Is there a Japanese • offer quicker delivery.

Menace ?—II By HUGH RICE BRITAIN'S high standard of living is often thought to be an unbeatable handicap in the price battle with

Japan. Yet in the first post-war decade Japan faces difficulties which, if they existed before the war, did so in far less acute form, and which today go some way to offset the advantage of almost unlimited cheap labour. Japan is still a powerful trading and industrial force, and the spectacle of her energetic millions at work on the task of regeneration

makes nonsense of any complacency regarding. her future

strength in international trade—but the sixpenny Japanese shirt in the Baghdad bazaar is probably a thing of the past. The Occupation and the organisation of labour which it brought have put Japanese costs on to a basis more directly compar- able with our own.

The problem of over-population, greatly aggravated by the. flow of repatriates from China and Manchuria, is ever present, politically and economically, in a land where less than twenty per cent. of the soil is capable of producing food. Japan's natural resources have serious gaps, notably in aluminium, phos- phate, and petroleum, and to a lesser extent in iron, lead and coal. These vital imports must be sustained by. exports into hostile, resistant markets and are a constant temptation to turn to China despite the substantial advantages of association with the Western bloc. The shortage of internal capital (to some extent a result of the breaking up by MacArthur of the old industrial and banking groups) with the accompanying extremely high rates of interest on loans is hampering the capital re-equipment of plants destroyed or obsolete and delay- ing the day when the ten-year gap in technical continuity caused by the war will have been made good.

In the new democracy trade unions are becoming an increas- ingly strong political factor. Living standards for the workers are slowly rising, forcing up selling prices. Japan lost eighty per cent. of her merchant marine, so freights are high and often the loads have to be carried to markets more distant than

those of pre-war days. The fear of Communism is strong

enough to ensure that a lowered standard of living in the interest of export prices will not be risked. Post-war legislation has dealt comprehensively with the control of working hours and minimum rates of payr as well as the elimination of such old-time abuses as labour bosses and child labour. Already the gap in comparative wage scales between Britain and Japan is less than it is between America and Britain. Japan is now a member of ILO but she retains many of the characteristics of the " rice-bowl economy " which, far more than " sweated labour," is the real strength of her competitive force. This frugal people with a long tradition of hard living wrung from

over-populated islands have few material ambitions as yet. The Japanese factory worker sits with more contentment before his hibachi stove in his wood-and-paper house than does his English counterpart before his television set.

There is also a strong tradition of paternalism in Japanese industry, whereby the employer accepts responsibility for the security of his employees, who in return render him ungrudging service. Thus mutual respect produces high productivity. Emphasis is on the job at least as much as on the payment for it. The inefficiency of the system lies in the universal reluctance to put off redundant workers; unemployment benefit and other welfare schemes are in their infancy still and most employers must therefore keep on their payroll a great weight of unemployables.

. This transitional period for Japanese industry must be viewed with great caution until more stability is evident in Japanese economic trends; meanwhile it should be recognised that British bicycles are already cheaper than Japanese in some markets, and that a ship ordded today in Yokohama will cost more than a similar one built on the Clyde—but Yokohama will Although at present the true dollar balance-of-trade position is much more unfavourable to Japan than the sterling one, in which Japan has at present a marginal credit balance, the dollar deficit is disguised by the scale of American aid and by procurement for the US forces in the East. Thus vital pur- chases of coal, cotton, and other raw materials from the United States are able to continue.

The state of the sterling account gives ,a relatively true picture, undistorted by subsidies, of Japan's relations with the

largest trading area, and she is keenly concerned by the paucity

of the balance to her hand. The first post-war sterling trade agreement envisaged a total exchange of about £200 million

annually, and since Japan was encouraged by the Occupation

to gear up her export machinery she was able at once to fulfil deliveries, particularly of finished textiles and con-

sumer goodS. Meanwhile she followed a policy of importing

only raw materials (often cheaper in the dollar area and capital goods for reconstruction. For this reason, because

Japan had for seven or eight years been cut off from the sterling markets, and perhaps also because most of her immediately post-war buying was done by United States officials, she piled up a sterling balance of over £100 million.

At this point the sterling area took alarm and exchange and import 'licensing restrictions were imposed on many Japanese products. But no sooner was the barrier up than bills in respect of capital goods ordered many months pre- viously began to mature and Japan's balance ran down to

practically nothing. Her action (as a solid indication of tra- ditional honesty in the matter of debts) in depositing £50 million in London to service her pre-war bonds imposed yet a further burden.

The decline in the sterling balance for the past two years has led Japan to press for the lowering of import barriers and recent relaxations are a sign of confidence amongst the Commonwealth territories that Japan can be allowed a further measure of trade exchanges without getting out of hand. These concessions may be reflected in the payments figures late this year, and remembering that every coin has two sides, British traders who have created ready markets for their products in Japan hope for freer sterling before long.

British opposition at Geneva to Japanese membership of GATT seen by some as a Pyrrhic victory for the Lancashire lobby, is not likely to be affected and might well have been withheld; it is arguable in any case that Japan can be con- trolled within the framework of GATT obligations much more effectively than she can outside it. A river cannot be dammed indefinitely but it can be directed into channels where it can work for the general good.

,Since the industry, application and skill of the Japanese, coupled with the expedient yet generous help of the Americans, seem bound to lead, in spite of difficulties, to eventual full recovery, the choice is already before us. Those who believe that nothing has changed since 1930. will be right to advocate

resistance to Japan's rise with all the economic weapons we can muster. But is it not possible that she will settle acceptably into the world economy, perhaps giving headaches to her competitors, but no justification for complaint ? The world needs all its productivity; Asia alone is a vast almost untapped market for manufactured goods which in their turn will help to raise purchasing power and open new doors to goods in which'Britain excels.

If British industry gets to work, by no means defensively but nevertheless with commonsense prudence, to transfer the pro- ductive effort from those few industries in which we clearly cannot beat the rice-bowl to those where we have sure advan- tage or an even chance, we can avoid the worst excesses of another rough-and-tumble with our principal trading rival.