left out, and it's worse in America.
Japan's judicial system may be flawed, but we have 12 times their incarceration rate. In America about 1 in 100 men is in prison, in Japan it's less than 1 in 1000.
We can cherry-pick numbers all day, but I think it's safe to say Japan's engineering excellence is not simply a product of worker exploitation. They're doing some things better than us and we should learn from them.
While hn is full of orientalism, I don't think it's helpful to call out a specific poster, especially one who is trying to back up their claims with actual evidence. I usually post a top level comment when I see a lot of posts from an orientalist perspective.
That's in large part because, as the above tendentious timeline omits, a key engineer at GM was lying to everyone about the switch, which he initially approved knowing it didn't pass the required specifications. Some fault GM's systems and procedures, but it's hard to imagine successful ones that can deal with engineers lying.
I didn't know about a secret warranty to replace the bad ignition switch in 5th gen Honda Civics until mine started cutting out while driving. Including once when trying to complete a left turn in the face of oncoming traffic.
I've heard the tough thing is getting into the universities. once you're in supposedly the challenge is a bit lighter. Just what I heard. never attended.
Japanese universities represent the absolute triumph of the signaling theory of education: given that you've passed our (incredibly rigorous) entrance examination, literally nothing that happens between now and your job interviews matters. Supposing that a ham sandwich had successfully passed the examination for, I don't know, Constitutional Law, the ham sandwich would graduate with ease, and not meaningfully bring down average student participation in its classes. (Things are slightly more rigorous in engineering.)
Japanese firms assume that all training which matters happens at the company.
In Japan there are two types of universities: national universities (such as University of Tokyo/University of Kyoto) and many private universities.
For Bachelor students, getting into national universities (especially prestigious ones) are extremely difficult. But when someone successfully entered a university, no special effort is needed to graduate. Passing is the norm, even with minimum effort on the part of the student. The first three years are spent mostly on club activities. The last year-and-a-half is spend on job search. After someone secured a job, they have very little incentive to work for the remainder of their stay. So, it is basically a question of doing as little as possible and holding out until the job starts.
There are perhaps 3 or 4 good private universities (Keio, Waseda, etc...). (They are actually fairly mediocre by international standards, but many in Japan think they are great. ())
The rest of the private universities are absolute garbage. The majority of people will go to this type of university. Many of these were upgraded "colleges" for women who had ambitions to become housewives, but have not yet found suitable husbands. Especially with the falling number of students, these universities will accept literally anyone. In these universities it is also extremely easy to graduate, so any degree from them is essentially worthless. A big problem with these universities is truancy (e.g., http://abcnews.go.com/Technology/story?id=7716805). These places are very similar to bad high schools (in the way classes are given and students are treated).
() Many in Japan think that Waseda is one of the best elite universities in Japan and well regarded world wide. Yet, international rankings shows that it is lower-ranked than the University of Belgrade, Beihang University, and Federal University of Minas Gerais.
I worked for a company that build specialty chips with firmware. We would deal with companies all around the world who used our chips in their products. By far, the Japanese companies would do the most through qualifications of our chips. They would build special test system, inject errors, reverse engineer, and bring up detailed questions and concerns that we even didn't have the manpower to achieve. And when they were satisfied with the response, the purchase would go through.
Very interesting perspective. During my internship I was mainly focused on our testing and had pretty basic tasks, although I was moved around a lot to shadow different employees so I was able to learn about the entire spectrum of preparation, testing, and examination of parts that took place. The employees actually creating and modifying the design of the parts had much more responsibility (these were mainly the full time engineers), and although they still got their hands dirty in the lab with us, I did get a glimpse of their interactions with customers through morning meetings when they had to describe how their meetings went and how they dressed up in fancy clothes and spent entire days away to visit with them. My Japanese was not nearly good enough to begin working on designs or with customers, although some interns from my school were able to reach that level.
