More Than We Pay For

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Now that the Soviet Union seems to be making nice, a lot of people think the United States ought to go beat up on Japan. After all, they say, consider the many offenses Americans have suffered at the hands of the Japanese. They've sold us all those cars and copiers and VCRs. They've sent mobs of camera-happy tourists to lavish their money on Disneyland and Honolulu and Rodeo Drive. They've even bought Rockefeller Center. Something must be done.

OK, so this characterization is a bit flip. Foreign competition does raise serious questions for American industry. The Japanese government, among others, doesn't exactly uphold free trade or support free markets. And, although most Americans do like cheap products, the classic economic case for free trade—that competition brings greater variety at lower prices, that consumers benefit, that standards of living rise—can sound a bit ivory-tower if it's your company up against foreign competition.

"Ivory-tower" is one of the most popular epithets used against free traders. "Ideologues" is another. The notion that letting in imports is valuable in and of itself—even if the trade isn't reciprocal—just seems so theoretical, so academic, so, well, harebrained.

But free trade is far more than some bizarro theory cooked up by a bunch of dead economists. And there is far more at stake in the trade debate than whether American consumers can buy Toyota Camrys or Goldstar VCRs.

Trade involves more than swapping goods for money. It involves learning. Ideas get exchanged along with the goods. In fact, they won't get exchanged any other way.

When Muscovites lined up at McDonald's, they bought more than hamburgers. They discovered that counter help doesn't have to be surly or slow. Just by opening in Red Square, McDonald's raised the standard of service in the Soviet Union. Americans chuckled a bit, but even those who normally sneer at Big Macs couldn't help feeling pleased.

The Moscow McDonald's was a particularly dramatic and well-publicized example of a common phenomenon—the way foreign goods and services change how people think. The ideas come embedded in the products. Soviet reformers could have jawboned for decades about how enterprises should give better service, to no avail. But now McDonald's customers know, really know, that rubles can buy a smile along with some french fries. They've seen it with their own eyes.

Similarly, Americans have learned that cars can be reliable—even reliable and attractive. Unfortunately for U.S. automakers, they've learned that such cars don't come from Detroit. Hence all the complaints about the Japanese.

To be fair, American car manufacturers have done more than whine about imports. They have made monumental efforts to improve their own operations. And that is where the second kind of learning from trade comes in.

Consumers learn from foreign trade that life can be different. Producers learn that it has to be.

For a good 35 years after the end of World War II, U.S. companies didn't think much about foreign competition. But slowly, during the late '60s and '70s, it sneaked up on them.

Volkswagen introduced a generation of drivers to the idea of cheap, reliable cars that looked the same from year to year. Michelin educated consumers in the virtues of radial tires. Nippon Steel began to show up in American-made cars. And so things progressed, all but undetected, until the late '70s, when the gas shocks sent car buyers scrambling for Honda Civics and Datsun B-210s. By the end of the '81–'82 recession, American industry was no longer the undisputed champion of the world.

Since then, U.S. companies and their various hangers-on—the academics, consultants, policy analysts, and journalists who try to figure out what makes business tick—have been engaged in a remarkable research venture. They are studying business organization, and the policy environment in which it operates, with an intensity unmatched for decades.

At first, this research consisted less of real analysis than of mindless copying. If the Japanese had lifetime employment, some analysts argued. American companies should have lifetime employment. If the Japanese workers did morning calisthenics and sang the company song, American workers should emulate that example. If MITI decided what businesses Japanese companies should enter, then the United States should start its own planning bureau. Quality circles, Theory Z, just-in-time—the air was thick with buzzwords.

Over time, however, people started to separate out the superficial from the fundamental. They discovered that MITI had told Honda to stay out of the auto business—great advice, that. They saw that American workers weren't too interested in calisthenics, but that they did make very fine automobiles at Honda's plants in Ohio and Nissan's in Tennessee. They figured out that worker involvement wasn't some sort of touchy-feely psychobabble but a tough-minded way of pushing decisionmaking down to the factory floor. Slowly, American industry began to change.

It is the most underreported story of the decade, a classic case of the forest lost in the trees. The whole texture of American manufacturing has changed because of what companies have learned—have had to learn—from free trade. Some call the new way "world-class" or "lean" manufacturing. Some call it "Toyotaism."

It proceeds from the ideal of no waste: of time, of effort, of space, of materials, of anything. Line workers—those closest to the job—measure quality at each stage of production, rather than relying on inspectors to throw out defective products at the end. The ultimate goal is perfect quality, the day-to-day objective "continuous improvement." The manufacturing process flows continuously, from the supplier through the manufacturer to the customer. There are no buffer stocks; that would imply waste.

While American manufacturers have been mastering this complex, and often counterintuitive, system of production, the rest of us have also been learning from our experience with free trade. By comparing ourselves with other countries, we've seen what a terrible job our educational system does, particularly in educating the bottom half of students. On the other hand, we're getting a new appreciation of the strengths the United States draws from being an open society.

Even the vigorous policy debate of the last decade—which includes challenges to the free trade that made it possible—has resulted from this competition. Foreign competition has forced us to reconsider our antitrust laws, government funding of pure over applied science, and the wall between banks and securities firms. This constant scrutiny is all to the good.

Americans tend to laugh at the silliness of foreigners too insecure to let in American goods or American ideas. (The French are particularly hilarious.) We've created our language, our government, our industry, even our people by combining our existing culture with the best the world has to offer. By adopting and adapting from everywhere, the United States has gotten stronger. Free trade—in ideas along with products—has been the secret to our success. We would be foolish to give it up.

NEXT: Sweden Isn't Eden Anymore

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