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Japan's role in the newinternational division of labour— a reassessmentTessa Morris-Suzuki aa University of New England , Armidale, NSW,AustraliaPublished online: 02 Apr 2008.

To cite this article: Tessa Morris-Suzuki (1984) Japan's role in the new internationaldivision of labour — a reassessment, Journal of Contemporary Asia, 14:1, 62-81

To link to this article: http://dx.doi.org/10.1080/00472338485390041

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62

Japan's Role in the New International Division of Labour a Reassessment Tessa Morris-Suzuki*

This paper is concerned with two debates which have been proceeding, with intermittent intensity, in the pages of economic and political journals over the past decade or so.

The wider and more theoretical debate is in fact a continuation of some long-s tanding a rgumen t s abou t the na ture o f deve lopmen t and underdevelopment. It centres on the question of whether the recent marked growth of industrialisation in certain Third World nations represents the real beginnings so often foreshadowed by deveiopmentalists o f the Rostowian school - - of a ' t ake-of f ' towards self-sustained capitalist development, or whether it merely represents the continuation on a new level of the old, unequal and dependent relationship between ' No r th ' and 'Sou th ' , 'Core ' and 'Per iphery ' .

The narrower and more concrete debate concerns the relationship of one specific part of the 'Core ' with one specific part o f the 'Per iphery ' - - that is, the relationship of Japan with the less developed nations of Asia. The principal question here runs like this: is J apan ' s economic interaction with the industrialising nations of East and South-east Asia being t ransformed from a vertical and therefore complementary relationship - - a relationship between industrial metropolis and resource-producing hinterland - - into a horizontal and therefore competitive relationship? Or is Japan, by means of the internal structural t ransformat ion of its economy, managing to remain always 'one step ahead ' o f its industrialising Asian neighbours?

In this article 1 shall try to bring these two controversies together, and to see whether it is possible to use some tentative answers to the second debate to illuminate the problems posed by the first. Before proceeding, however, it is necessary to take a brief look at the context in which these two debates have been developing, and at content o f some arguments put forward by the major protagonists in each.

Underdevelopment and the Industrialisation of the Third World

The period from the mid- '60s onward has seen a sharp increase in the level o f industrialisation in certain parts o f the Third World. Restricting our attention at present to the area with which this paper is most concerned - - that is, the East and South East Asian region encompassing South Korea, Hong Kong,

*Lecturer in Economic History, University of New England, Armidale, NSW, Australia.

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 63

Taiwan, Singapore, Malaysia, Thailand, the Philippines and Indonesia - - we find that in the period from 1970 to 1978 the annual average growth rate of manufacturing ranged from a low of 8.6 per cent in the Philippines to a high of 16.5 per cent in South Korea. This growth in industrial output was associated with an expansion in the export of manufactured goods which was particularly marked in the case of the first four countries (see Table I).

Table !

Asian Industrlalisation and Economic Growth

Annual average Annual average Percent of growth rate growth rate Workforce

of GNP of industrial employed in per capita production industry

Country 1960-78 1970-78 1960 1978 Indonesia 4.1% ! 1.201o 8% ! 1% Thailand 4.6% 10.2°/o 4070 8°1o Philippines 2.6% 8.601o 15010 16010 Malaysia 3.9% 9.601o 12010 16010 South Korea 6=9°70 16 5o/a _ QUa "t7~,a Taiwan 6.6o/0 12.901o 11010 37010 Hong Kong 6.5070 6.201o* 52010 57% Singapore 7.401o 8.501o 23% 38% Japan 7.601o 6.0% 30% 3901o USA 2.401o 2.7% 36% 330/o

(* = 1970-77)

Source: World Bank, World Development Report 1980.

$ million Manufactured

exports 1963 1977

2 191 16 647 34 764 63 1,121

129 7,925 617 7,267 352 3,626

4,812 77,514 12,453 82,526

The growth of export-oriented manufactur ing in these so-called 'Newly- lndustrialising Countries ' is now a very well-known and widely discussed phenomenon, and probably needs little further description here. A point which does need to be emphasised for the purposes of this paper, however, is that industrialisation, at least in s o m e less developed Asian countries, does appear to have been accompanied by rapid and far-reaching changes in social structure. In South Korea from 1960 to 1978, for example, the percentage of the workforce employed in industry rose from 9 per cent to 37 per cent while the percentage in agriculture fell f rom 66 per cent to 41 per cent. in Taiwan during the same period the share of the labour force in agriculture fell f rom 56 per cent to 37 per cent; the share in industry rose from I l per cent to 37 per cent (World Bank 1980, p.147).

These trends have given a neff twist - - some would say, have presented a serious challenge - - to radical theories on imperialism and underdevelopment, which, during much of the 1960s, had been fairly firmly grounded in the notion that there was no scope for the development of Third World countries within the existing structure of international capitalist economic relations.

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64 JOURNAL OF CONTEMPORAR Y ASIA

"Throughout [ran this argument, as expressed in the words of Andre Gunder Frank1 the peripheral countries have been the tail which has been wagged by the metropolitan capitalist dog: they developed underdevelopment, particularly underdeveloped agriculture, while the metropolis developed industry." (Frank, 1971, p.273).

Third world countries might, according to this view, acquire a small and limited industrial sector, financed mainly by foreign capital. But this sector, lacking internal linkages, could not act as a trigger for a chain reaction of domestically generated economic growth. Its markets were seen as being restricted to a tiny urban elite (for this model was derived mainly from the experiences of import-substituting industrialisation policies); its capital intensive imported technologies failed to absorb more than a miniscule fraction of the ever-expanding marginally-employed population; its profits were siphoned of f to line the pockets of foreign shareholders or of a local bourgeoisie whose interests were identified with those of foreign capital.