I used to work in a medical equipment company, which had a Japanese reseller doing our main product for Japan, which was a double-fist sized(ish) unit with an LCD. We'd ship them off, finished from manufacturing, then they'd have their own team that would quality check them again. I remember one of our service blokes opening up one of the returns-for-rework. They gave detailed reports and sticky-label arrows for faults, and sure enough, this rework unit had them as well for the fault - a small speck of dirt on the LCD. The tech touched the dirt with his finger and it fell off. Rework complete.
They'd sent it back on principle, but it's a nice little story of the attention to detail and formality that they had. The actual model in question was actually 10 years and two major generations of hardware obsolete, but it was so difficult getting an item through the regulatory red tape, we didn't bother doing it with the newer gen hardware.
>American employees tend to have wider responsibilities and probably wouldn't be able to handle the relentless dedication to detail that is expected of Japanese employees. Even though my office in Michigan was the same company and had access to the same parts as Japan to sell to American car companies, our work force just did not compare to Japan in its devout dedication to the customer and making sure that parts are perfect in every detail, down to plastic packaging and boxing that they are shipped out with.
I worked for Toshiba and Mitsubishi in a manufacturing role and on several occasions worked with some Japanese workers they sent over. Our processes from theirs differed wildly. We worked on the same generators but to get to the end result were massively different approaches. It's hard to describe what made the Japanese workers different from us but their lifestyle, work ethic, and outlook were much different from us.
If anybody's curious about the real history of Toyota, and how it came to dominate the auto market, read this instead:
>Let me start my talk with a little story. In 1958, Japan tried to export this first passenger car to the US market. The company was Toyota, the car was called Toyopet. And, as you can guess from the name, it was a very cheap, small subcompact car, more of a four-wheels-and-an-ashtray kind of thing, which Toyota hoped rich American consumers could pick up as an afterthought, after finishing their grocery shopping with the changes left. Unfortunately, it was a total flop, so much so that Toyota actually had to withdraw the product. In the realm of failures, this is, like, the biggest thing. It's not just not selling well -- it had to be withdrawn from the market.
>This provoked a very heated debate in Japan. The free trade economists centered around the Bank of Japan, the central bank, said, "Look, this is what happens when you go against the theory of comparative advantage. In a country like Japan, which in relative terms has lots of labor and little capital, we shouldn't be producing things like motor cars, which are very capital-intensive in production." Of course, at that time, Japan's biggest export item was silk. So, case proven, already. And they said, "Don't tell us that you couldn't succeed because you didn't have help. You had 25 years of very high tariff protection. We kicked out all the foreign car makers 20 years ago and didn't let any of them in since then. And back in 1949 this central bank even injected public money into Toyota to save it from bankruptcy. So, please don't tell us that you couldn't succeed because you didn't have help, because you had all the help you can ask for."
Toyota benefited for at least 40 years from the intentional suppression of the Japanese currency as well as subsidies and tariffs on foreign car imports.
This long-term mercantile policy corroded the US car industry to the point where it simply couldn't compete. The general use of the US dollar as the world's reserve currency didn't help either.
If Japan hadn't followed a mercantile policy, we'd probably be having a similar discussion today about why American business culture and attention to quality is superior to Japanese.
The flipside being that the Japanese paid this cost in various ways, such as sucking in and "wasting" (vs other opportunities) a lot of talent into things like car manufacturing whilst leaving other fields (like software) to free market countries whose assets were better allocated, and in the invisible taxation of the entire Japanese population that resulted from having higher prices, less consumer choice, less jobs (or lower value creating jobs), etc.
If Japan hadn't done this they would have kept their 1950s level per capita income. Which was about the same level as Brazil, Bulgaria and South Africa. They were poor as dirt.
Now, they're one of the richest countries in the world.
I don't think it was much of a trade off.
Being a 'free market country' is ok if you're already rich. If you're still developing, it's a route to continued poverty.
Japan has an unusually strong work ethic and cultural demand for quality work; I don't think you can simply paint their succcess as mere economic policy that could be replicated anywhere.
