Fifteen years after the collapse of the economic bubble, Japan’s longer-term economic prospects look fairly promising. One reason for this is that Japanese banks, particularly big ones, are making good progress in their efforts to clear up their nonperforming loans. Another reason is that manufacturers — the prime mover behind industrial Japan — are regaining confidence.

Three banking groups — Tokyo Mitsubishi, Mitsui Sumitomo and Mizuho — are doing better than expected. In the first six months of fiscal 2004, April through September, they halved their ratio of bad loans to total lending, thus achieving the government-imposed target half a year ahead of schedule. Now they are in a better position to lend more money to needy clients.

Even more encouraging is the revival of manufacturing. With the economy on the mend, this is a good time to reaffirm the importance of making goods. “To produce well is to live well,” as the saying goes. Indeed, Japan’s economic prosperity depends on its ability to produce and export quality products. That ability needs to be refined if manufacturing is to continue to serve as the main engine of economic growth.

Japan has given priority to export-oriented manufacturing since the Meiji Era (1868-1912), when the nation began to play catch-up with the industrialized West. Indeed, exporting manufactured goods was — and still is — a sensible policy for an island nation that has few natural resources.

The export drive had humble beginnings. Raw silk was a major foreign-exchange earner in the Meiji period. The scope of exports expanded as the manufacturing industry developed and began turning out valued-added goods such as textile products. In more than a few cases, though, a perception of shoddy quality persisted.

That image changed after World War II, when manufacturing brought about an economic miracle. Factories throughout the country churned out a dazzling array of consumer and industrial products. Many of these products hit the world market and established Japan’s reputation as a producer of high-quality goods. People around the globe purchased “made in Japan” products because they were easy to use, free from defects and reasonably priced. Quality consumer durables such as televisions, refrigerators and cars received a stamp of global recognition, and so did electronic parts like semiconductors. In recent years, export demand has shifted to digital household products.

The point to remember is that constant research and development efforts — which were continued during the “lost decade” of postbubble economic stagnation — laid the groundwork for today’s world-beating products, such as flat-panel TVs, cell phones, digital cameras and DVDs.

There has been some talk of sangyo kudoka (the hollowing out of the domestic manufacturing base) through a steady shift of production facilities overseas. For example, electronics makers like Sharp and Cannon had set up new factories in low-wage countries such as China. Now, however, a U-turn of sorts is under way, reflecting optimism over the nation’s economic future.

In the background is this fact: Parts using original technologies or products incorporating cutting-edge technologies are difficult to copy and, therefore, can be sold at higher prices. In other words, such products can be profitably manufactured at home in spite of high labor costs. This appears to be contributing to manufacturers’ growing confidence.

The question is how to develop or refine the ability to manufacture better products. A suggestion by University of Tokyo professor Takahiro Fujimoto is instructive. Japanese manufacturers, he says, are strong at “putting parts together” while American manufacturers are good at “combining technologies.”

In his view, a typical example of the former is building cars — a process of assembling an estimated 20,000 parts. But a great deal of innovation is also required, he says, to assemble these diverse parts into a perfect car. In contrast, Americans are said to have a knack for integrating disparate parts into independent self-contained systems, such as personal computers. Professor Fujimoto suggests that Japanese manufacturers improve their skill at parts assembly while drawing on the American experience in parts integration.

It is also worth noting that Japan is ahead of other countries in the field of environment-friendly technologies, such as those aimed at reducing energy consumption and minimizing air pollution. With the Kyoto Protocol on global warming set to take effect in February, there is much the nation can and should do in this area of common international concern.

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