acquired a comparative advantage over the American manufacturers through the widespread introduction of robot technology. The new technology helped the Japanese automobile manufacturing industry to become the most productive in the world.
In response to the actions by the Japanese automobile manufacturers, the American automobile manufacturers implemented a massive program to convert their production facilities and processes to highly automated, state of the art operations which, it was said, would put the Japanese to shame. The actions taken by the American automobile manufacturers were intended not just to catch up with the Japanese manufacturers, but to actually restore a comparative advantage to the American automobile manufacturing industry.
The problem for the American automobile manufacturers, however, was that the initiative did not work as it was intended to work. Although the gap between Japanese production costs and American production costs was reduced from $2,500 in 1983 to $1,900 in 1986, almost all of the gain resulted from changes in the international currency exchange value of the Japanese yen, rather than a productivity catch up by the American automobile manufacturers. When the value of the dollar began to climb in relation to the yen, the production cost differential also began to increase.
In the early 1990s, Japanese automobile manufacturers require only about 35 percent of the labor time required by American manufacturers to assemble luxury automobiles, and only about 25 percent of that required by European manufacturers, where hand crafted workmanship is a selling point (Kanise and Zagorin, 1990, pp. 62 63).
The differences in production costs between the American and Japanese automobile manufacturers does not exist because Japan is a low wage nation. Rather, such differences exist because of differences in the ways in which the two industries are managed. Further, the success of Japan...