Another factor is that Japan is a "high trust" society, like the US, which has a major effect on the types and sizes of business we can do effectively.
The classic counterexample are ethnic Chinese abroad, where they tend to do things like trading companies, where putting relatives in high positions doesn't tend to hurt vs. e.g. Wang Laboratories, where founder An Wang crippled the company by promoting his unqualified son, as a friend working for them in their R&D lab at the time told us; per Wikipedia (https://en.wikipedia.org/wiki/Wang_Laboratories#Decline_and_...):
Dr. Wang's insistence that his son, Fred Wang, succeed him contributed to the company's failure. Fred Wang was a business school graduate, "but by almost any definition," wrote Charles C. Kenney, "unsuited for the job in which his father had placed him." His assignment, first as head of research and development, then as president of the company, led to resignations by key R&D and business personnel....
One turning point occurred when Fred Wang was head of R&D. On October 4, 1983, Wang Laboratories announced fourteen major hardware and software products, and promised dates of delivery. The announcement was well received, but even at the time there were warning signs.... Very few of the products were close to completion and many of them had not even been started. All were delivered late and some were never delivered at all. In retrospect this was referred to as the "vaporware announcement" and it hurt the credibility of Fred Wang and Wang Laboratories.
In 1986 Fred Wang, then 36 years old, was installed as president of Wang Laboratories. However, the company's fortunes continued to decline. Unlike most computer companies that funded their growth by issuing stock, An Wang had used debt to avoid further dilution of family control of the company. By August 1989 that debt was causing conflicts with its creditors. On August 4, 1989, Dr. Wang fired his son....
I think it's more complicated than "free market" vs "interventionism". Japan benefited from the rule of law courtesy of both its culture and its post-war colonial rulers (and, effectively, from massive investments from the US much as the Marshall Plan boosted Europe, and then for supplies during the Korean War which amounted to a third of exports). US policy was literally to boost the Japanese economy to avoid further militarism.
Making the labour available to global investment, opening borders, benefitting from the post-war industrial revolution and population growth (which itself generated demand growth). Japan was no United States, but it wasn't a mere third world colony either - it was an industrial power who held up the most powerful military force in the world for years. China is today where Japan was in the 1960s, and that's putting pressure on this kind of strategy.
Property rights is almost the defining factor towards "third world to first" IMO (especially in today's environment where FDI is so much easier). The various degrees of socialism or interventionism are merely an economic brake. Being able to enforce rights is much more important, and that involves many expensive things like a police and justice infrastructure well paid enough to avoid bribes, an independent judiciary and honest politicians whose interests are independent of policy.
If it were instead as simple as "property rights is all you need" there would be virtually no third world left.
The same mercantilist strategy applied by Japan was repeated in Hong Kong, South Korea, Taiwan, Singapore and now China. Everywhere it's been tried, it has worked.
Hell, even the United States followed this strategy (spearheaded by Alexander Hamilton) after the war of 1812. By the 1830s it had a 40% tariff rate which it kept for about another century.
But all of these countries enforce property rights. Hong Kong had the British enforce their brand of common law on it until 1997, and the Chinese haven't altered things much. It was British officers chasing Mao's bombs in 1967. The country became known as a trade hub because you could do business fairly there and tax rates were low.
South Korea was defended by US Marines against the North, and in the early 1950s had over 300,000 American soldiers in the country. Again, this helped stop existing power structures from taking the country, although it is distinctly more authoritarian. Was mercantilism explaining part of the variance? Sure, but I don't buy that it would have happened without US troops to secure the country and to an extent the peace.
Taiwan was guaranteed by the US (an ally of CKS and the ROC, with whom they fought the Japanese) in the same fashion including $4 billion in aid, and its prominence in electronics came from its very open policies about foreign investment in the field and low taxes. Whatever remained of the Chinese intellectual elite also moved to Taiwan with the ROC. The Economic and Financial Reform program that did away with the 4 year plans was as early as 1959.
