Over the weekend I was asked a few times what my Ph.D. thesis at the University of Tokyo (1988) was about.

I graduated from the International Relations Department writing a thesis on the politics and economics of voluntary export restraints of Japanese automobiles to the US.
 
The key political result of the restraints was to give the Japanese state a heavy hand in dealing with the Japanese automotive makers particularly Toyota.

Leading up to the imposition of the restraints by MITI, the Japanese makers, smelling blood in the American market, ignored all requests to slow down exports (in fact they were accelerated).

Once Washington signalled that they would welcome voluntary export restraints -- this would not violate international trade agreements -- MITI quickly imposed its control over the Japanese exporters by using hardball 1950's Japanese trade law and assigned the number of cars that each maker could export down to the very last car.

MITI sent a letter (I was able to obtain a copy and it is in my thesis) to each maker asserting their legal authority and assigning them the set number of cars they could export to the US.

Heavy handed stuff even in the early 1980s.
 
The point person on the MITI case was the cunning and experienced Amaya Naohiro who boxed the exporters in giving them no choice.

This was a servant of the state asking for their help for Japan's sake after all.

All of the literature at the time -- particularly the weekly magazines -- much of which I ploughed through emphasized Amaya's leading role in getting a victory for MITI.

Also my thesis supervisor Kumon Shumpei knew many of the players and arranged interviews for me.

They all confirmed that MITI had the upper hand; the car exporters were sacrificed on the altar of maintaining access to the American market for other Japanese goods and US-Japan relations in general.

This was the early 1980s after all, not 2009!
 
Of all the makers, Toyota was morally outraged at the interference of MITI.

They opposed the restraints the most vociferously.

It is difficult to overestimate how angry and betrayed Toyota felt.

It is important to appreciate that from the outset Toyota thought export restraints would mortally harm their business because they felt that blocking exports would destroy their business model.

At that time, Toyota was the world's most productive automotive producer and exporter.

They had an enormous productivity advantage over every other car maker in the world, an advantage that would be blunted by volume restraints.

Toyota was convinced that their system of supplier management (much of it outsourced) and just in time production techniques was in large measure successful due to Japanese cultural practices rooted in the behaviour of Japanese, and could not be exported.

Overseas investment at that time was dangerous and unknown territory for them particularly when confronted with the reputation of American labour.

In fact, Honda's investment overseas in the late 1970s was seen as surrender to Toyota's dominance.

Nagoya was petrified that the export restraints would prevent the company's expansion.

They discovered later that in fact these principles of manufacturing were exportable and had little to do with Japanese culture, just good management and labour incentives.

This however was not known in 1980-2, and probably not even imagined.
 
As noted, American support for the trade measures gave MITI important extra bargaining power over the car makers but particularly Toyota.

This power shift also had important implications for state-business relations in the domestic market where Toyota was king. 

This of course is the great irony of Reagan trade policy as far as the automotive industry and Japan is concerned, as it empowered the state against the private sector not only in issues outside of Japan but also in the Japanese market.

Toyota executives hated Ayama and never forgave him.
 
The lift in prices following the imposition of the restraints was the natural market response as the Japanese makers sought to increase profit per vehicle (Economics 101).

It was the US government that created the conditions for inflation in car prices by supporting export restraints after the Japanese had done such a great job in bringing car prices down in the first place.

One of the most powerful impressions I had from my interviews was how much the Japanese car makers hated each other, they were vicious competitors.

The idea of a Japanese cartel is nonsense.

The unintended consequence was that numerical restraints gave an enormous incentive for the Japanese to go up market and to compete directly in the car categories where the Americans were positioned.

A shift from which the American producers have never recovered.

It also encouraged the export of Japan's manufacturing technique and accelerated the trend of Japanese investment overseas and revolutionalised the global economy.

/end