America, the Dependent: Some Independence Day Reflections
If you believe the American press, America still leads in advanced manufacturing. The press�s view is at least thirty years behind the times. Today many of America's high-tech corporations are highly dependent on Japan for their most advanced technologies. By Eamonn Fingleton.
Economic commentators who advocate laissez-faire trade policies often argue that it does not matter if alleged �dinosaur� industries (such as steel and textiles) are wiped out by imports, so long as America retains leadership in advanced manufacturing. And this, they say, is exactly what America is doing.
�Look at America�s leadership in high-tech industries,� they exclaim. �Look at Cisco Systems, Applied Materials, Motorola, and Intel. They are the most advanced manufacturers in the world!�
Would that it were true. In reality America�s leadership in advanced manufacturing is a myth.
The sad truth is that America�s advanced manufacturers are now highly dependent on foreign suppliers � and particularly the Japanese � for the key enabling technologies in their products. The dependence on Japan is particularly acute in electronics, ironically the area where the illusion of American leadership is strongest.
Underlying all this are the natural tendencies of the two nations� corporate systems � the American system encourages corporations to seek out easy-entry businesses whereas the Japan system has exactly the opposite effect. This is particularly obvious in the matter of capital: whereas American corporations seek to minimize the amount of capital tied up in their businesses, for Japanese corporations the more capital-intensive a field is the more they like it. Two forces in particular are at work in the Japanese preference: one, Japanese corporations enjoy a strong comparative advantage in almost unlimited access to ultra-cheap capital, and two, by dint of labor regulation, they are under strong pressure to create the most secure and productive jobs possible for their workers. Capital-intensive jobs have obvious advantages in world competition because they are not only well fortified against such contingencies as a sudden rise in the yen but, of course, they are also proof against rising competition from low-wage nations (whose poverty rules out participation in capital-intensive industries).
Apart from capital, the other main factor that defines how difficult an industry is to enter is the amount of proprietary production knowhow required. Here again the tendencies of the two systems are exactly opposite. American corporations just can�t afford to spend five or ten years �learning by doing� to perfect their production efficiency. By contrast, the Japanese, concerned as always to create viable long-term jobs, love fields that involve a long and steep learning curve.
The results are eminently apparent to anyone who checks out where America�s manufacturers are really getting their technologies these days. Take Cisco Systems. A check of Cisco�s SEC disclosures shows that the company not only outsources its manufacturing but is highly dependent for each new generation of its technology on key outside suppliers. Specifically it is dependent on the Japanese for its transponders which are at the core technology in its routers. Transponders in turn are composed of components such as laser diodes and optical receiving devices which are a virtual Japanese monopoly.
It is a similar story with Applied Materials, another prominent poster boy of America�s alleged manufacturing renaissance. Applied Materials is merely an assembler and is highly dependent on Japanese suppliers for the high-tech ceramic components at the core of its technology. The world�s supply of these components is dominated by companies like Kyoto-based Kyocera and Tokyo-based Toshiba.
Earlier this week I was asked by a prominent Washington politician for a list of some key manufacturing technologies in which leadership had now passed from the United States to Japan. I attach that list below.
American dependence: key technologies America buys from Japan
LCDs. Japan dominates virtually all the most sophisticated versions of LCDs (liquid crystal displays). True, some LCDs are now made in Taiwan � but these come from Japanese-owned factories in that country. The Koreans are also players but again are dependent on the Japanese for technology and inputs.
Mobile phone components. These are the wonder consumer products of the era. Deutsche Bank has identified nine key enabling components without which mobile phones would not be possible. Each of these is a true miracle of miniaturization and of the 36 major suppliers of them, 29 are Japanese. Most of the other suppliers have Japanese links. American mobile phone makers such as Motorola are little more than marketing agents for Japanese technological breakthroughs.
Lenses. Lenses are vital in a host of applications in capital equipment and precision instruments. Japan dominates the supply of lenses for everything from surveying equipment and copiers to medical instruments and industrial robots.
Semiconductor making equipment. The key category here is steppers, the lithographic machines that print lines on computer chips. Japan has about 60 percent of the world market, with most of the rest in the hands of ASM of Europe. Japan's dominance in turn reflects its leadership in lenses, which are a key enabling component in steppers. (ASM sources its lenses from Japan's only major competitor in lenses, Zeiss of Germany.) Japan dominates also in countless other types of semiconductor equipment such as dicing saws, hotwall oxidation/diffusion furnaces, and semiconductor test equipment. Without such equipment, the many improvements in chips that Intel and other American semiconductor makers have introduced in recent years would not have been possible.
Semiconductor materials. Japanese companies such as Shin-Etsu, Sumitomo Sitix, and Mitsubishi Materials lead the world in making semiconductor grade silicon. Japan dominates also in gallium arsenide, a semiconductor material which has advantages over silicon in high-performance applications such as in mobile phones and in defense technologies. Kyocera leads the world in ceramic packaging for computer chips.
Laser diodes. These are crucial in countless high-technology applications, most notably in the CD/DVD family of devices and in optical fiber communication. Japan enjoys a world monopoly.
Flash memories. Key devices in many advanced electronic products, notably mobile phones, they are made largely in Japan.
Charge-coupled devices. These are the seeing eyes of guided missiles. They are also the key enabling component in all sorts of miniaturized video cameras such as those incorporated in camcorders. Main producers are Sony and Sharp.
Production machinery. Countless examples could be cited. In view of the press�s conviction that Japan has collapsed it is interesting in particular to look at printing equipment. Traditionally German and American companies led the world in this category. Now the Americans are dead and the Germans are faltering as the Japanese increase their market share. The Washington Post is printed on Mitsubishi machines. It is interesting to note also that the manufacture of television broadcasting equipment is utterly dominated by Japanese companies, notably Sony.
Eamonn Fingleton is the author most recently of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Houghton Mifflin, 1999).
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