Singapore is the most interesting case because it is the one exception to dependence on a foreign power for rights protection. In a way, Singapore exists today because of the immense skill and drive of Lee Kuan Yew. He successfully manoeuvred the exit from Malaya and 2 years-early British exit, kept the communist agents from Maoist China at bay via both pretending to act in their interest in the election (as the "safe" socialist candidate that could be the face of the Party) and by systematically exiling them thereafter. He successfully avoided US interference ("The Americans should know the character of the men they are dealing with in Singapore") yet built up an extremely impressive Army and police force inspired in great part by the martial law he had observed run by the Japanese, thus securing individual rights in the street. His economic programme - at least according to the aptly named From Third World to First - consisted of attempting to attract foreign companies so that they would both invest, and train the local workforce. Both foreign and local companies could do business safely and fairly.
Looking at tariff rates and things like income tax in isolation is not productive. Did the post-war period result in considerable US growth for decades despite sky-high personal and corporate tax rates? Sure, but most other first world countries also had them. The marginal capital gains tax was at one point in the high 90s in the UK. I remember Ogilvy saying that at his peak, Ogilvy & Mathers was paying something like 70% corporate tax. Any country that attempts these rates today would destroy whichever of its companies were unable to move abroad, and to a certain extent few countries have much ability to set tax rates and tariffs to be far from global standards, with any deviation having to be justified by other factors (for example, local ownership rules in China are mitigated by the fact that it was until recently growing at 10% a year for a while, is a market of a billion people, and had easily available, relatively high quality, cheap labour).
>But all of these countries enforce property rights.
Virtually every country in the world enforces property rights.
>The country became known as a trade hub because you could do business fairly there and tax rates were low.
Hong Kong country became a manufacturing hub on a par with what China is today in the ~70s. No prizes for guessing why.
>Singapore is the most interesting case because it is the one exception to dependence on a foreign power for rights protection. In a way, Singapore exists today because of the immense skill and drive of Lee Kuan Yew.
That's the facile propaganda line spat out by the PAP. Singapore actually owes most of its economic success to a Dutch economist called Albert Winsemius whom Lee Kuan Yew had the good sense to follow.
Guess what he advocated?
And yes, LKY imprisoned a lot of communists who were legally standing for parliament. He was a thug. No, that kind of dictatorial crackdown didn't have anything to do with their economic success. It was purely about the suppression of democracy - a theme that continues to this day (trust me I live here).
>Looking at tariff rates and things like income tax in isolation is not productive. Did the post-war period result in considerable US growth for decades despite sky-high personal and corporate tax rates?
Looking at tariffs when analyzing infant industry growth is pretty productive. Looking at income tax not so much. Looking at income tax when analyzing inflation and income inequality is productive, however.
> Any country that attempts these rates today would destroy whichever of its companies were unable to move abroad
Looks like somebody believes everything the American Enterprise Institute tells him.
> Virtually every country in the world enforces property rights.
Countries enforce a subset of rights to a certain extent on some sort of scale which goes from "none" (e.g. the DRC, where even your life is the property of whichever warlord pops by) to "just enough to keep the place stable" (e.g. India during the License Raj, where any new business that grew beyond a handful of employees was effectively outlawed resulting in negative real growth for decades and the eventual seizing of the country's gold reserves) to "mostly" (e.g. France, where you're free to start a business so long as it does not compete with one of the oligopolistic families close to government, and you're willing to play by the social rules) to "almost completely" which can be found almost nowhere. I've yet to see foreigners praise Indonesia's or Thailand's property rights. In fact, most Thai startups I know are incorporated in Singapore despite not having even one employee in the country.
On your critique of Lee Kuan Yew, I would like to see reliable sources. Obviously, I disagree entirely with your response, and hold Lee Kuan Yew to be one of the most honest and skilled politicians that ever lived, perhaps on par with Churchill or even Washington, but I am always open to new data and reexamining my positions. Mine are based on both Singaporean sources which your theory will call biased, and on French sources written around that time (including discussions with the older members of my family who saw it first hand).
