How To Tackle Japan Inc.

How could Japan surpass the U.S. in so many industries so quickly? That oft asked question receives an unusually thorough and thoughtful examination in Trading Places: How We Allowed Japan to Take the Lead (Basic Books; $19.95). Written by Clyde V. Prestowitz Jr., the counselor to the Secretary of Commerce for Japan Affairs between 1983 and 1986 and now a senior associate at the Carnegie Endowment for International Peace, this "epic tale of reversal," as the author calls it, starts with Japan's 1945 surrender aboard the U.S.S. Missouri and chronicles its four-decade push toward economic victory.

Prestowitz describes exactly how Japan got the upper hand through government support and protection of industry. The basic story is familiar enough, but rarely has it been presented in such rich detail. The book tells, for example, what IBM went through in 1960 when it sought permission to make computers in Japan. The company had to follow the government's guidelines on the number and type of machines produced and get approval before introducing any new model.

Many of Prestowitz's observations are firsthand, since he has lived in or visited Japan many times over the past 24 years. He studied the Japanese language at Keio University in Tokyo and later helped manage a Swiss executive-search firm in Japan. Trading Places is especially full of fresh anecdotes and information gleaned from his industry contacts. He reports, for example, that IBM last year offered important technology to a leading competitor, Digital Equipment, rather than allow Digital to become more dependent on Japanese suppliers. The book also shows how President Reagan did not get too excited about trade matters. During one White House briefing on Japanese technology, Prestowitz writes, President Reagan "at times appeared to doze off."

Going beyond the historical material, the book offers suggestions on how the U.S. might improve its trade policy and meet the Japanese challenge. For one thing, says Prestowitz, Washington should stop wasting time making sweeping demands that Japan "open" its markets by liberalizing its customs procedures and changing its distribution system. Try as it may, the U.S. is not going to get Japan to change the way it does business. Instead, Prestowitz says, the U.S. should demand a specific share, say 20%, of the Japanese market for a product and let Tokyo worry about how to achieve that goal.

Prestowitz does not suggest that the U.S. copy Japan's symbiotic relationship between government and industry. But he argues that Washington must offer limited support and protection to crucial industries. "At issue is not pure free trade or total protectionism," he writes, since "we have never had and never will have either one; but rather what combination of free and managed trade we will have." He suggests, for example, that military research and development might be redirected toward commercial applications that could lead to increased exports. Some of Prestowitz's prescriptions are vague and put too much faith in Government officials, but almost all his provocative ideas are at least worth consideration.