"The practical result of this (says Furtado) (even if the industrial sector connected with the domestic market grows and increases its participation in the product and even if the per capita income of the population as a whole rises) is that the occupational structure of the country changes only slowly. The part of the population affected by development remains minor and there is a very slow decline in the relative importance of the sector whose main activity is production for subsistence." (Furtado, 1973, p.42).

The gap between such theories and the evidence of rapid change provided by the statistics mentioned above has produced a number of different responses, and thus resulted in a perhaps rather healthy fracturing of the previous radical consensus on the nature of underdevelopment and imperialism. At one extreme was the response of writers such as Bill Warren, who accepted the view u held by many liberal economists - - that the so-called 'Newly lndustrialising Countries ' are indeed undergoing their own belated Industrial Revolutions and proceeding with almost breakneck speed along the path of capitalist 'evolution marked out in earlier times by Britain, the United States and other present-day ' industrialised' countries. Although, inevitably, historical and cultural differences distinguish the Industrial Revolutions of these areas from those of Europe and North America, nevertheless, according to Warren, they are phenomena of the same species: genuine, endogenous thrusts towards development, whose result will be at once to challenge the predominance of the old industrialised countries and to weaken the ties of dependence which bound Periphery to Core. (Warren, 1975; p a l ; McFarlane, 1977, p.460).

At the opposite extreme is the view (argued for example by O 'Lea ry and McEachern (1980)) that industrial growth in the Third World has done very little to alter the fundamental inequality of the Core-Periphery relationship. Here the argument runs something like this. Firstly, it is noted that rapid industrialisation is restricted to only a handful of less developed countries. Next, it is pointed out that these countries are in most cases ones which have received substantial inflows of foreign aid, and, more importantly, foreign

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J A P A N ' S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 65

direct investment. Most of them, moreover, are heavily reliant on foreign markets for the sale of their industrial output, which, in many cases consists largely of comparatively labour-intensive intermediate products which are manufactured by multinational companies in the periphery and then shipped to developed countries for incorporation into the final product. The spread of this pattern of 'off-shore manufacturing' to certain parts of the Third World has, according to O 'Leary and McEachern, been principally determined by fluctuations in the economic development of the Core, particularly by the declining rates of profit associated with the ending of a long post-war economic boom in the industrialised world.

"Any increase which has taken place in the level of industrialisation in the Third World has been in response to changed investment patterns and a rather limited restructuring of the global division of labour - - both of which were decided upon and implemented from the developed states" (O'Leary and McEachern, 1980, p.102).

and therefore that what we are witnessing is not any overturning of the established hierarchy of dominance and dependency, but merely what Samir Amin foresaw in the early 1970s: a 'new kind of international specialisation' in which

"the developed centre will specialise in automated forms of production requiring very highly skilled labour, (while) the periphery will specialise in the classical (including heavy) forms of production of the industrial epoch, requiring only unskilled labour" (Amin, 1974, Vol.ll, p.563).

The approach which 1 intend to take in this paper coincides with neither of these two extremes, although it incorporates some elements from each of them. It is centred basically around two propositions: 1. That the spread of industrialisation to certain parts of the Third World,

while it does not represent an end to international economic inequality and exploitation, does mark a significant and irreversible change in these patterns of international economic inequality, and one which requires an analytical approach distinctly different from the old development/ underdevelopment dichotomy.

2. That, just as this phenomenon is affecting some parts of the Third World quite differently from others, so its impact on the developed nations is far from uniform. The way in which the various developed countries will fit into the new pattern of international inequalities will depend very much on internal developments in their economies, and on the ability of their industrial concerns to adapt to the parameters and exploit the opportunities of the new economic order. For this reason, in assessing the nature of the new international division of labour, it is not enough merely to look at the rate of industrialisation in less developed countries, or to contrast the rate of growth of industrialised nations with those of the so-called 'newly industrialising countries' . It is also crucially important to consider the nature of developments taking place in the industrial structures of the developed nations, and to examine how these structures relate to the emerging industrial sectors of the Third World.

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Japan's Relationship with lndustrialising Asia: Vertical or Horizontal?

It is particularly interesting to note that the debates and arguments summarised above have an almost exact parallel in the debates which have been proceeding, from an entirely different political viewpoint, in the ranks of government economic advisors and liberal academic economists in Japan. The terminology employed is of course different. What is spoken of here is not 'imperialism' or 'dependence' but 'catching up' or 'staying ahead' , 'vertical' divisions of labour or 'horizontal ' divisions of labour. But the problems and phenomena under discussion are essentially the same as those already outlined. They are, in other words, questions such as: how far is industrialisation in less developed countries an endogenous and self-sustaining process; or how far is it determined by the interests of business in the existing industrialised nations? Should it be seen as a threat to the economic dominance of the developed nations; or simply as a new stage in the international spread of industrialisation, a stage in which the existing pyramid of economic power need not necessarily be undermined?

Once again, this debate has been stimulated primarily by the growth of export oriented manufacturing, in a handful of (most notably Asian) Third World countries. However, in following the debate, it is important to understand the rather complex way in which this expansion of manufacturing in the Asian 'Newly lndustrialising Countries' has been interwoven with developments occurring simultaneously within the Japanese economy itself.

As is well known, in the latter part of the 1960s the Japanese economy began to suffer the effects of a nexus of problems which can perhaps best be described as the pains of transition from the status of a 'later industrialiser' to the status of a major world economic power. These problems included rising

l a b o u r costs, rising costs of industrial sites, growing pollution problems, a drying up of the sources of importable new technology and growing restrictions in Japan's major export markets. The problems were compounded, in the early 1970s, by a sharp rise in the cost of Japan's raw material imports.

