This diary is about the encroachment of Japanese companies into the American marketplace in the seventies. It's adapted from a comment that I made in another diary, but I felt it deserved its own diary.
In a way, it feels like ancient history, because things have changed so much since the seventies. But some of our current problems have roots from back then, so it's a stroll down memory lane that is worth taking.
My focus will be on cars, televisions, and VCRs -- after the jump.
We often like to blame Reagan for the decline of US manufacturing. And it's certainly the case that things got much worse under Reagan -- and that the it seemed that the government actually started working against the interests of US manufacturing (and especially those employed in that segment) in the eighties. It's also the era during which finance became the "sexy" segment of the US economy, and stole the thunder away from those "boring" parts of the economy that were dedicated to actually making things that people could use.
But it's worth remembering that the US manufacturing sector was showing some signs of decline well prior to the Reagan era. Notably, the US automotive and consumer electronics segments were getting rather complacent by the seventies. Up to this point, the Japanese were minor players in both markets -- with a reputation for small and cheap in both segments. But the complacency of the US auto and electronics comapnies gave the Japanese an opening to start competing in these segments based on quality, not just price.
On the automotive side, Toyota and Datsun (now Nissan) had been in the US car market since the sixties. Honda came later -- until the seventies, they were thought of as a motorcycle company in the US. And all of them remained minor players until the second energy crisis of the late seventies, with a limited selection of mostly small cars. If you wanted a larger car (which is what most Americans did want back then), your only real choices were from the US big three -- and while many of those vehicles were mediocre designs offering poor reliability, they were the only game in town.
But when the second energy crisis hit and gas prices spiked, suddenly small cars began looking far more appealing to American car buyers. And if you wanted a reliable, fuel efficient vehicle in the late seventies, you chose a Toyota Corolla or Datsun B210 over a Chevy Chevette or a Ford Pinto. Oh, maybe you did consider a Dodge -- the Dodge Colt, which was built in Japan by Mitsubishi motors for Chrysler. That the Japanese vehicles were also affordable was a nice bonus...but you bought them because they were better, not just because they were cheap. And once you discovered that those little Toyotas and Datsuns were well built, reliabile vehicles, it became a lot harder for the big three to regain you as a customer.
The big three didn't initially worry about it a whole lot -- after all, small cars also featured small profit margins. The profit from selling one road yacht was going to equal what you could make from selling quite a few Chevettes or Pintos, after all...so who really cared if those small car customers bought a Corolla or B210 instead? Well, we did subsequently find the answer to that question in the eighties and nineties, when the Japanese companies were able to sell bigger vehicles to the customers who liked the build quality of those original econoboxes.
And, that in turn, led us to where we eventually got to, with the US car companies essentially ceding the car market to the Japanese in favor of focusing on trucks and SUVs. After all, the profit margins were better, anyway -- at least until gas prices spiked again in 2005. But remember...the seeds for that fiasco were first planted in the seventies.
But at least some sort of US car industry does still exist. In contrast, vast portions of the US consumer electronics industry have completely ceased to exist. And the roots are, once again, to be found back in the seventies.
In consumer electronics, the situation was even worse than for automotive -- especially when it came to television and video. RCA, Zenith, Magnavox, and the other US companies had gotten good at building big pieces of furniture stuffed full of vacuum tubes (the big color TV consoles were their big profit centers), and were slow to respond to changes in technology (solid state electronics replacing vacuum tubes) and customer taste (a preference for table model televisions over consoles), giving the Japanese a huge opening. The irony, of course, is that the solid state technology that was exploited by the Japanese companies was developed in the US.
