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Although monetary policy has been tightened, the U.S. economy is still on a steady growth path, propelled by the expansion of its information technology industry, which is said to be far ahead of its counterparts in the European Union and Japan.

Can we predict, at least in the foreseeable future, that the industrial competitiveness of the United States, especially in IT, will remain higher than in the EU and Japan? How can we predict what the level of competition in will be among the Triad of the U.S., the EU and Japan?

In order to consider these questions, it might be useful to discuss two issues:

* the competitive advantage of the U.S. over other countries; * competition between the EU and Japan.

Starting with the first issue, we must remember the law of increasing returns to scale, which implies that once a firm gains a certain share in a market, its rivals will be at a crucial disadvantage, due to fewer returns. In sectors where this law applies, such as IT, entry should be difficult.

As is well known, U.S. firms have already taken a significant share of the world IT industry. So, under the law of increasing returns to scale, European and Japanese firms will be unable to effectively compete with U.S. enterprises.

But it may be possible under certain circumstances for the latecomers to catch the front runners. Due to the pace at which technologicy advances, it is often the case that high-tech goods soon go out of fashion. In other words, as technology advances, there is a tendency for the life cycle of a product to get shorter.

Take Microsoft Corp. for example. Its Windows operating system has secured a large share of world markets and is thus unlikely to face a strong competitor. But no one can deny that a new software company with higher and more innovative technology could replace Windows, even overnight.

Another key consideration is that it is impossible for the U.S. to be ahead of the other two members of the Triad in every sector, even in IT.

Take the mobile telephone industry. In Japan, people now use their mobile phones not only as a telephone, but also as a computer terminal. In this industry, the U.S. lags behind the EU and Japan in terms of both popularity and technology.

By introducing even more sophisticated mobile phones, the EU and Japan may find themselves turning into information-based societies more quickly than the U.S.

A second question is: who will catch the U.S. in IT first — the EU or Japan? The EU unveiled its ambitious plan, called eEurope 2002, at its summit in June. Under that plan, member nations of the EU are encouraging the development of their individual IT industries and building an information-based society for the upcoming century.

The Japanese government is seriously considering a similar plan to realize an information-oriented society here. It is reported IT-related expenditure would be increased significantly in the fiscal 2001 state budget to cover the project.

This reflects the competition between the EU and Japan for second place behind the U.S. in IT. When we compare Japan to the EU, the important point to examine is how the two governments find the huge amounts of money needed to stimulate an industry, such as constructing nationwide optical fiber networks.

In this respect, Japan is at a clear disadvantage to the EU, as the Japanese government — and even private firms — are still suffering from the collapse of the asset-inflated bubble of the late 1980s.

For instance, Japanese banks are now in a dilemma on management strategy — should they concentrate on clearing their bad debts or on lending funds to capitalize ambitious high-tech ventures?

Similarly, the government also faces a difficult choice — should it work on paying down the nation’s ballooning fiscal debts or on funding such policy directives as a nationwide optical fiber network or computer education?

My conclusion can be summarized as follows: The U.S. on the whole is likely to remain the IT industry leader. However, although the chances are not great, both the EU and Japan are capable of penetrating the global IT market. The EU, in fact, is making its utmost efforts to catch up with the U.S.

When such movements are considered, Japan could be the slowest runner in the Triad, unless it reduces its huge debts as soon as possible and introduces drastic measures to stimulate the domestic IT industry.

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