One reaction to these circumstances was a rapid increase in overseas investments by Japanese companies. In particular, Japanese companies engaged in labour-intensive or highly energy consuming forms of manufacturing began to divert their investment to overseas sites, primarily to those of countries such as Taiwan and South Korea which offered both the advantages of geographical proximity and attractive incentives to overseas investors. By 1974 Japanese companies had invested US$1.2bn in manufacturing in (East and) South-East Asia. By 1980 the figure had risen to $3.8bn. It is not suggested that Japanese investment was the sole cause of industrial expansion in these countries, but it was undoubtedly a major cause. Thus a process was set in motion by which barriers to domestic expansion in certain industries encouraged the development of off-shore Asian manufacturing sites by Japanese firms; these off-shore Asian sites grew to become competitors of Japanese domestic manufacturing both in home and

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 67

world markets; and the rise of new overseas competitors increased the difficulty of expanding production at home.

The main policy response of the Japanese government was not to attempt to halt this process, but rather to turn it to Japan 's advantage: to use the challenges and pressures generated both by internal economic bottlenecks and by the growth of certain industries in Japan 's Asian neighbours as a lever to, as it were, propel the Japanese economy forward to higher levels of industrial sophistication. This policy can perhaps best be illustrated by taking a couple of quotations from the large number of governmental and semi-governmental reports, forecasts, white papers and other writings on the subject.

The Industrial Structure Council 's Long-term Vision o f the Industrial Structure, for example, recommended that:

"industrial branches such as textiles which indude a low degree of processing and generate low added value should be moved to developing countries where labour costs are low. . , so that Japan can concentrate on high technology -- and knowledge intensive industries" (Industrial Structure Council, 1974).

A report prepared by the Namura Research Institute for the National Institute for Research Advancement noted:

"As part of the switch of the industrial structure at an international level for the purpose of the formation the new international economic system, Japan's own industrial structure should be switched. In view of the inevitable transfer of labour intensive or low value added industries to the developing countries, domestic 'lower industries' should be shifted to 'upper industries' or contracted by stage" (Saeki, 1977, p.22).

The main direction of this policy, in other words, has been to allow, or even assist, the running down of labour and energy-intensive basic industries in phase with the expansion of these industries in less developed Asian countries; to promote the simultaneous development of more complex and research- intensive areas of industry within Japan; and so to create a closely interdependent structure linking Japanese manufacturing industry with that of its Asian neighbours. It is possible to recognise a whole range of government measures during the past decade or so as fitting into the broad framework of this policy: measures to assist the redeployment o f labour from structurally depressed industries; measures to promote the expansion of the computer and robot industries; measures to strengthen the domestic research and development effort and (rather more cautiously) to liberalise the imports of manufactured goods from Asian industrialising countries.

The point at issue is whether or not these policies are proving successful; whether in fact industrial restructuring within Japan is proceeding fast enough to create the type of international division of industrial processes implied in the statements quoted above. This is a question which has received fairly extensive critical attention within Japan and even abroad in recent years - - one example of the expanding English language material on the subject being a 1980 issue of the Developing Economies which was entirely devoted to a collection of articles debating precisely this question (Developing Economies, Vol.18, No.4, 1980).

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Before attempting to assess the success or otherwise of the Japanese government ' s policy towards the international division of labour, however, it is important to consider the implications of this policy. Shinohara Miyohei has made some very interesting comments on this in a lecture to the Institute of Developing Economies in Tokyo. Since these comments are particularly relevant to the arguments of this paper, they are worth quoting at some length. Shinohara begins by stating that:

"it is quite characteristic that not the old-fashioned vertical international division of labour between agricultural and industrial countries but the horizontal international specialisation between Japan and (the) Asian NICs has begun to d e v e l o p . . . " (Shinohara, 1981, p.7).

He then goes on to contrast this with the old vertical division of labour which he sees as characterising the past eras of Pax Britannica and Pax Americana during which the world economic system was successively dominated by Britain and the United States.

"As well known the global economic strategy of these Anglo-Saxon nations was oriented towards establishing an international speeialisation system in which the colonial territories would be fixed as producers of primary goods while they themselves might develop as industrial states. Even the theories of Adam Smith and David Ricardo on international division of labour seem to have been used as instruments to beautify such a vertical international specialisalion . . .

" . . . the international division of labour during the ages of Pax Britannica and Pax Americana were so one-sided towards vertical international speeialisation of monocuttural- type and monopsonistic exploitation.

Consequently it is highly welcome that with this sort of past division of labour being receded recently, the international specialisation in this new 'Asia-Pacific Age' is taking on more and more a horizontal character" (Shinohara, 1981, pp.9-10 Italics in original).

Shinohara then goes on to discuss the role of Japan in this new economic order in terms which very much echo those of the governmental and semi- governmental reports quoted above.

These statements seem to raise a number of rather fundamental questions. Particularly, they raise questions about the meaning and utility of the concepts of 'hor izontal ' and 'vert ical ' international divisions of labour. In essence, a horizontal division o f labour ' refers to a situation where goods o f a similar level of processing are exchanged between countries, while a 'vertical division of labour ' describes a situation where less processed goods are exchanged for more processed goods. In earlier ages, when the development of industrial technologies was still in its infancy, it made some sense to apply the first term to trade amongst industrialised countries and the second to trade between industrialised and non-industrialised countries. But this usage makes less and less sense as time goes on.

The reason for this becomes apparent when we consider the growing range and complexity of industrial techniques, f rom a situation where mechanisation affected only a few rather basic productive processes - - the pumping of water, the making of cloth and iron - - to a situation where industrialisation has pervaded every imaginable sphere of production, and in addition created a whole range of previously unimagined manufactured products and human

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 69

wants. As technological progress adds new layers to the expanding stratum of activity which we term 'industi'y', so it becomes possible to achieve ever more complex divisions of industry within and across national boundaries. This division may take three basic forms:

1. Firstly, there is the division between regions where industrial development is limited to labour-intensive light manufacturing and regions which have progressed into the production of more complex capital-intensive goods. This type of division has existed for some time, for example, between advanced European countries and nations of the 'European periphery' such as Spain and Greece.

