Psychologically, too, the country is least prepared for the decline in manufacturing. After all, it owed its rise to great-economic-power status in the second half of the 20th century to becoming the world’s manufacturing virtuoso. One should never underrate the Japanese. Throughout their history they have shown unparalleled ability to face up to reality and to change practically overnight. But the decline in manufacturing as the key to economic success confronts Japan with one of the biggest challenges ever.
The decline of manufacturing as a producer of wealth and jobs changes the world’s economic, social and political landscape. It makes “economic miracles” increasingly difficult for developing countries to achieve. The economic miracles of the second half of the 20th century — Japan, South Korea, Taiwan, Hong Kong, Singapore — were based on exports to the world’s rich countries of manufactured goods that were produced with developed-country technology and productivity but with emerging-country labour costs. This will no longer work. One way to generate economic development may be to integrate the economy of an emerging country into a developed region — which is what Vicente Fox, the new Mexican president, envisages with his proposal for total integration of “North America”, ie, the United States, Canada and Mexico. Economically this makes a lot of sense, but politically it is almost unthinkable. The alternative — which is being pursued by China — is to try to achieve economic growth by building up a developing country’s domestic market. India, Brazil and Mexico also have large enough populations to make home-market-based economic development feasible, at least in theory. But will smaller countries, such as Paraguay or Thailand, be allowed to export to the large markets of emerging countries such as Brazil?
The decline in manufacturing as a creator of wealth and jobs will inevitably bring about a new protectionism, once again echoing what happened earlier in agriculture. For every 1% by which agricultural prices and employment have fallen in the 20th century, agricultural subsidies and protection in every single developed country, including America, have gone up by at least 1%, often more. And the fewer farm voters there are, the more important the “farm vote” has become. As numbers have shrunk, farmers have become a unified special-interest group that carries disproportionate clout in all rich countries.
Protectionism in manufacturing is already in evidence, although it tends to take the form of subsidies instead of traditional tariffs. The new regional economic blocks, such as the European Union, NAFTA or Mercosur, do create large regional markets with lower internal barriers, but they protect them with higher barriers against producers outside the region. And non-tariff barriers of all kinds are steadily growing. In the same week in which the 40% decline in sheet-steel prices was announced in the American press, the American government banned sheet-steel imports as “dumping”. And no matter how laudable their aims, the developed countries’ insistence on fair labour laws and adequate environmental rules for manufacturers in the developing world acts as a mighty barrier to imports from these countries.