The U.S. vs. Japan: Growth Patterns Determined the Winner

In the 1980s, there were two dazzling trains in the world economy: One was in America, running very slowly; the other was in Japan, running rapidly, driven by industries producing goods such as color TVs, cameras, textiles, automobiles and ships.

Japan was accelerating its speed and catching up to the USA. Sitting in the train’s compartment, Japan said to the world: “It is time to replace the USA and be the world leader.” In the face of competition from Japan, Americans did not give up hope, but acted with a great sense of urgency. Ronald Reagan called on the industrial association and think-tanks to discuss countermeasures. Through investigation and analysis, they found that the computer and communications industries were beginning to show vitality and had large market potential. In the future, it was possible that they would develop into the world’s largest industries. Therefore, the Reagan administration declined to adopt a short-term, profit-oriented competition strategy; rather, it adopted methods that allowed universities to work collaboratively with enterprises to co-develop the computer and communications industries. During the Clinton administration, a large investment was made in building up the world’s internet highway.

Despite the U.S.’s transformation of its economic growth patterns, Japan, on the other hand, was not keenly responsive to the computer and communications industries. Japan was still dwelling on traditional manufacturing and especially indulging in the real estate industry. Many developers and citizens must have thought, “Japan’s land area is narrow and limited, while its population is huge. The Japanese population is half of that of America, while its land is only 1/25 the size of America, so housing prices will forever rise and never fall.” This thinking led to a serious real estate bubble in Japan.

During this period of competition between the world’s two trains, the actual change emerged as different modes of development. In the development of traditional industries, Japan’s market was small and profits were low. The Japanese economy had plunged into the abyss for more than ten years. Meanwhile, the United States transferred its focus from traditional manufacturing industries to the high-tech computer and communications technology industries. And America was developing very quickly.

There were a number of additional reasons for Japan falling so far behind the U.S. after having been so close to catching up, including problems in Japan’s finance and exchange rate, the “Plaza Accord” and the “Louvre Accord.” But America’s rapid transformation of its economic growth pattern was the decisive factor. Now, the train of China’s economy is racing ahead and China’s GDP has exceeded those of both Britain and Germany; this is similar to what happened when Japan surpassed some European countries, including the U.K.

We can take many lessons from the competition between Japan and the U.S. First, change the mode of growth to accelerate development or face fierce international competition. The downfall of Japan was that it failed to seize the high ground in science and technology. Therefore, China must hurry to take control. Second, transforming the economic growth pattern must become a top priority.

Third, technology is key to seizing the high ground. Earlier, the USA took the lead in developing its high-tech computer and telecommunications industries and, because of this, Japan was left behind. For now, the key in the competition between the USA and China is, once again, technology. Fourth, macroeconomic control and major government support are also decisive factors. From Reagan through the Clinton administration, the U.S. government’s regulation and policy guidance has facilitated the transformation of its development patterns.

History is a mirror; learning to study, review and learn from other countries will provide support for the change of economic development patterns in our own country.