2. Secondly, one can envisage a division wi th in broad industrial classifications between goods which require a greater or a lesser degree of processing: for example, one region may specialise in the production of simple textile products such as cotton yarn while another produces, say, high quality specialised textiles.

3. Thirdly, there is a wholly intra-industry division of labour, where different regions produce inputs of differing levels of complexity and sophistication, all o f which will ultimately go to make up a single product. (Such division of processes is already particularly well advanced in the international organisation of the electronics industry). Examples of all these three forms of division of industrial specialisation are

already to be found in Japan's trade relations with industrialising Asian countries+ The latter two forms of specialisation are however perhaps of particular importance for the future structure of industry in Asia (see Tanaka, 1980 and Nakajo, 1980).

To talk about a "horizontal division of labour" with one breath, and then to go on in the next, as Shinohara does, to talk of Japan's "transferring some industries to developing countries" and "exploring new industries for i tself", seems therefore to involve giving the word 'horizontal ' a rather perverse meaning. For if what is meant is, as Shinohara suggests, that Japan should go "beyond mass product ion" to producing highly advanced goods, while gradually relinquishing its dominance of basic industrial processes to other Asian countries, then what we are talking about is surely the strengthening and expansion of precisely those types of vertical division of industrial specialisation which have just been described.

It is true, of course, that such a vertical division of industry would be in some ways different from the vertical division of labour between the industrial metropolises of the old imperialist systems and their primary-producing colonies. But it would equally be a system radically different from the traditional horizontal division of industries which has long existed, for example, amongst the industrialised nations of Western Europe. It would, in other words, be a new phenomenon in international economic relations, and one whose implications for the economic, social and political development of the nations involved would appear to require more careful analysis than they have received to date.

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70 JOURNAL OF CONTEMPORAR Y ASIA

Japan's Ad jus tmen t to the New Order in the 1970s

The last paragraph has been phrased in the conditional tense in order to leave open the question of whether the strategy of adaptation to the new economic order - - suggested in quotations given above - - is proving a workable one. Is Japan in fact succeeding in 'switching its own industrial structure' in moving low value-added industries to less developed countries and 'exploring new industries for itself'? Obviously the answer to this question is crucial to our interpretation of Japan's role in the Asian industrial system and of the nature of the new international division of labour as a whole° Obviously, too, no final answer to this question can yet be given. For it is a strategy which was first suggested less than 15 years ago, and whose results, by their very nature, must take decades to become fully apparent. All that we can hope to do at this stage is to examine the record so far, and, from that, to draw some tentative conclusions about future prospects.

Any attempts to assess the 'success' of the Japanese government 's policy of adaptation to the new division of labour tends to run up against a problem of yardsticks. Do we measure the speed and extent of Japan's industrial restructuring by comparison with other countries? Or do we measure it against some theoretical model of the way in which restructuring could or should be proceeding?

One way to tackle this problem is as far as possible to use the Japanese government 's own yardstick: in other words, to go back to the reports and forecasts which were being drawn up by governmental advisors at the time when the policy of industrial restructuring first received widespread acceptance, and to see how far events are fulfilling their prognostications and recommendations. Conveniently enough, the economic problems of the early 1970s prompted the drawing up o f a number of forecasts which chose as their target date the year 1980. In 1982, therefore, it is possible to re-read these reports with the wisdom of hindsight, and to use them as a kind of model against which to measure actual changes in the Japanese economic structure during the 1970s.

For this purpose I have chosen in particular a very interesting document entitled The Japanese Economy and the World m 1980 (Sekai no Naka no Nihon Keizai - - Sen Kuhaku Hachi-ju Nen). This is a detailed, two-volume study drawn up in 1972 by the Japan Economic Research Centre (JERC) under the supervicion of Kanamori Hisao, then Deputy Director of the Economic Planning Agency (EPA). It is of particular relevance for my present purpose because it is precisely an attempt to forecast changes in the international division of labour, and to examine both the role which Japan might play in effecting these changes, and the problems and possibilities which the changes seemed likely to create for Japan. Although the JERC is a private research organisation, the fact that this particular projeot was headed by Kanamori suggests that its conclusions were closely aligned with the EPAs views o n Japan's economic future, and there is little doubt that its projections and recommendation had an important influence on official thinking about

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J A P A N ' S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 71

Japan ' s potential role in the world economy. Tables 2-6 compare some of the predictions of the JERC report with the

actual situation in 1980. As soon as one looks at the JERC report one becomes aware of two factors

which limit its relevance to the real situation in 1980. The first is that the report , while attempting to predict future trends in the Japanese economy, was also trying to provide warnings about trends which it regarded as dangerous or undesirable. To the extent that government and business has heeded those warnings, the predictions of the report will not have been wholly fulfilled.

The second major limitation on the relevance of the report is the fact that it was composed before the Oil Crisis of 1973-74. Although (again with hindsight) one might argue that even in 1972 signs of a gathering crisis in the advanced industrial economies should have been apparent , it is undoubtedly true that this was not widely accepted until 1974. The JERC Report therefore foresaw economic growth proceeding in Japan at even higher rates than during the late 1960s, with the nominal rate of GNP growth running at 17.2 per cent. Economic growth was expected to be rapid in other industrialised countries too, though it was predicted that American economic predominance would decline slightly because of various domestic economic problems. In fact, as we know, industrialised countries experienced much lower growth rates in the 1970s than in the 1960s, and Japan ' s growth fell to somewhere in the region of half the 1960s rate. The consequences of this are visible in Table 2, which

Table !!