I personally have incorporated in the UK thanks to their efficient and rights-protecting jurisdiction and will incorporate in Singapore as soon as I am granted PR (I object to the local ownership requirement but think it a low cost to pay), despite being a citizen of neither countries. Anecdotal evidence does not make data, though and I have too little time to try and find some.
I sometimes agree with what the AEI writes, when it is backed by data and aligns with the world view I have developed. Instances of where the AEI and I disagree is in the idea that any socialism is detrimental to business - in some cases government intervention can help avoid hysteresis effects, and obviously, I'm a big fan of Singapore whose health and education policies are outright socialist.
After reading the article, even GM conceded that the Japanese production method was more efficient than the American "union wars" method.
Even on a level playing field (when GM cars were manufactured in the US at NUMMI), it was cheaper to build quality cars than to ship the crap GM was making and then repair it afterwards.
How does Toyota having a cost advantage result in GM spending more to build worse cars?
How does Toyota having a captive market with no competition result in them having BETTER cars rather than junkier cars (such as in the Soviet states)?
Your argument may make sense for "Why don't American cars sell as well as foreign cars?" but that wasn't the question. The question is about quality.
First, a lot of countries have protectionist trade policies but few can make cars like Japan. They have an excellent engineering culture.
Second, who cares if they had favorable policies during the mid 1900's - they were also rebuilding after a nuclear war. We had a massive head-start in auto engineering back in the 1960's and then we stopped trying. They're the tortoise and we're the hare.
Look at our race series, what NASCAR tech is trickling down to modern cars? F1's out there with hybrid systems and energy recovery devices on the absolute bleeding edge of technology and NASCAR has only recently lifted their 55 year ban on fuel injection. It's laughable. Technology shouldn't go from foreign racing circuits, to Japanese and German family sedans, to American family sedans, and then finally to our race cars.
The notion that a auto-racing is used to fund R&D is apparently lost on us.
To put it bluntly we have nobody to blame but ourselves and we're lucky to have somebody like Elon Musk come along.
Today, of course, the NUMMI plant belongs to Tesla.
For a good book on the subject, see "Car Guys vs. Bean Counters", by GM's Bob Lutz. He was the one who insisted that GM improve their sheet metal fit and paint quality. Neither was really that hard, but GM hadn't focused on perceived quality.
Lutz points out that at one point, the NUMMI plant was making a model which shipped with both Toyota and GM badges. The Toyota model was getting better reviews on quality, even though it was the same car made on the same assembly line by the same people.
Good engineering has a cost and this cost has to be financed somehow. You cannot operate in an environment where all the other players have large structural advantages due to macro conditions and "play fair" and win.
On a higher level, there is certainly a case that foreign manufacturers have more resources available per dollar per car. In other words they can afford to put more in a car for the same sale price. Trying to sketch my thoughts:
In Germany, it is thanks to European monetary policy that artificially depresses the Deutsche Mark, allowing for cheaper exports and lower costs for German companies, as well as a captive market whose currency is overvalued in exactly the same way destroying local industry (i.e. German loans pay for German cars to be sold to the Europeans but the other way round is much harder). Hello VW, goodbye Rover. On top of this Germany is absorbing East Germany which is a handy source of incredibly cheap labour (in the same way that illegal labour is in the US food and farm industry) AND massive subsidies for whoever wants to go take advantage of it (I know a company that opened a very, very expensive plant 200km from Berlin because the subsidy was such that they came out profitable even if the plant lost money for 20 years).
In Japan, it is both systematic currency devaluation and the keiretsu system (which I think is what drives the continuation of "Japanese corporate culture" rather than the other way round). Its effects are/were (til early 2000s, not sure about today): cheaper currency from systematic yen devaluation (same as the eurozone effect), lack of competition including collusion to keep wages down locally (tough immigration laws help), collusion to maintain very high prices effectively "taxing" the population with the money directly "financing" inefficiencies within keiretsu companies. These are all structural advantages to Japanese manufacturers.
