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Japanese Success Stemmed From Subsidies, Not Management Style

Tordior is right. In the 1980s, the US and Europe encouraged Japanese investment because they thought it would bring the "Japanese" management style that explained Japan's manufacturing success. But Japanese manufacturers ended up being no more successful than local ones once they were no longer protected by unlimited cheap financing, an undervalued currency, compliant labor unions, and government overspending on logistics and transportation infrastructure. In fact by the late 1990s, when because of terrible debt burdens Japanese producers could no longer count on the factors that were the real secret of their international competitiveness, reformers in Europe and the US were no longer demanding that their businesses become more "Japanese" in order to succeed. It was now Japanese reformers who insisted that their businesses become more "American". The point is that Chinese manufacturing is not more competitive than European manufacturing because of some special Chinese sauce that can be sprinkled abroad as easily as it is sprinkled at home. It is more competitive because it is based in an economy in which its competitiveness is driven by intervention in the country's external accounts. That is not to say that there aren't individual sectors in which Chinese manufacturers are genuinely more efficient that Europeans, but these sectors only emerged after many years of substantial protection and support from the Chinese government. The point is that if foreign manufacturers are aggressively outcompeting EU manufacturers because of substantial direct and indirect subsidies, the EU has three options. First, do nothing and see its share of global manufacturing wither. Second, match the subsidies and risk seeing the EU's debt burden rise as quickly as China's. Or three, intervene in the external account by enough to neutralize the effect of foreign ontervention. All of this would probably be more obvious if the EU's biggest economy, Germany, hadn't once enjoyed (and still enjoys to some extent) many of the very advantages that now threaten it. Manufacturers in extremely competitive, surplus economies think that because they are more competitive globally, they must also be more efficient. In fact, as Japan's example overwhelmingly illustrates, the direct and indirect subsidies that made their manufacturers so globally competitive also undermined their efficiency to such an extent that, once they were eliminated, many of them, unable to compete, quickly went bankrupt.