Structure of World GNP

Japan North America W. Europe Australia, NZ, SA Developed Mkt Econs

E. Europe China Socialist Econs

Asia Africa Latin America Developing Econs

Total

JERC Actual Forecast Actual

1970 1980 1979

6,4 12,5 10.7 34.7 28.3 27.3 25.3 25.2 24.2

1.8 1.8 2.1

68.2 67.8 64.3

18.5 20.0 16.6 2.6 3.0 2.3

21.1 23.0 18.9

4.3 4.0 6.0 1.4 1.3 2.5 4.9 3.8 8.3

10.6 9.2 19.8 I00.0 I00.0 I00.0

Sources: JERC and World Bank Atlas 1980.

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72 JOURNAL OF CONTEMPORAR Y ASIA

shows that the share of industrialised market economies in world GNP decined more sharply during the 1970s than was anticipated by the JERC. Of the major industrialised regions, only Japan succeeded in increasing its share in world GNP, though less markedly than expected. The rise in the share of less developed countries in world GNP reflects both a transfer of wealth to some oil exporting countries and more rapid industrialisation in parts o f Asia and Latin America.

As far as general growth performance was concerned, therefore, the JERC forecast was clearly over-optimistic (over-optimistic, that is, from the point of view of the Japanese government). This optimistic note pervades the report and is reflected also in the JERCs comments on the emerging division of labour between Japan and its Asian neighbours. The report accepted that industrial growth would proceed quite rapidly in some South-East Asian countries during the 1970s and it predicted fairly accurately the over all effects which this would have on the growth of manufactured exports from the region (Table 3). However, it did not regard this process as a significant threat to Japan's position in the international economy. On the contrary, the shift of comparative advantage in labour intensive or highly energy consuming industrial production to South-East Asian countries was presented as being complementary to Japan's own progress towards more sophisticated levels of industrialisation. Outlining future problems in Japan's trade with South-East Asia, therefore, the Report singled out for chief emphasis the likely severe imbalance in Japan's f a v o u r which would be created as industrialising Asian countries increased their imports of capital goods from Japan. Only rather brief attention was given to the possibility that competition from the manufactured exports of other Asian countries might cause economic and social difficulties at home.

Table !11

Growth of Manufactured Exports from South-East Asian Countries

Manufactured goods as Growth rate o f exports per cent o f exports

JERC JERC Actual Forecast Actual Forecast

Country 1970-79 1968-80 1978 1980

South Korea 25.7 21.0 89.0 85.0 Singapore I ! .0 12.7 46.0 40.0 Thailand 12.0 10. I 25.0 24.0 Malaysia 6.5 8.0 21.0 15.0 Indonesia 6.5 I 1.2 2.0 6.0 Philippines 6.2 i l. ! 34.0 35.0

Sources: JERC 1972 pp.481-82 and World Bank, World Development Report, 1981.

The fact that Japan's economic growth in the 1970s was slower than predicted in relation to other Asian countries clearly has had important

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JAPAN'S ROLE IN THE INTERNATIONAL DII/ISION OF LABOUR 73

Figure 1

Relative Growth Performance of Japanese Manufacturing Industries

(Total manufacturing = 100)

JERC Forecast 196940 OECD Estimate 1970-78

250 200 i |

150 100 50 0 50 100 150

'RAW ' ' ' ' ' ' M A T E R I A L / E N E R G Y INTENSIVE

Illililillilllllill lilllllilllllllll

Illilliliillllilll illllllililliliiil !

200 250 ! i

Pulp, Paper and Paper Products

Petroleum and Coal Products

Non-metallic Mineral Products

Basic Metals

LABOUR INTENSIVE

I I

I I

I

I

I

Food, Beverages and Tobacco

Textiles

Fabricated Metal Products

General Machinery

Other Manufacturers

I

250 |

200 I

150

TECHNOLOGY INTENSIVE

k\ \ \ \ 'x~/ / / / / / / /~

L~\\\\\\'~ ! i

lO0

Chemicals

".~l/Ill~I/IlIA Electrical Machinery

~ / / / / / / A Transport Equipment

~ / / / / / / / / / A Precision _ Machinery

I I I I !

50 0 50 100 i 50 200 250

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74 JOURNAL OF CONTEMPORAR Y ASIA

implications. The economists of the JERC saw rapid domestic growth as being a prerequisite for the smooth transition to higher levels of industrial sophistication which they predicted for Japan. It was precisely because Japan's economic growth would be the highest in the industrialised world, they argued, that Japan would be most successful in adjusting to the new international economic circumstances of the later 1970s and early 1980s.

In fact the slowing down of Japan's economic growth since 1973 can be seen as having rendered the process of industrial adjustment more painful and uneven that was foreseen by the economic experts of the early '70s. This has been reflected in increased rates of bankruptcies and redundancies in certain industries, and in sporadic efforts by the Japanese government to stem the imports of some manufactured goods (such as textiles from Third World Countries).

Other figures suggest, however, that the difference in GNP growth rates has been less significant than it might at first appear. It is interesting to observe that, although the JERC's predictions about Japanese growth in the 1970s were fairly wildly inaccurate, their forecast of changes in the structure, both of Japan's industrial production and of its trade, were much closer to eventual reality.

