Book Info: In Praise of Hard Industries: Why Manufacturing, Not the Information Economy is the Key to Future Prosperity By Eamonn Fingleton Houghton Mifflin Co (Pap); ISBN: 0395899680, pp. 288
	Fingleton's Facts? Fingleton in 2003 Fingleton's website A Second Opinion: In Praise of Hard Industries

A revisionist returns to blast the 'new economy'
By: Paul J. Scalise

Whoever wants to find an audience in this competitive information-saturated market of the new millennium needs a thesis with a bang. Long ago this unholy message reached the political economist, too, resulting in short-lived uproars against rational sensibilities. But seldom has it been followed so persistently as in the case of the “revisionist” school of thought (so named by Business Week magazine in 1989 because its backers rejected the thesis that Japan would eventually become a “normal” nation, politically and economically similar to the West.)

When Japan’s “bubble” burst in the early 1990s, deflating its domestic asset prices, exposing the myriad non-performing loans by its inefficient financial institutions and generally socking the economy with increased unemployment, corporate bankruptcy and political unrest, most analysts took pause. Suddenly the critical issues surrounding Japan weren’t its structural strengths, but its chronic weaknesses. The burgeoning trade surpluses that revisionists once trotted out with increasing regularity seemed irrelevant to the further revelations of corruption in the boardroom, excessive government debt, rising suicide rates and a shrinking workforce barely capable of supporting its aging population. As observers scratched their heads in the face of American prosperity and Japanese stagnation, the questions on almost everyone’s mind were: Whatever happened to the Japanese miracle? Were the revisionists wrong?

“Au contraire,” says one nostalgic holdout. Western analysts are still looking at the wrong economic indicators.

With In Praise of Hard Industries, Tokyo-based financial journalist Eamonn Fingleton cultivates his gadfly stance in an effort to buttress his previous book, Blindside: Why Japan is Still on Track to Overtake the U.S. by the Year 2000 (1995). There, “Japan” is depicted as a monolithic state of predatory exporters fooling the West with its false modesty and wily ways. This time around, the author goes a step further: preaching to U.S. policy-makers and CEOs about the not-so-original silver bullets needed to beat those clever foreigners at their own game.

Simply put: Mr. Fingleton would like to rehabilitate the term “prohibitive tariff.” High value-added manufacturing (“hard industries”), he believes, should be protected against cheaper, higher-quality imports through government fiat (subsidies, tariffs and tax incentives) at the expense of “soft industries” like publishing, broadcasting, the internet and computer software, to name a few. In true mercantile fashion, the author measures success in terms of trade surpluses (in Japan’s case, $750bn) and concludes that the so-called “new economy”—with its overvalued software companies and “deindustrializing” manufacturing base—seriously flirts with nationwide disaster. The argument is one of many Mr. Fingleton makes to warn readers that America still can’t cut the economic mustard; it is also one of many that still doesn’t jibe with the facts.

While it’s true that America currently runs a net surplus in services—leading the world in the export of finance, advertising and computer programming—its manufacturing base isn’t exactly floundering either. American manufacturing as a total share of the world economy makes up $1.4 trn. Even if we accept Mr. Fingleton’s assertion that America is being shut out of certain markets, a debatable point in itself, there’s little evidence to suggest that companies are suffering because of it.

Indeed, by several measures the American economy is performing above par: the unemployment rate is at a thirty-year low, with inflation practically non-existent; average real wage rates are rising; and productivity growth stands near perfect. Even assuming Mr. Fingleton were correct in his view that “manufacturing, not the information economy, was the key to future prosperity”—and who can say for certain?—one has to wonder how raising tariffs and thus consumer prices (something the author acknowledges), not to mention the added risk of trade wars, investment pull-outs and exchange-rate backlashes would help matters.

Or is that what the new-economy gurus would like you to believe?

The preliminary answers, as Mr. Fingleton presents them, all depend on our willingness to “take the blinders off”—something only a select group of protectionists and Japan revisionists are willing to do, he says. As Mr. Fingleton sees it, then, developed nations already divide themselves into two opposing camps. On the one side, Anglo-American “post-industrialists” somehow bamboozle their citizenry into believing service-related sectors—and only service-related sectors—are the cat’s meow. These are the professional punditry class; men and women with a lot to gain from promoting the “new economy.” One the other side stand “industrialists” like Japan and Germany that allegedly don’t. “They adopt,” writes Mr. Fingleton, “carefully honed national strategies to boost their manufacturing prowess.”

Mr. Fingleton denies that he is either a “Japan basher” or a “racist”, the epithets usually hurled at critics of Japan’s “counter-intuitive” political economy. But his argument, which is a well-written billboard for the complexities of manufacturing, nevertheless degenerates into a relentlessly one-sided, polemical contradiction.

He dismisses the Western media for being blind to the conspiracy, even though he resorts to quoting from them to buttress his thesis of a “deindustrializing” America. He tells us that production surveys and other statistics (which coincidentally support the view of a strong American economy) are “notoriously unreliable…and, by dint of a judicious choice of assumptions, can be made to ‘prove’ almost anything.” Oddly enough, he draws the line at applying the same suspicion to any statistic confirming Japan’s “economic prowess.” Nor does Mr. Fingleton bat an eye when he calls for a more “scientific” approach to comparative economic analysis, only to assert—without empirical substantiation—that components and materials used in the assembly of U.S. automobiles are primarily Japanese made.

Does this mean the book is without value? Of course not. Little nuggets of introductory information about “manufacturing’s strengths” do manage to pop up when least expected. Few readers will realize that Nikon is the dominant manufacturer of glass “steppers”—essential in the production of semiconductors—or that without Sony’s laser diodes the production of disk players, CD-ROMS and digital video disk players would be all but impossible.

Nevertheless, the book’s basic premise fails on its own terms. If American industry is turning toward services, it isn’t alone. Since the 1970s, developed nations worldwide have witnessed their labor move from agriculture to manufacturing, and then from manufacturing to services. Technological advances and productivity gains in manufacturing are commonly believed to be the root cause, but Mr. Fingleton will have none of this. As a debate tactic, it’s logical: to do otherwise would call attention to Japan’s own service sector, which roughly made up 65 percent of its economy in 1998, up from 38 percent in 1960.

But in the end, one wonders: if Japanese bureaucrats really want to protect a good job mix through manufacturing, why have exporters like NEC, Sony and Nissan Motors decided—let alone be allowed—to make large-scale layoffs in recent months?

Despite its omissions or perhaps because of them, In Praise of Hard Industries is still an important book. Its call to arms against Japan and Germany as a means of investing in America’s future is a defensible goal of sorts, but also a chapter taken right out of another decade. Protectionists will praise him. Economists will ignore him. But in 20 years time, the historians will likely have the last word on this particular school of thought. Will Mr. Fingleton’s book be marked as the renaissance of revisionist thinking on Japan? Somehow I doubt it.

Paul J. Scalise, “A revisionists returns to blast the ‘new economy’”. The Asahi Evening News. Life Section, Saturday-Sunday, April 8-9, 2000. Pg. 24.