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Japan and the World Economy 3 (1991) 113-116 113

North-Holland

Japanese investment in the US


and US-Japan trade problems *
Keynote address

Akio Morita
Chairman, Sony Corporation, Tokyo, Japan

1. It is, I believe, very timely to be able to hold todays seminar in coopration


with New York University and to have this opportunity to discuss with experts
in various fields the numerous issues arising from Japanese investment in the
United States and US-Japan trade problems.

2. As all of you are well aware, direct investment in the United States by
Japanese corporations has been increasing rapidly in recent years, influenced
in part by the rise in the value of the yen after the Plaza Agreement of 1985.
As a result, exchanges between Japan and America are in a state of transition
_ we are moving out of a period dominated by trade in raw materials and
manufactured goods into one of closer contact at the personal and cultural
levels through the medium of investment.
This sudden rise of Japanese corporate involvement in the US, however, has
caused fears among certain sectors of the American public about Japanese
business activities and their effects on the local community and has led to an
emotional backlash. The increase in foreign investment is regarded as a threat
to Americas ability to control its economy, to the political process, and even
to national security. (Recently, when Sony announced the purchase of Co-
lumbia Pictures, some even argued that, in addition to declining competitive-
ness in manufacturing and technology, America was in danger of losing its
cultural heritage.)
Because of these concerns reports on foreign investment and bills to control
it have been frequently submitted in the US Congress. On the other hand,
nearly forty US state governments have opened offices in Japan in the hopes
of attracting Japanese investment to improve their local economies. Yet

* The Journal will publish lectures and short papers by renowned administrators, statesmen and
scholars who have influenced economic policy. This paper is one of those series of policy
papers.
114 A. Morita /Japanese investment in the US

despite these efforts, within the US fears about foreign investment, especially
Japanese investment, seem to be growing. This, I believe, is extremely unfor-
tunate for both countries.

3. Several reasons can be cited to explain why Japanese investment has


attracted so much attention in the US. First, although Japanese investment in
the US ranks second behind Great Britain in terms of actual amount and was
third behind the Netherlands until last year, it is increasing at a more rapid
rate than that of any other country. Second, investment by Japanese compa-
nies is more conspicuous because it tends to be focused on famous buildings
and concentrated in certain locales. Third, if the yen remains strong and
Japanese firms continue to enjoy a capital surplus, the present growth of direct
investment in the US can also be expected to continue. Meanwhile, the
emotional Japan-bashing by US congressmen is beginning to sound more
serious. Japan-bashing can be seen as a way to blame the sad plight of the US
economy on unscrupulous interlopers from abroad. But if we stop to consider
why American congressmen resort to this sort of tactic, it is because they think
that attacks on other countries, especially Japan, will win them votes from
their local constituencies. Or to put it another way, an atmosphere exists
among ordinary Americans at the grass-roots level that makes them support
and vote for representatives who are Japan-bashers.
One of the factors contributing to this situation is that Japan has been
investing in the US at a too rapid rate without regard to the social and cultural
problems that have arisen as a result in part because Japanese abroad tend to
associate only with other Japanese, ignore local social customs, and avoid
becoming involved with the local community. In the United States the idea of
being a good corporate citizen is a fundamental concept - a corporation is
thought to have the responsibility to put a part of its profits back into the
community in the form of community service such as volunteer activities and
charitable donations. Japanese firms that single-mindedly go about their
business activities without contributing to the local community tend to be
regarded by Americans as inscrutable aliens.
In order to put an end to Japan-bashing in the US, Japanese companies,
their overseas employees and their families must all be aware that they are
private ambassadors representing Japan and make an effort to become part of
the host community. If Americans think of Japanese businessmen not as
inscrutable aliens but as good neighbors and business partners, the reasons for
regarding Japanese investment in the US a problem will disappear, and US
congressmen will have to change their views about Japan-bashing.

4. In Japan, however, although plenty of information is available about the


legal system, taxation, and the infrastructure for investment in the US, little is
known about local American customs and attitudes, and no one seems to
understand what to do about community relations in order to help Japanese
A. Morita /Japanese investment in the US 115

firms blend in better with the local community. The US subsidiary of a


Japanese company that has just located in America faces an additional
problem: Because it has not yet made sufficient profits to contribute on its
own, it must get authorization from the parent company and ask the head
office to send the money to do so. All too often the head office will not
advance funds for this purpose because it does not adequately understand the
importance of community service activities in the United States.
One of the reasons I established the US Investment Council within
Keidanren in April 1988 was because of my strong conviction that something
had to be done to rectify this situation. The US Investment Council encour-
ages Japanese businessmen in America and their families to become more
involved in the community they live in and offers information about how to
handle community relations. It also promotes a wide variety of other activities,
including sending study missions overseas, publishing a newsletter, and spon-
soring seminars in order to make Japanese parent companies better under-
stand the importance of community relations abroad.
The Japanese government, realizing the need to prevent potential frictions
over investment before they occur, has recognized the importance of corporate
philanthropy abroad and has given its basic approval to a revision of the fiscal
1988 tax laws that would allow tax deductions within certain limits for
donations by Japanese companies to Japanese charitable corporations in-
volved in public service activities abroad. In order to implement projects to
which this new tax system would apply, this September the Overseas Business
Activities Association was officially incorporated to serve as a base for the
activities for the US Investment Council. At present nearly 260 companies are
members of this association. In the future it plans to expand to include Europe
and the member countries of the OECD and to work even more vigorously to
promote corporate philanthropy abroad.
If anyone here has not yet joined this organization, I urge you to consider
becoming a member and giving your cooperation and support to its activities.
Last October 11th and 12th the association held a symposium to celebrate
its founding. One of the participants on the US side, former Secretary of
Commerce Elliot Richardson, said that in order to dispel current US fears
Americans must be made to understand the benefits accruing to the US from
foreign investment. He supported the objectives of the Overseas Business
Activities Association and called its activities extremely significant.

5. As former Secretary Richardson noted, foreign investment has its positive


side in revitalizing local economies and creating jobs. If Japanese firms
become more involved in the host community and act as partners in local
affairs and if Americans come to realize the merits of Japanese investment,
then we can prevent the investment issue from turning into a political
problem. But we need to keep in mind that Japanese corporations must
116 A. Moritn /Japanese investment in the US

promote investments that will benefit both the US and Japan - that is the key
to resolving future economic disputes between the US and Japan.
I hope that todays seminar, sponsored by the Overseas Business Activities
Association in cooperation with the Economic Information Center and NYU,
will be useful in contemplating the future course of economic relations
between Japan and the US.

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