The Steeling of Japan

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In the pre WWII era and in the two decades that followed it steel was considered the bulwark of American industrial prowess; both its massive infrastructure and the burgeoning automobile industry rested on its strength and fuelled its growth; in 1960, American producers supplied more than one-fourth of the total world market for steel.

Steel Industry of Japan

But by the early1980s the US share in global steel production fell to as low as one-tenth, largely due to the ascent of Japan. The 1959 US steelworkers strike gave the Japanese a toehold in the global market, and the US steel industry never again regained its lost territory.The Japanese share of the world steel market grew from approximately 6% in 1960 to 16% by1983.

This radical transformation of the global steel market was rather baffling. Japan had neither the resources that the steel industry needed nora domestic market big enough to provide the necessary impetus. But still it managed to dislodge US from its coveted position. The coup resulted from the failure of American firms to adopt improvements in steelmaking technology, while Japan adopted them.

Why did US industry shy away from the technological advance and Japan embrace it ?

In fact, US companies were the early adopters of technologies that transformed the global steel industry, but they failed to implement these technologies as aggressively as theJapanese. Faced with growing pressure from imports andunionisedlabour, US steel companies responded by cutting investment in new plants and equipment.The decision was based on individual rationality :each company could protect itself from potential losses by steadfastly avoiding increases in fixed costs.

japan flag

As against this the Japanese producers adopted and implemented the new technologies forsteel production in facilities of ever-larger scale. Falling costs led to rapidly growing domestic markets, followed by competitive advantage in the global markets. This made it possible to build new plants by competing firms without creating overcapacity. Throughthe 1950s and 1960s the Japanese steel industry grew in a cycle of “investment calling forinvestment” (Yonekura, 1994, p. 224). The race to ever-larger and more capital-intensive facilities was fueled in part by MITI (Ministry of International Trade and Industry),which believed that “the route to securing world market share in steel was to invest continually in more efficient means of production.”