By the late seventies, if you wanted the best television you could buy, it was going to be a Sony. And it would cost you substantially more than would a comparable sized television from one of the American brands -- but you knew you were getting what you paid for. And if you were on a somewhat tigher budget, you could buy a new Panasonic color TV for the same price as that RCA or Zenith -- and you got a far more reliable television. (I can back that up from experience, since the 13" Panasonic color TV that I bought in 1977 still works! I now have it connected to a digital converter box, and am using it as a secondary television in my house almost 33 years later.) But if you wanted a large screen (which, back then, meant anything bigger than 19"), you still bought an American TV, because Sony, Panasonic and the smaller Japanese companies didn't yet compete in that segment. Unfortunately, for RCA, Zenith, and Magnavox, the 19" table model color TV was the most popular screen size by the end of the seventies -- which meant that they were competing head on against Sony and Panasonic by the end of the decade. And early in the next decade, Sony went head to head against RCA, Zenith, and Magnavox on screen size, with a 26" screen size in 1981. And early videophiles who loved their 19" Sony Trinitrons paid the premium to buy it...
And then let's talk about how the US consumer electronics companies responded to the innovation of the Sony Betamax and JVC's VHS format VCRs. They never even attempted to compete -- and didn't even bother to build the new machines under license. Instead, they bought machines that were designed and built in Japan and slapped their own label on it.
If you bought a VHS VCR from Panasonic or RCA, you were getting the exact same machine built in the exact same factory. Ditto for Magnavox and GE, which (like RCA) chose to buy their VCRs from Panasonic's parent company in Japan. If you went the Beta route, the Zenith and Sony VCRs both came out of Sony's Japanese factories, and the Sears house brand decks came from Sanyo.
By the end of the eighties, the US was essentially out of the TV manufacturing business, with premier American brands sold (or in the process of being sold) to foreign companies: RCA to France's Thompson CSF, Magnavox to Dutch Philips, Quasar to Matsushita (Panasonic's parent). Zenith, the last holdout made it into the nineties before being bought up by Korea's LG. And, of course, when it came to video recorders (and, later, DVD and Blu Ray players), we were never even a part of the market.
Not surprisingly, in both industries, as the US companies ceded more and more of the market to their Japanese competitors, they found themselves fighting harder and harder for what was left.
Note that none of the above is really a political analysis -- it happened under presidents of both parties (Nixon, Ford, Carter), and I'm not aware of any national policy decisions under consideration at the time that would have appreciably changed the situation. Protectionism wasn't a good solution, because the problem was that the US companies had become unresponsive to the market -- and protecting them would have enabled them to continue foisting mediocre junk on the American public. Perhaps a national industrial policy could have helped, but so far as I'm aware, no one even proposed such a thing back then -- and I'm not sure how that could have forced US companies to address very real quality concerns of the era.
Note also that this isn't the same situation that we face today, either. Chinese brands aren't competing for the dollars of the American public based on quality or anything else -- instead, they're competing to becomes the suppliers of choice for multinational corporations who are willing to cheapen their brands by selling low cost junk since that enables them to fatten the bottom line. Cut costs by 50% by going to a crappy Chinese supplier, cut the price of the end product by 10% so your customer thinks they've gotten a bargain, and you're set. And the beauty is that your competitors are doing the same thing, so your customer can't flee to better quality...
The good news is that since the situation today is different, national policy solutions are more viable -- since the US companies (what's left of them) aren't churning out junk anymore, protectionism against competition that prevails by cutting labor and environmental standards is something that we can consider. Providing tax incentives for companies that insource instead of offshore their production is another possibility that exists today. For that matter, modifying capital gains tax rules to reward those who invest in bringing (or maintaining) manufacturing production to the US might be a possibility -- right now, Wall Street tends to punish the stock prices of companies that do their own domestic manufacturing, so maybe we can use our tax system to undermine Wall Street's undermining of our economy, so to speak.
And their's certainly a place today for industrial policy. President Obama's talk of promoting green jobs in the US is a start, albeit one that needs to be fleshed out and turned into something solid enough to warrant long term investors putting money into those sectors. Otherwise, we'll see what's happened in the last year -- new green electricity plants that rely heavily on wind turbines from China.
But as we consider the ways in which we can rebuild US manufacturing, we must remember the seventies. We should nurture our manufacturing sector, but always need to avoid protecting this segment to the point where it doesn't have to compete on quality and innovation -- because if we let the latter happen again, we're going to see a repeat of the seventies.
Edit: Thanks for the rescue and all the great comments -- I was nailed with a nasty cold last night, so didn't get to look again until now!