Reckoning

by David Halberstam

  When they arrived at the Tokyo airport, they found that Kawamata, the president of Nissan, had decided to bring the entire board of directors to the airport to meet them. The four of them would then make their report. It was to be a properly dramatic moment in Nissan’s history. Maki started making his report—and then clamped his hand over his mouth. To hide the fact that two of his teeth were missing, he had tried to stick them back on with chewing gum. As he was reading his report to the president and the board, the teeth had come loose. He tried to stick them on again. Again they came loose. Again he tried to fix them. “What the hell are you doing?” Kawamata asked. So finally Maki admitted that there had been an accident, and Hara, the bearer now of double shame, had to apologize for the accident and also for having tried to keep it secret. Then they made their report. They were all nervous; the sight of the entire board at the airport was a reminder of how grave a decision it was.

  Kawamata was very direct. “Okay,” he said after the report. “You say the pickup is all right for American conditions. Then go ahead with it. On the passenger car, what you can’t change, you can’t change. But on what you can, go ahead and do it as quickly as possible.”

  It had been fun in America, but Tanabe suddenly realized how serious their mission had been. With a feeling that bordered on terror, Nissan had decided to export to the United States. The Japanese were going to try to sell their strong but sad little car in the land of Gorham.

  17. DEMING FINDS AN AUDIENCE

  THE FIRST POSTWAR DECADE was hard on the Japanese. The little capital all their labor produced was poured back into the industrial rebuilding of Japan. But the sacrifice at least was communal, the hardships shared. People made do with very little. Food and clothes remained dear. Most businessmen seemed to have two suits, a good one and bad one. The bad suit they wore around home; the good suit they wore to the office. It somehow always looked freshly pressed. On the train between Osaka and Tokyo, Japanese businessmen sometimes sat in their undershorts so that they would not wrinkle the pants of that good suit. Most had only two shirts, too. Yet the astonishing thing, one Westerner who lived there at the time remembered, was how clean everyone was, and how clean their clothes were. The Westerner, a German businessman named Eric Klestadt, often wondered how they did it. He knew how poor they were, how hard it was to feed a family, and how much of a family’s energy went into finding enough food to survive; he knew as well how few clothes they had and under what difficult conditions they were living at home. Yet on a crowded subway, he noticed, no one seemed to smell bad. Thinking of the effort that they must be putting into personal hygiene, he remarked to himself on the stoicism with which the Japanese accepted and bore their burdens.

  It was the promise that things might get better that sustained them in those days. For Tokyo residents it was the subway system that embodied hope and represented the future. Before the war the city had had only one subway line. In Tokyo in the early fifties there were three different lines, and there always seemed to be a new station opening up, to the delight and pride of all. The subway stations were theirs in a way that the new smokestacks over steel plants were not, and they seemed to guarantee that life was not static and that just as they could now get from their homes to work more and more quickly, so other aspects of life would also change and become easier. Their industriousness would be rewarded.

  The first modest sign of postwar prosperity had come in 1950, when rice could be bought without having to go through the black market. The inflation was still severe, and even those with good jobs felt that they were spending more than they were earning; it was one of the main reasons for the labor troubles of the late forties and early fifties. But there were stirrings of a vigorous consumer society. By 1953, coffee houses had begun to appear, and they almost immediately became crowded. Part of it was the need to get out of the tiny little homes, for housing was still desperately tight, and the coffee houses, crowded and noisy and filled with cigarette smoke, were at the least warm and comforting. The coming of coffee houses, as some Japanese remembered it, marked the beginning of the return of pleasure.

  Soon there were things other than essentials to buy. The first two successful consumer appliances were radios and sewing machines, both of them inexpensive. Television had not yet arrived, and radio offered a form of larger community and free entertainment. Sewing machines were treasures; clothes were still expensive, and the machines allowed Japanese women to make their own and to repair them cheaply. But disposable income was still extremely limited; what little money people made seemed targeted for food. Real consumerism had to wait until the steel industry had been rebuilt. After radios and sewing machines came cameras, and then soon there were motorbikes. The motorbikes heralded a consumer revolution. It was as if one day no one had them and a few weeks later the entire population had them. Then clothes began to get better. Flush toilets began to appear in homes. Sometimes they were not yet connected to sewer lines, but they were there nonetheless, and the neighbors made pilgrimages to see them. As more and more people had flush plumbing, the honey pots began to disappear, and the streets at last began to lose some of their primal aroma.