Making comparisons between the structure of industrial output predicted in the report and the actual structure in 1980 proved to be a rather complicated exercise, since the figures are given in terms o f money values, and are therefore distorted by changes in the relative prices of the various products involved. To circumvent this problem, Figure l compares the relative growth performance of various industries as predicted in the JERC report, and the actual growth performances calculated in the 1981 OECD report on Japan. Both documents divided industries into three categories: labour intensive, raw material/energy intensive and technology intensive. The JERC document predicted a sharp increase in the relative importance of the latter group at the expense of the other two. The relative symmetry of Figure 1 indicates that this was a realistic forecast, though it can also be seen that the disparity between the performance of the most highly 'technology-intensive' industry and the slowest growing industries was even greater than anticipated.

Table IV

Composition of Japan's Exports 1955-80 (Per Cent)

1955 1960 1965 1970 1980 JERC Actual

Labour intensive 58.9 55.1 36.5 27.7 15.3 15.2 Raw material/energy intensive 22.3 14.9 21.3 18.9 l 1.5 15.8 Technology intensive 18.6 29.6 41.6 52.7 73.2 69.0 Total I00,0 I00.0 I00.0 I00.0 I00.0 ,~00.0

Sources: JERC Table 151 and Bank of Japan, Economics Statistics Annual, 1981.

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 7J

A similar story is told by the figures in Table 4, which shows the share of each of the three major categories in Japan ' s exports in 1980. Here current values have been used and the rather greater-than-expected share of energy/raw material intensive products can be attributed in large measure to sharp increases in the relative price of these products during the 1970s.

The general picture that we obtain f rom comparing the JERC report with the real situation in 1980 is that, although overall economic growth in Japan was very much slower than had been anticipated in the early 1970s, the process of structural adjustment was proceeding in the direction, and with almost the speed, predicted by the more 'optimist ic ' liberal economic planners of that time. This is probably not as surprising as it might at first appear. Kanamori "and his fellow researchers argued that rapid growth was essential to enable Japan to achieve adjustment to the changing international economic environment. But it may well be that it was precisely the abrupt check to growth triggered by the Oil Crisis o f 1973-74 which provided the mood of urgency necessary to achieve fairly radical changes in the patterns of industrial production. Slower growth, in other words, may have made industrial restructuring a more disruptive and painful process, but it also made the need for such restructuring more sharply obvious to business leaders and politicians alike.

What have been the implications of all this for Japan ' s economic relations with South-East Asia? Table 5 indicates, in broad terms, the division of manufactur ing processes between Japan and South-East Asia as predicted by the Report for 1980, and as it actually was in 1979. From this we can see that,

Table V

Degree of Specialisation in the Exports of Japan and South-East Asia

Food- Raw Mineral Mach "ery Other stuffs Materials Fuels Chemicals & Eq'ment M'fct& (0.1) (2.4) (3) (5) (7) (6.8)

1969 Japan 0.27 0.16 0.03 0.90 1.36 1.67 S.E. Asia 1.42 2.57 0.91 0.27 0.18 1.24

1978 (actual) Japan 0.09 0.17 0.02 0.70 1.94 1.35 S.E. Asia 1.11 1.96 0.98 0.28 0.45 ! .56

1980 (JERC Forecast) Japan 0.18 0.06 0.01 0.87 !.59 0.96 S.E. Asia 0.94 2.72 1.45 0.34 0.26 !.65

Sources: JERC, p.325 and UN Yearbook of International Trade Statistics 1979.

Product as per cent of relgion's exports Degree of Specialisation = Product as per cent of world exports--

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76 JOURNAL OF CONTEMPORAR Y ASIA

while the general trends have been in the direction suggested by the JERC, two features in particular stand out. The first is that South-East Asian countries have expanded their role in relation to world exports o f manufactured goods rather more rapidly than anticipated; and the second is that there has been a complementary trend in Japanese exports, which have simultaneously shifted more rapidly than predicted into the ' technology-intensive' machinery and equipment sector.

These figures seem to suggest that, in spite of the slowing down of Japanese growth rates and the speeding up of South-East Asian industrialisation in the 1970s Japanese industry has in general been successful in adjusting in such a way as to create a vertical and complementary interaction with South East Asian countries, and thus to profit rather than lose from the new international division of labour. This impression is confirmed if we look in more detail at the structure of trade between Japan and the most rapidly industrialising Asian Third World countries. Table VI gives a slightly more complex breakdown of the division of labour between Japan and these countries for some of the major manufactured products traded between them. This table presents figures for trade between Japan and three industrialising Asian

Product

651 652 653 657 671 672 674 678 762 772 773 775 776. l 776.3 776.4 821 84

894

Table V!

Pattern of Japan's Trade in Manufactured Goods with lndustrialising Asian Nations"

(Japan's exports as per cent of exports and imports)

Textile yarn Cotton fabrics - - woven Woven man-made fabrics Special fabric products Pig-iron etc. iron & steel primary forms Iron & steel univ. plates, sheets hon & steel tubes, pipes, etc. Radio broadcast receivers Switchgear parts Electrical distributing equipt. Household electrical equipt.

TV picture tubes Diodes, transistors etc. Electronic microcircuits

Furniture and parts Clothing and accessories Toys, sporting goods etc.

80-100

87.5

92.0 80.9 96.0 87.8 93.2 98.1 93.2 95.2

85.5

JO-80

78.9 75.6

73.2

(a -- South Korea, Hong Kong and Singapore)

Source: UN Commodity Trade Statistics, 1980.

<50 36.0

49.5

42.6 2.7

29. i

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 77

countries - - Hong Kong, South Korea and Singapore in the major component parts of four particularly important industrial sectors: textiles, iron and steel, electrical machinery and 'miscellaneous manufactured goods' . Japan's exports are expressed as a percentage of total trade between the two regions in each product. The right hand column represents industries where this figure is less than 50 - - in other words, where Japan exports less than she imports from the region. The left-hand column represents areas of trade where Japan's exports to the region are at least four times as great as imports from it. The central column represents an intermediate category where Japan enjoys a surplus in trade but where this is less overwhelming than in the left-hand column industries.

