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If anybody's curious about the real history of Toyota, and how it came to dominate the auto market, read this instead: >Let me start my talk with a little stor

If anybody's curious about the real history of Toyota, and how it came to dominate the auto market, read this instead: >Let me start my talk with a little story. In 1958, Japan tried to export this first passenger car to the US market. The company was Toyota, the car was called Toyopet. And, as you can guess from the name, it was a very cheap, small subcompact car, more of a four-wheels-and-an-ashtray kind of thing, which Toyota hoped rich American consumers could pick up as an afterthought, after finishing their grocery shopping with the changes left. Unfortunately, it was a total flop, so much so that Toyota actually had to withdraw the product. In the realm of failures, this is, like, the biggest thing. It's not just not selling well -- it had to be withdrawn from the market. >This provoked a very heated debate in Japan. The free trade economists centered around the Bank of Japan, the central bank, said, "Look, this is what happens when you go against the theory of comparative advantage. In a country like Japan, which in relative terms has lots of labor and little capital, we shouldn't be producing things like motor cars, which are very capital-intensive in production." Of course, at that time, Japan's biggest export item was silk. So, case proven, already. And they said, "Don't tell us that you couldn't succeed because you didn't have help. You had 25 years of very high tariff protection. We kicked out all the foreign car makers 20 years ago and didn't let any of them in since then. And back in 1949 this central bank even injected public money into Toyota to save it from bankruptcy. So, please don't tell us that you couldn't succeed because you didn't have help, because you had all the help you can ask for." http://mrzine.monthlyreview.org/2008/chang030808.html http://mrzine.monthlyreview.org/2008/chang030808.html Toyota benefited for at least 40 years from the intentional suppression of the Japanese currency as well as subsidies and tariffs on foreign car imports. This long-term mercantile policy corroded the US car industry to the point where it simply couldn't compete. The general use of the US dollar as the world's reserve currency didn't help either. If Japan hadn't followed a mercantile policy, we'd probably be having a similar discussion today about why American business culture and attention to quality is superior to Japanese.

crdb 11y ago
The flipside being that the Japanese paid this cost in various ways, such as sucking in and "wasting" (vs other opportunities) a lot of talent into things like car manufacturing whilst leaving other fields (like software) to free market countries whose assets were better allocated, and in the invisible taxation of the entire Japanese population that resulted from having higher prices, less consumer choice, less jobs (or lower value creating jobs), etc.
- crdoconnor 11y ago
  If Japan hadn't done this they would have kept their 1950s level per capita income. Which was about the same level as Brazil, Bulgaria and South Africa. They were poor as dirt. Now, they're one of the richest countries in the world. I don't think it was much of a trade off. Being a 'free market country' is ok if you're already rich. If you're still developing, it's a route to continued poverty.
  - crdb 11y ago
    I think it's more complicated than "free market" vs "interventionism". Japan benefited from the rule of law courtesy of both its culture and its post-war colonial rulers (and, effectively, from massive investments from the US much as the Marshall Plan boosted Europe, and then for supplies during the Korean War which amounted to a third of exports). US policy was literally to boost the Japanese economy to avoid further militarism. Making the labour available to global investment, opening borders, benefitting from the post-war industrial revolution and population growth (which itself generated demand growth). Japan was no United States, but it wasn't a mere third world colony either - it was an industrial power who held up the most powerful military force in the world for years. China is today where Japan was in the 1960s, and that's putting pressure on this kind of strategy. Property rights is almost the defining factor towards "third world to first" IMO (especially in today's environment where FDI is so much easier). The various degrees of socialism or interventionism are merely an economic brake. Being able to enforce rights is much more important, and that involves many expensive things like a police and justice infrastructure well paid enough to avoid bribes, an independent judiciary and honest politicians whose interests are independent of policy.
    - crdoconnor 11y ago
      If it were instead as simple as "property rights is all you need" there would be virtually no third world left. The same mercantilist strategy applied by Japan was repeated in Hong Kong, South Korea, Taiwan, Singapore and now China. Everywhere it's been tried, it has worked. Hell, even the United States followed this strategy (spearheaded by Alexander Hamilton) after the war of 1812. By the 1830s it had a 40% tariff rate which it kept for about another century.
wycx 11y ago
I did like the last line of the transcript you linked to (re. The Lexus and the Olive Tree): "You know, this is so crazy: it's like someone writing a book on self-made men, and the first chapter is Henry Ford II." I love to hate the ideas of Thomas Friedman. edit: precision
kalleboo 11y ago
After reading the article, even GM conceded that the Japanese production method was more efficient than the American "union wars" method. Even on a level playing field (when GM cars were manufactured in the US at NUMMI), it was cheaper to build quality cars than to ship the crap GM was making and then repair it afterwards. How does Toyota having a cost advantage result in GM spending more to build worse cars? How does Toyota having a captive market with no competition result in them having BETTER cars rather than junkier cars (such as in the Soviet states)? Your argument may make sense for "Why don't American cars sell as well as foreign cars?" but that wasn't the question. The question is about quality.
hoopd 11y ago
First, a lot of countries have protectionist trade policies but few can make cars like Japan. They have an excellent engineering culture. Second, who cares if they had favorable policies during the mid 1900's - they were also rebuilding after a nuclear war. We had a massive head-start in auto engineering back in the 1960's and then we stopped trying. They're the tortoise and we're the hare. Look at our race series, what NASCAR tech is trickling down to modern cars? F1's out there with hybrid systems and energy recovery devices on the absolute bleeding edge of technology and NASCAR has only recently lifted their 55 year ban on fuel injection. It's laughable. Technology shouldn't go from foreign racing circuits, to Japanese and German family sedans, to American family sedans, and then finally to our race cars. The notion that a auto-racing is used to fund R&D is apparently lost on us. To put it bluntly we have nobody to blame but ourselves and we're lucky to have somebody like Elon Musk come along.