Culture plays a part, no doubt. There are appeals in the Tokyo metro to buy Japanese bonds as a "patriotic duty", which is a form of voluntary further taxation (and just look at who owns the majority of JGBs). The Mittelstand culture, excellent education and long history of industry in Germany certainly help. But I think macro factors are equally if not more important, and much fewer discussed in "normal" circles (i.e. outside finance).
> In Germany, it is thanks to European monetary policy that artificially depresses the Deutsche Mark, allowing for cheaper exports and lower costs for German companies, as well as a captive market whose currency is overvalued in exactly the same way destroying local industry (i.e. German loans pay for German cars to be sold to the Europeans but the other way round is much harder). Hello VW, goodbye Rover.
The Euro actually appreciated massively between 2000 and 2008 as the German economy recovered [1].
> On top of this Germany is absorbing East Germany which is a handy source of incredibly cheap labour (in the same way that illegal labour is in the US food and farm industry)
The pay for the average German auto worker is considerably better than that for the average American auto worker [2]. (Note that this needs to be relativized somewhat because German car companies also employ temp workers that aren't paid that well, but they still make up a minority.)
If the "German Euro" was to split from the "not German Euro" tomorrow as the CHF unpegged recently, do you think it would trade higher or lower than it trades now? What would happen to Audi and VW if it was to trade twice as high?
A fictional "German Euro" would still appreciate relative to the "not German Euro", yes. My point is not that Germany does not benefit from a comparatively weak Euro – it does – but that this doesn't really explain differences between the German and the American automobile industry.
So, your economist might be right, of course, and I am not an economist, just a former junior trader who didn't work out and changed careers. Nevertheless I am pretty sure that if you jack up your prices by 50% overnight, with the prospects of them continuing to rise year on year for decades, you're going to see some price sensitivity. I thus respectfully disagree with the idea that a sudden and large currency appreciation has no effect on a country's exports.
Switzerland can get away with it because there are few locations left which respect foreigner property rights so thoroughly (including against their own government, although this is weakening). Nevertheless they were worried by the prospects sufficiently to literally go and support a peg for years.
1. I'm not saying that it wouldn't have an effect, just that the effect is difficult to predict and may very well be minimal.
2. Keep in mind that many German export products aren't particularly price-sensitive. Take for example, Delo, a typical German Mittelstand business. They produce smartcard adhesives (inter alia) and have pretty much cornered the world market on that product (a few years ago, about 80%, and a pretty good chunk of the smartphone market, too). The cost of adhesives doesn't really factor in the price of a smartcard and quality is more important, so currency valuations have relatively little effect.
3. Most of the value chain of German car manufacturers was outsourced to Eastern Europe in the 1990s [1]. Much of the effect of any increased export prices would be offset by cheaper imports.
4. I can't think of any effect that would jack up the value of a currency by 50% overnight, short of a major economic disaster. A currency appreciation would almost always be gradual and occur over several years.
5. While we are talking about counterfactuals, keep in mind that the US is a currency union also. Similar effects would result in America if the US dollar were split in, say, a Northern dollar and a Southern dollar. Detroit would suddenly see its cars become more difficult to export, while Tennessee's would become cheaper (just as Eastern Europe's under the Euro counterfactual).
Oh, a sharp move can happen, exactly as it just did with Switzerland (41% [2] although stabilized at a bit under 20%): via an exit from a peg. The monetary union is such a peg, an exit or any form of breakdown would cause a sharp revaluation. Without warning, for obvious reasons.
You could argue that an economy which is entirely in a naturally monopolistic, price-insensitive position might be able to weather some pretty severe currency moves, but I don't think Germany can be described thus. 70% of the German economy is services, and 69% [1] of German exports are to EU countries (which would be particularly hit by a EUR breakup as they'd move the same amount the other way). Cars are the largest export by dollar value [2]. I don't know how I'd get stats to show price sensitivity of exports, that being said I know of no car company which is not price sensitive, other than niche manufacturers (e.g. Morgan in the UK). Medical supplies might be another story, especially as it's capex intensive and low headcount. Imports might be part of the picture, but VW's 45% of global staff that is employed in Germany will still draw German Euro paychecks.
