Myths and Rationalizations

It seems that not a day goes by without some U.S. automaker policy wonk trying to rationalize why Japanese automakers are kicking U.S. automakers to the curb.  Obviously it must be some evil and nefarious external reason, and not simple manufacturing and execution prowess, right?

With a hat tip to one of our favorite blogs, Cafe Hayek, today's installment comes from the Wall Street Journal.  Stephen Collins of the Automotive Trade Policy Council writes a letter trying to explain away GM and Ford's woes on Japan "artificially weakening its currency."  To quote just part of the letter:

Japanese intervention through purchasing massive amounts of dollars and 'jawboning' has pushed down the yen's value. Despite being the second-largest economy in the world, Japan is holding $885 billion in foreign exchange reserves, mostly in dollars. This policy of artificially weakening the yen provides vast export subsidies to Japanese industries and promotes unfair trade practices while protecting its domestic market.

Regular readers of this blog will immediately recognize the fundamental flaw in that argument, particularly with respect to Toyota and the other Japanese automakers.  But first, the following is part of the letter that Donald Boudreaux of Cafe Hayek sent to the Wall Street Journal in response.

To keep the yen undervalued, Japan's government must accumulate massive foreign-exchange holdings.  Acquiring these dollars and other currencies requires the Japanese government to tax its citizens either directly or surreptitiously through inflation.  This policy harms rather than helps the Japanese people - hardly a subsidy "for Japan."

And while some Japanese exporters might benefit from an undervalued yen, so, too, do American consumers.  We get automobiles and other Japanese-made products in exchange for oodles of tiny monochrome pictures of dead American statesmen.  Now that's a subsidy!

What Mr. Boudreaux didn't say, and is the glaring flaw in the supposed argument of Mr. Collins, is what we've been pointing out all along: Toyota and the other Japanese automakers are building U.S. factories as fast as they can.  So much for the U.S. having a fundamental competitive disadvantage.  Last week we discussed an article on Toyota by Charles Fishman in Fast Company, where he put it very eloquently:

Without fanfare, in fact, Toyota is confounding conventional wisdom about U.S. manufacturing. Toyota isn't outsourcing; it's creating jobs in the United States. It isn't having trouble manufacturing complicated products here--it's opening factories as quickly as its systems and quality standards allow. It's offering union wages and good health insurance (to avoid being unionized), and selling the products its American workers make to Americans, profitably and more inexpensively than its U.S. competitors.

It's time for the U.S. automakers, and their apologists, to stop focusing myopically on supposed competitiveness burdens and instead work on removing waste from their internal processes.  Before it is too late.

Comments

[Karl McCracken]

Of course, it's comforting to have someone else to blame - it means that you don't have to look too closely in the mirror!

Great posting, especially pointing out the obvious, that Lean companies believe in shortening supply chains - and that means putting the production as close to the consumers that pay for it as possible. This applies for OEMs and their end users, and all the way up the supply chain itself. The closer you are, the better you can respond. The better you do that, the more customers will like you.

If you can do that, and have a better design / production system that delivers lower production cost, you've got a 'first best' winning formula.

Competing against that is really tough. Too tough for some, who'd rather bleat on about the unfairness, in the hope (perhaps?) that their home government will step in with trade protectionism to 'level' the playing field.

Karl.