  Yet the sacrifices were still enormous. In the late fifties the left, which had been somewhat quiescent for much of the decade, became more attractive again, this time not so much with workers but with Japan’s most priceless resource, its young college students. Where the Americans had once been gods to the Japanese, now there was an almost inevitable stirring of serious anti-Americanism, mostly among the young. In 1960 the government, aware of political restlessness in the population, more confident of its own economic underpinnings, moved to share some of the fruit from all that labor with the workers themselves. Prime Minister Hayato Ikeda, the man who had once worked so closely with Joseph Dodge as his counterpart, announced a double-your-income program for the coming decade: All good Japanese would work hard, expenses would be held down, inflation would be controlled, and over the decade incomes would double. He projected an annual growth rate of 7.2 percent for the decade; in fact, it was 11 percent, and the climb was steady. To critics, Ikeda’s program was a pacifier, a means of buying off the workers. That it might well have been, but the average Japanese, after some thirty years of hardship and sacrifice, was hardly interested in arguing. The Japanese gratefully accepted their first fruits in a long time.

  Thus by 1960 both the highest officials in the bureaucracy and their peers in industry were almost simultaneously coming to the conclusion that it was time to relax the economy and make it more flexible. No longer would the economy serve so exclusively the purposes of the state; it was time now to broaden it to serve the less serious but keenly felt needs of the people themselves. There were ample signs that the population was restless and needed some rewards; in addition, the core economy had reached the point in its growth where it was strengthened not only when it produced major industrial items but when it produced consumer goods as well.

  The planners in MITI believed that cars were a perfect product to mark this relaxation. They were a cherished consumer goal while, at the same time their production gave new work to the steel industry. By 1960, Taizo Ishida, the president of Toyota, was talking of a new “yen revolution.” There had already been the 50,000-yen revolution, which meant that the average Japanese could afford to buy home electrical appliances in the $150 price range. Now, Ishida said, the 500,000-yen revolution was approaching, and it would apply to cars: If someone could produce a car that could be priced at that level—about $1500—his company might get in on the ground floor with young Japanese consumers. That was what Toyota proceeded to do, with the Toyopet.

  Nissan had not yet produced an economy car, because its president, Katsuji Kawamata, was too cautious; if the customers wanted cheap cars, he said, they could buy used ones. His default, which enraged Nissan’s product people, gave Toyota an early domestic lead over Nissan. Nevertheless, Nissan, like Toyota, was gearing up for real mass production. At last it was modernizi
ng, or at least making a start on it. Until 1960 Nissan had been completely dependent on manual labor. Now, for the first time, it bought some automatic welding machines. The pace within the factories was beginning to pick up quite dramatically. More and more orders were coming in, pushing the work force to its limits. In 1959 Nissan had made only 33,000 passenger cars; in 1960 production jumped to 66,000. (By 1964 it would be 213,000.) The ever-increasing increments indicated that Nissan was getting its base structure in place and was now ready to make its assault. Its costs were about to go down and its quality up.

  A handful of American consultants had started working in Japan in the late fifties, helping bring American technical expertise to Japanese firms. They were among the first Americans to warn their countrymen of the rising force and excellence of Japanese industry. No one paid very much attention to them in the beginning, or for that matter, even near the end. One of them, James Abegglen, was one of the first to write about how effectively the Japanese had adapted their traditional cultural and social forms to the modern factory, and how formidable they had become once that had happened. It was important, he said early on, not to underestimate the Japanese. At the beginning of an industrial effort they might seem slow and awkward around machines, their products shabby, but Americans should not be deceived. This was a society that had made a powerful commitment to industrial excellence. Their own domestic competition was fierce, there always seemed to be too many companies, and out of that domestic competition, in no matter what field, several very skilled, tough, and finally quite formidable companies would emerge. They learned quickly, and once they learned, their expertise improved at a dramatic rate, far beyond the expectations of most of their nominal Western teachers. They poured money into their plants, and they kept abreast of modern technology, imitating ruthlessly, often without giving very much credit to those from whom they had learned. Their engineers swiftly became first-rate, and as they did, the companies ceased to be the shaky imitators they had been and became dynamic and confident. All of this expedited the movement into mass production, and as the Japanese moved into mass production, their costs fell remarkably. Nor was this a leisurely game conducted by gentlemen under gentlemen’s rules. The intensity of domestic competition in Japan ensured that it would be brutal and relentless, a true survival of the fittest. All efforts were geared toward market share.

  It was important for American auto manufacturers not to underestimate their Japanese competition, Abegglen felt. Having watched the process in other businesses, he knew that once the Japanese edged toward mass production and a growing market, they did battle domestically with a single-mindedness that went well beyond American levels of competition. Abegglen felt that the auto competition would be especially bitter. First, because of the very cost of a car, the stakes were unusually large. Second, the auto industry had been protected by MITI since the war, and it had been impossible for foreigners to penetrate the Japanese market. But now, as the Japanese exported, they would lose much of that protection, and so the pressure on the Japanese auto companies to lock up their own domestic market, keeping out the Americans and the Europeans, would be vicious.