There are a number o f interesting features which emerge from this table. Firstly, of course, it shows that overall manufactured trade is very heavily weighted in Japan's favour. There are only a very few areas of manufacturing where the three less developed Asian countries actually enjoy a positive balance of trade with Japan, and these are almost all highly labour-intensive industries such as clothing and toys. In areas such as light electrical machinery, where South Korea in particular has been developing its export role, Japan still enjoys an overwhelmingly favourable balance of trade with the region. Only in the trade in some types of electrical machinery components can one see the beginnings of a transfer from the status o f exporter to importer, as Japan develops what I earlier described as the third form of vertical international division of industrial specialisation.

A further significant feature is the small number of industrial areas where exports are roughly balanced by imports - - the absence of any figures in the 50 to 70 range. Where a truly horizontal division of labour exists, as for example between some Western European countries, one would expect to find far more figures in the middle range, and fewer at the two extremes.

These developments in the patterns of Japan's trade with South-East Asia have been accompanied, as the JERC predicted, by the emergence of a large and growing trading imbalance in Japan's favour. Between 1975 and 1980 the trade with the four most industrialised East Asian countries (South Korea, Taiwan, Hong Kong and Singapore) increased by 209 per cent and the surplus on this trade in Japan's favour rose by 214 per cent (White Papers of Japan, 1980/81, p.208). A recent World Bank report expressed this imbalance in manufactured goods trade in terms of employment and found that in 1976 for every job displaced in Japan through imports of textiles and other labour- intensive manufactures from less developed countries, 7.9 were maintained or created through exports to those countries of more sophisticated manufactured goods such as electrical machinery and transportation equipment. The significant point here is that the jobs displaced are in the main routine and unskilled ones, while those being maintained or created are largely skilled. The comparable balance of jobs gains and losses for the OECD as a whole was !:2.8 (World Bank 1979, pp.28-29).

A final point which is interesting to examine is the extent to which Japanese overseas investment has been important in shaping the structure of trade

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between Japan and Asian less developed countries. The JERC report, in sketching its scenario for 1980, placed considerable emphasis on the growing role of multinational companies, and in particular on the significant impact which the expansion of Japanese overseas investment was likely to have on Japan's future patterns of trade. The report predicted that by 1980 overseas production by Japanese firms would amount to US$42bn, or about 2.5 per cent of total domestic production. Data published by the Ministry of International Trade and Industry (MITI) suggest that Japan's overseas production rose from 0.8 per cent to 1.7 per cent of domestic production between 1972 and 1975, a period when the total stock of overseas direct investment increased about 2½ times ( M I T I , 1977, p.107). Since the stock of overseas investment roughly doubled again between 1975 and 1980, one can assume that the level of overseas production continued to grow at a similar rate in the late 1970s and therefore that the JERC forecast was accurate, or perhaps a little conservative.

Where the JERC seems to have been less realistic, however, was in estimating the effects of growing overseas investment on Japanese trade. They foresaw overseas manufacturing ventures as generating a much large flow oi' imports into Japan than of exports from Japan. Their estimate for 1980 was that, while only about 3.4 per cent of Japan's exports would consist of trade between parent companies and overseas subsidiaries, this 'intra-firm trade' would account for about 24 per cent of Japan's imports. In fact, the growth of overseas manufacturing, by creating the type of vertical division of specialisation indicated earlier, has greatly expanded overseas markets for Japanese machinery and for the various more technologically sophisticated inputs which are processed or assembled overseas. In 1976 Japanese overseas manufacturing subsidiaries were on average selling 23.8 per cent of their output to Japan, but buying 48.9 per cent of their inputs from Japan. ( M I T I , 1977, pp.32-33). One estimate for the mid°1970s was that 27.1 per cent of Japan's total imports of manufacturers from Asian industrialising countries took the form of this type of 'intra-firm trade', while the comparable figure for exports was 13.5 per cent. It should be noted, however, that because total exports were so much greater than total imports, the absolute values represented by the figures still amounted to a substantial surplus from the Japanese point of view, (US$547.3mn for imports as against US$995.6mn for exports) (Nakajo, 1980, p.470).

It seems a reasonable contention, therefore, that Japanese direct investment in Asian manufacturing has been of considerable significance in shaping the new international division of specialisations between Japan and industrialising Asia.

Conclus ions

The conclusions of this paper can be summarised as follows: Despite a slowing of growth which was not anticipated by the government's

economic advisors in the early 1970s, Japanese industry has succeeded in

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 79

achieving a fairly major restructuring of its activities over the past decade. In doing this it has maintained and strengthened the vertical division of industrial specialisation between Japan and its Asian neighbours, and thus also maintained a situation in which the distribution of benefits from the division of labour between Japan and South East Asia is strongly weighted in Japan's favour.

In a sense, we may see the events of the 1970s as a new phase in a process of industrial development which has been under way in Japan since the Second World War may be said to have been the success of Japanese industry in maintaining a high rate of profit through expanding production more rapidly than costs could increase. This was achieved above all by keeping rises in productivity constantly above rises in wages. In order to keep the system going, two things were required: firstly, that productive resources should be shifted steadily from lower value-added to higher value-added processes; and secondly, that there should be a continuing flow of labour being drawn into the service of Japan's industrial production, thus preventing the fruits of growth from being absorbed by sharp wage rises.