crdb 11y ago

The flipside being that the Japanese paid this cost in various ways, such as sucking in and "wasting" (vs other opportunities) a lot of talent into things like car manufacturing whilst leaving other fields (like software) to free market countries whose assets were better allocated, and in the invisible taxation of the entire Japanese population that resulted from having higher prices, less consumer choice, less jobs (or lower value creating jobs), etc.

crdoconnor 11y ago
If Japan hadn't done this they would have kept their 1950s level per capita income. Which was about the same level as Brazil, Bulgaria and South Africa. They were poor as dirt. Now, they're one of the richest countries in the world. I don't think it was much of a trade off. Being a 'free market country' is ok if you're already rich. If you're still developing, it's a route to continued poverty.
- crdb 11y ago
  I think it's more complicated than "free market" vs "interventionism". Japan benefited from the rule of law courtesy of both its culture and its post-war colonial rulers (and, effectively, from massive investments from the US much as the Marshall Plan boosted Europe, and then for supplies during the Korean War which amounted to a third of exports). US policy was literally to boost the Japanese economy to avoid further militarism. Making the labour available to global investment, opening borders, benefitting from the post-war industrial revolution and population growth (which itself generated demand growth). Japan was no United States, but it wasn't a mere third world colony either - it was an industrial power who held up the most powerful military force in the world for years. China is today where Japan was in the 1960s, and that's putting pressure on this kind of strategy. Property rights is almost the defining factor towards "third world to first" IMO (especially in today's environment where FDI is so much easier). The various degrees of socialism or interventionism are merely an economic brake. Being able to enforce rights is much more important, and that involves many expensive things like a police and justice infrastructure well paid enough to avoid bribes, an independent judiciary and honest politicians whose interests are independent of policy.
  - crdoconnor 11y ago
    If it were instead as simple as "property rights is all you need" there would be virtually no third world left. The same mercantilist strategy applied by Japan was repeated in Hong Kong, South Korea, Taiwan, Singapore and now China. Everywhere it's been tried, it has worked. Hell, even the United States followed this strategy (spearheaded by Alexander Hamilton) after the war of 1812. By the 1830s it had a 40% tariff rate which it kept for about another century.

wycx 11y ago

I did like the last line of the transcript you linked to (re. The Lexus and the Olive Tree): "You know, this is so crazy: it's like someone writing a book on self-made men, and the first chapter is Henry Ford II." I love to hate the ideas of Thomas Friedman. edit: precision

kalleboo 11y ago

After reading the article, even GM conceded that the Japanese production method was more efficient than the American "union wars" method. Even on a level playing field (when GM cars were manufactured in the US at NUMMI), it was cheaper to build quality cars than to ship the crap GM was making and then repair it afterwards. How does Toyota having a cost advantage result in GM spending more to build worse cars? How does Toyota having a captive market with no competition result in them having BETTER cars rather than junkier cars (such as in the Soviet states)? Your argument may make sense for "Why don't American cars sell as well as foreign cars?" but that wasn't the question. The question is about quality.

hoopd 11y ago

First, a lot of countries have protectionist trade policies but few can make cars like Japan. They have an excellent engineering culture. Second, who cares if they had favorable policies during the mid 1900's - they were also rebuilding after a nuclear war. We had a massive head-start in auto engineering back in the 1960's and then we stopped trying. They're the tortoise and we're the hare. Look at our race series, what NASCAR tech is trickling down to modern cars? F1's out there with hybrid systems and energy recovery devices on the absolute bleeding edge of technology and NASCAR has only recently lifted their 55 year ban on fuel injection. It's laughable. Technology shouldn't go from foreign racing circuits, to Japanese and German family sedans, to American family sedans, and then finally to our race cars. The notion that a auto-racing is used to fund R&D is apparently lost on us. To put it bluntly we have nobody to blame but ourselves and we're lucky to have somebody like Elon Musk come along.