As per 5. you appear to agree with me: macro effects are global and "nowhere/no time is different". Although it is not Eastern Euros but Southern Euros which would devalue. Poland isn't Greece by any stretch.
Now I will admit that I agree with you a little bit: I think the fears of currency appreciations are somewhat overstated, particularly in a sophisticated economy producing high value added goods (mine is similar to the reasoning you put forward). Maybe Swiss readers can confirm, but the CHF appreciation seems to have gone alright [4]. But, I had to make the case, and it was popular amongst traders when I was still in the business.
> In Germany, it is thanks to European monetary policy that artificially depresses the Deutsche Mark, allowing for cheaper exports and lower costs for German companies, as well as a captive market whose currency is overvalued in exactly the same way destroying local industry (i.e. German loans pay for German cars to be sold to the Europeans but the other way round is much harder). Hello VW, goodbye Rover. On top of this Germany is absorbing East Germany which is a handy source of incredibly cheap labour (in the same way that illegal labour is in the US food and farm industry) AND massive subsidies for whoever wants to go take advantage of it (I know a company that opened a very, very expensive plant 200km from Berlin because the subsidy was such that they came out profitable even if the plant lost money for 20 years).
Fascinating story, if only Germany had started producing cars in 2000 with the introduction of the Euro. How do you think VW, Audi etc. fared in the 70's and 80's (and the rest of the German economy in general)? In addition, the Euro is pretty much irrelevant because the cars are mostly produced in the region where there are sold - do you think the exchange rate is relevant for the VW factories in Mexico, Tennessee and Pennsylvania for the north American market? How does a cheap Euro make the import of resources from outside the Eurozone cheaper, steel, aluminium etc.?
According to [1] around 170k of Volkswagen 370k employees are in Germany. That is a significantly higher proportion than is warranted by the size of the market. Hence export advantage.
Second, I did not claim that macroeconomics of the Euro period were sole responsible for the success of German companies. I said that one large contributing factor to the success or even survivability of German companies in export markets, versus other countries (such as the Koreans) was the fact that the euro allowed for de facto currency devaluation without any of the durable disadvantages associated (either the structural breakdown of the country that implies the devaluation, or the impact of inflation on savings, etc.)
I worded it in long form because it is a complex, high dimensional subject not suited for one sentence summaries. As is most of economics and politics.
> to keep wages down locally (tough immigration laws help),
This is the first time I've heard of tough immigration laws help to keep wages down. All I hear from the US is complaints about H-1B immigration depressing wages.
And immigrating to Japan is definitely NOT tough at all for any educated labour, only uneducated labour (and letting in uneducated labour from S-E Asia would absolutely be send wages plunging). If you have a college degree and can find an employer, you will have zero resistance immigrating to Japan. Way easier than Europe or the USA where there are strict quotas.
My mistake. I had a point to make about immigration but forgot to make it, the draft stayed in place. Regarding long term immigration, I thought gaijins could never secure PR or citizenship (i.e. residence not tied to work) unlike in say the US (Green Card) or Singapore (PR, PEP) to name two.
FWIW I think immigration policy being overly strict harms economic growth in two ways:
- depleting the supply of talent increasing the cost of running a business that depends on the talent;
- stopping foreign founders from starting a business in your country to take advantage of its better conditions cuts the number of high growth businesses.
On the first point, Singapore is the extreme example. There are/were no Haskell developers there at least at the price we were able to pay (because the only Haskellers were at Standard Chartered making about twice as much). I tell this story often so the details might be fuzzy as time passes and the numbers dissolve in my memory, but our job ad had 150 qualified applicants (i.e. completed our selection task and it compiled and worked as expected) from the rest of the world (mostly from the US, Canada and Northern Europe) and 0 from Singapore, not even on EPs, although two SCB chaps did get in touch informally asking about the salary range.