The same dual process has continued to be the key to Japan's better performance than other industrialised countries during the 1970s. Only, from somewhere around 1968 onwards, the process has begun to overflow Japan's national boundaries, drawing in labour and basic manufactured products f r o m abroad. As far as labour is concerned Japan, for political reasons, avoided the path taken by the United States and most Western European countries of physically importing cheap labour, and chose instead to. concentrate entirely on relocating production overseas. From MITI figures we can estimate that in 1980 between 1 and 1.5 million people were employed in Japanese-affiliated overseas ventures. As far as the import of basic manufactures are concerned, we can see the significant downward trend in Japan's tariff barriers since the 1960s as playing somewhat the same sort of role in relation to the new Asian division of labour as the growth of 19th century 'free trade' did in the establishment of Pax Britannica.

To this extent the conclusions of the present paper support Amin's view that the growth of manufacturing in industrialising Asian countries represents a new phase in the unequal international division of economic specialisation. But at the same time it is clear that this approach needs to be taken further in order to account for the complexity and significance of recent developments in the international division of labour. The new emerging world economic system is more than just a continuation of the same old core/periphery dichotomy. The rise of manufacturing centres in less developed countries creates new forms of inequality between those countries and other Third World countries which remain essentially agrarian. At the same time it also creates inequalities between those parts of the old "'core' which are swift to adapt to the new international structure, and those which are not. Implicit in this paper has been the idea tha t Japan has been significantly better placed to profit from the changing divsion of labour than have some other major industrialised nations. The new international division of labour is not a solution to the North-South

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problem in the sense that it will level the economic and political disparities between nations. But it does involve a reshuffling of the kaleidoscope of international economic relationships, from which the resultant divisions may prove to be a little more complicated than the old, simple dividing line between North and South.

This paper has looked at the events of the recent past. But its findings raise some important questions about the future.

The most important of these questions relates to the effects of the new system on the societies both of highly developed countries such as Japan and of industrialising Asian Third World countries themselves. The impact of the old imperialist systems, which relegated the periphery to the role of primary production, was to lock the Third World countries into a structural underdevelopment whose problems the panaceas o f conventional liberal economics had no power to cure. The new international division o f labour, by encouraging the development of basic manufacturing in some areas of the periphery, introduces into those areas some of the features commonly considered important in endogenous capitalist industrialisation: an infrastructure of roads, ports and communications networks; expanded domestic financial institutions; domestic entrepreneurial activity etc. Will this provide a launching stage from which such countries will ultimately be able to embark on fully-fledged independent industrial revolutions~ enabling escape from their subordinate position in the international and industrial structure? So far there is little sign that it will. The manufacturing industries o f most South-East Asian countries remain typically fragmented and unco-ordinated, integrated with the industrial sectors of the Japanese and the American economies rather than with each other. Managerial, financial and R and D functions also remain heavily concentrated in the advanced industrialised countries, rather than developing p a r i p a s s u w~ith the growth o f manufacturing in South-East Asia.

On the other hand, it may be asked, will the emergence of a new division of labour in Asia, by bringing about the rapid absorption of large sections of the South-East Asian population into industry, disrupting traditional social relationships and bringing large numbers of workers together into the routine of factory production, create the basis for new political movements, and ultimately for radical poltical and social changes in the countries concerned?

in order to answer these questions, much more detailed study will be needed, both of current social and economic changes in industrialising Asian countries and of the connection between these developments and social and economic changes in industrialised nations such as Japan. Only in this way can we begin to demystify and comprehend the complex structures which constitute the new international division of labour - - and thus the new international system of class relationships - - in Asia.

~ources

Amin, S., Accumulation on a World Scale, New York and London, 1974. Bank of Japan, Economic Statistics Annual, 1981.

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JAPAN'S ROLE IN THE INTERNATIONAL DIVISION OF LABOUR 81

Frank, A.G., Capitalism and Underdevelopment in Latin America. London, 1971. Furtado, C., 'Elements of a Theory Of Underdevelopment - - the Underdeveloped Structures', in

H. Bernstein, ed., Underdevelopment and Development, London, 1973. Industrial Structure Council (Sangyo Kozo Shingikai), Sangyo Kozo no choki Bijion, Tokyo,

1974. Japan Economic Research Centre (Nihon Keizai Kenkyo Senta), Sekai no Naka no Nihon Keizai

- - 1980-nen, Tokyo, 1972. Japan Institute of International Affairs, White Papers o f Japan 1980 - - 81, Tokyo, 1981. McFarlane, B., 'Imperialism in the 1980s', Journal o f Contemporary Asia, Vol.7, No.4, 1977. Ministry of International Trade and Development (Tsusho Sangyo-sho), Waga-Kuni Kigyo no

Kaigai Jigyo Katsudo, Tokyo, 1977. Nakajo, S., 'Japanese Direct Investment in Asian Newly lndustrialising Countries and Intra-Firm

Division of labour', The Developing Economies, Vol.18, No.4, 1980. O'Leary, G. and McEachern, D., 'Capitalist Recession and Industrialisation in the Third World:

Reflections on the Warren Thesis', Journal o f Australian Political Economy, Vol.7, April 1980.

Organisation for Economic Co-operation and Development, Japan (Economic Survey), 1981. Saeki, K., International Environment and Japan's Grand Strategy for the 21st Century, (English

Language Summary), Kamakura, Namura Research Institute, 1977. Shinohara, M., 'Emerging Industrial Adjustment in Asia-Pacific Area', Asia Pacific Community,

No.I I, Winter 1981. Tanaka, T., 'The Patterns of International Specialisation Among Asian Countries and the Future

of Japanese Industry',. The Developing Economies, Vol. 18, No.4, 1980. United Nations, Yearbook o f International Trade Statistics, 1979. United Nations, Commodity Trade Statistics - - Japan, 1980. Warren, W. 'Imperialism and Capitalist lndustrialisation', New Left Review, No.81, September-

October, 1975. World Bank, The Changing International Division o f Labour in Manufactured Goods, (Staff

Working Paper), 1979. World Bank, World Development Report, 1980 and 1981.

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