  In 1960, as the auto companies readied themselves for the assault, Abegglen had a sense of déjà vu; he had seen the same thing happen in steel and shipping and motorbikes. He knew how the Japanese would do it. First they would study the Americans and the Europeans, adopting what suited them. Next they would go all over the world buying the most modern technology available for their factories, or buying single machines which they would then copy and make themselves. At this juncture, profit would not be important. Abegglen realized, long before other Americans, that in the beginning, when a market was opening up, the Japanese would base their critical decisions not on profit but on share of market. They would sacrifice everything for market share. Profits, paying back their bank loans, would all come later, after they got their share. Market share was essential; if a company gained it, all else would follow. If it failed at securing an acceptable piece of the market, then the company would fail.

  The fury with which Japan unleashed itself upon international trade, the kind of economic Darwinism that was at the center of its impulse, originally came not just from each company’s desire to conquer the world but from its desire to take market share away from domestic competitors. In Japan there was always someone ready to undersell someone else, and there was always someone on the edge of bankruptcy. The intensity of that competition was a powerful force in pushing the Japanese to export; the greater the exports, the greater the mass volume, and the more they could cut their costs at home. The more they could cut their costs at home, the stronger their hold on the domestic market. That, Abegglen knew, had made them particularly tough competitors for the unsuspecting Americans and Europeans. For any Japanese company venturing overseas had first survived and then triumphed in the most rigorous competition imaginable. By the time a Japanese company entered the international scene, all the baby fat was off. In that kind of competition, victory often depended on the tiniest of advantages. In the early sixties, Abegglen realized, the auto industry was just opening up. He had seen Japanese companies in other fields go after one another at comparable moments, clashing horrendously, and he knew that whoever was strong enough to win the predatory conflict in the domestic Japanese auto game would be a powerful player in the American market.

  The classic lesson for all Japanese industrial companies, he was aware, one that was all but branded on the forehead of every aspiring Japanese industrialist, was the occasion in the mid-fifties when Honda simply took the motorbike market away from what had been a much bigger, richer company named Tohatsu. As the competition began, Tohatsu held a large share of the market, 22 percent, with Honda just behind at 20 percent. Honda was heavily in debt, and Tohatsu was not. Tohatsu’s after-tax profits were 8 percent of sales, Honda’s only 3.4 percent. It seemed a complete mismatch. But Soichiro Honda was an authentic genius, a man who loved to create and to experiment, the closest thing that modern Japan had produced to the first Henry Ford. His timing was impeccable. In the late fifties the motorbike had allowed Japan to motorize itself. Cars were scarce, gas was expensive, and the motorbike had become the vehicle of the rising middle manager. In 1955 the market started growing at about 40 percent a year. Honda had a better bike and better marketing, and his company simply took command of the new middle-class segment. Tohatsu responded to a growing market with great complacency. So when the five explosive years of growth were done, Honda had destroyed Tohatsu. It had eleven times Tohatsu’s share of the Japanese market, 44 percent to 4. In 1964, Tohatsu declared bankruptcy. There were comparable stories in other businesses.

  Because of that dynamic, Abegglen thought that while the social and cultural forces behind the Japanese industrial surge were important, they were on occasion overemphasized. A crucial part of Japan’s success came from the fact that the country was both coming into its industrial prime and achieving a middle-class lifestyle. The Japanese were accomplishing in a period often or fifteen years something that earlier in the century had taken the United States forty or fifty years. Abegglen and other consultants had studied the statistics, and they had concluded that in no other country in the world did the market for a coveted consumer item go so quickly to saturation as in Japan. In a period of just three years the market could grow from perhaps less than 15 percent of its potential to more than 75 percent. In Western Europe, by contrast, it took eight years or more for a market to become saturated.

  There were several reasons for this. To start with, Japanese salaries were remarkably even; no one segment of the population seemed to be either dramatically richer or poorer than another. Everyone seemed to arrive at the ability to buy a hot new item at roughly the same time. In addition, the Japanese were natural consumers, and status was closely allied with consumption. If someone had the first television set or motorbike or piano on the block, or had taken a trip to Hawaii, then everyone on the block wanted the same thing,
and not to have it brought a certain shame. Finally, the population was physically concentrated as the populations of most Western countries, with the possible exception of England, were not. This meant that it was an unusually easy audience to reach by advertising in both print and broadcast.

  Very few Americans, Abegglen believed, ever realized how big the Japanese market was; there was somehow a vague Western assumption that since Japan was a small country, it was a small market. Yet it was in the postwar years a country of some hundred million people, twice the size of West Germany. Still, the American automotive industry was unwilling to make right-side-drive cars in order to sell in that market. Japan was potentially one of the great markets in the developed world, albeit a highly protected one, and a market that could explode. There had been rare examples of consumption explosion in America—the race to buy television sets, first black-and-white and then color, had been extraordinary. But in Japan everything was explosive. An industrialist had to hit the expanding market or die. It was a hothouse economy, all of this consumer energy whipped to a high pitch by modern advertising and marketing.