My then team of 10 would never have existed had Singapore not had its extremely open Employment Pass system (which the US does not have); every single member (bar one Singaporean who learnt Haskell) was "imported". In practice, we had planned for this eventuality and had looked into alternative locations; half the team ended up remote anyway.
On the second point, I once made a back of the envelope calculation showing that around 40% of famous Silicon Valley founders (i.e. Intel, Apple, etc. level companies - I just took the list of the highest valued and kept working down until I had a significant sample) were first or second generation immigrants. Taking our two examples, Jobs had a Syrian father and Andy Grove was born Andris Gróf in Budapest.
The real damage of the H1-B policy (other than being a lottery and being gamed to hell and back) is thus tying the visa to a workplace. It's not damaging per se, since one could in theory spin up a company and apply for the visa; it's damaging in practice, because the process takes months, expensive lawyers, and piles of paperwork which is definitely not "useful" work and usually unaffordable to a "normal" startup founder. Singapore, again, has it right: an Employment Pass takes around 7 working days to be approved, making it extremely easy to change jobs.
(However, due to people using its EntrePass to skip investor visa requirements, it now has ridiculous requirements such as hiring levels to be maintained and having to be invested in from a shortlist of approved investors none of which actually do seed investing. So people spin up a company with their accountant as the local director and get themselves an Employment Pass that way...)
It's never been easier and cheaper to start an international software company, and software is "eating the world" so I suspect at some point a location will realize the potential. I wonder how long Silicon Valley's advantage in capital and knowledge will last as it restricts its effective talent pool to a population of 300 million vs the other 9 billion in the world rapidly arriving to middle class living standards and knowledge; but so far no country has gone forward and allowed foreigners (or non-Europeans, in the case of Europe) to start companies easily in their land.
> Regarding long term immigration, I thought gaijins could never secure PR or citizenship (i.e. residence not tied to work) unlike in say the US (Green Card) or Singapore (PR, PEP) to name two.
Permanent Residency is easy to obtain in Japan as long as you do the time (which is as low as 3 years if you have a native spouse). Gaining citizenship is also not a problem, but they don't allow dual citizenship (meaning you have to give up your original citizenship), which makes it a very unattractive option.
Japan has issues attracting educated foreign labour, but it has nothing to do with immigration but rather to do with language barriers, a very poor work environment, and in tech in particular, absolutely noncompetitive wages.
3 years if married, 10 years if not [1]... well, it's better than "not available" but still a significant impediment to starting a business! Nevertheless I was wrong, thanks for correcting.
I was wondering the same thing and did some searching. It turns out the mark is still exchangeable to Euro, fixed at 1.95583 marks to EUR. As of 2012, there were billions of marks supposedly still in circulation. Not directly related to the GP comment, just interesting IMO. http://www.wsj.com/articles/SB100014240527023043738045775209...
That's the whole point! The monetary union means the EUR (the "new" mark) is lower (from a German standpoint) than it would be should it be trading separately. Having Greece in the EU is an ADVANTAGE to German manufacturers. Greece is "passing on" its currency advantage to Germany.
See what just happened to the CHF when the peg lifted.
OT, but speaking about quality and the hidden interests of the people making the product: the page works very, very bad on iPhone and iPad. Is it better on other mobile devices or is it the case of developers developing on the desktops and just beleiving it's good enough on anything else?
The submitted title ("Why GM cars don't have the quality of Japanese imports") doesn't seem to use language from the original source, so we changed it to use a sentence from the transcript. If anyone suggests a better title we can change it again.
American employees tend to have wider responsibilities and probably wouldn't be able to handle the relentless dedication to detail that is expected of Japanese employees. Even though my office in Michigan was the same company and had access to the same parts as Japan to sell to American car companies, our work force just did not compare to Japan in its devout dedication to the customer and making sure that parts are perfect in every detail, down to plastic packaging and boxing that they are shipped out with.