The Economic War with Japan

These notes come from various conversations I've had with people in cafes - they do not represent careful scholarship. However, they do illustrate the kinds of factors at play in macro and microeconomic scenarios.   This would be ideally reformatted as a BLOG of briefings, which any teacher running this simulation would create, inspired by the briefings below.


When first introduced, automobiles offered a flexibility and freedom that no other means of transportation could provide. Gasoline-powered vehicles soon became dominant because the price of oil was low and the supply seemed unlimited.  During the first automobile boom, between 1895 and 1908, France dominated the automobile industry.
The most important date of all may be 1908, the year of the introduction of the Model T Ford, which sold for $825 and was intended to be "a car for the great multitude." (Car Trouble, p. 3.) By 1913, Ford was the world's leading auto manufacturer, and by 1916, assembly line production brought the price of the Model T down to $360 so the middle class could afford it. (Revolution, p. 84.)

Until World War I, more than one third of the motor vehicles in the United States were electric. The restricted driving range of electric cars was not a problem then because most driving was done in cities; the terrible condition of country roads discouraged automobile traffic. Before the electric self-starter was invented, hand-cranking a gasoline engine was difficult and dangerous. Electric cars, which were safer and easier to start, were especially favored by women drivers.  The first gasoline-powered vehicle with an electric starter was the 1911 Cadillac. This new electric invention ironically meant that electric cars were superseded by gasoline-powered vehicles. Cars with internal combustion engines could go farther and faster; their engines could be made in all sizes.

Cars became the principal means of travel during the 1920s. By 1930, there were twice as many paved roads as there had been a decade earlier. In 1927, in the United States, there was one car for every 5.3 inhabitants; in Canada, the figure was one for every 10.5 people. (In comparison, there is now one car for every 1.7 people in the United States, and one car for every 2.1 people in Canada.)

In the 1920s, the automobile was changing the lifestyle in the United States and Canada. Rural areas especially benefited because they were no longer isolated. The U.S. Post Office began free rural delivery. Farm children went to larger schools by car or school bus. Automobiles changed life for city dwellers, too, encouraging the growth of suburbs. People used their cars to drive to work and to go shopping. They took Sunday drives on weekends and drove to national parks and resorts for their vacations. (Revolution, p. 114-116.) During the 1920s, Canada became the second largest producer of automobiles. The United States continued to be the leading producer; General Motors surpassed Ford as the largest manufacturer. (Revolution, pp. 91 and 101.)

By the end of the 1920s, some 55 percent of American families owned a car (Revolution, p. 112.). Car buyers had begun to buy on credit on the installment plan. Car manufacturers began to change models each year and to emphasize styling changes. They became the largest advertisers, creating consumer demand for newer products that boasted increased comfort, style, and power. It was an automaker, Louis Renault, who said that "To live is to consume." (Revolution, p. 117.)

In the 30's and 40's, National City Lines, a company backed by General Motors, Standard Oil, Phillips Petroleum, Firestone Tire and Rubber, Mack Truck, and other auto interests bought up and closed down more than 100 electric trolley lines in 45 cities. In 1949, GM and the other companies were convicted of conspiring to replace electric transportation systems with buses and to monopolize the sale of buses. (Car Trouble, p. 5.)

Henry Ford encouraged Americans to abandon city slums for the suburbs. State and federal policies encouraged road-building and developed the Interstate Highway system, and housing construction exploded in outlying suburbs. Through tax laws, the Federal government encouraged home ownership and single-family housing and has encouraged builders to create new structures rather than renovate old ones. While there were advantages--privacy, open space, quiet--there were also disadvantages. Suburbs are often "transit unfriendly; "suburbanites who must depend on the automobile encounter gridlock as they commute to jobs in the city or in other suburbs.


Japan retools after WWII, and ends up with all new equipment and a highly motivated work force. Banks (the investors) are much closer to management than in the US, so companies are held more accountable. Japans workers had recently been peasant farmers, and greatly appreciate the chance to work hard and recover from defeat - Americans develop a sense of entitlement, and through strong unions work fewer hours for more pay.

The dream in America is to make lots of money without working too hard (Seinfeld Actors make $600,000 a week, we are told!) while in Japan it has traditionally been to become part of a corporate family, serve well, and contribute to the general well-being. This tends to make Japanese workers far more productive - and Japanese children more cooperative and hard-working students. A homogenous culture that is highly adaptive helps in this way - but it also makes Japan vulnerable should that adaptation fail.

Appreciating socialism more than the US, government and business have closer relationships in Japan, and collective efforts are easier to make (everyone rises - and falls - together). There are no military expenditures taking money out of circulation because Japan is denied one by treaty - meanwhile the US military has so much control over the government that it does not disarm after WWII and grows in funding through McCarthyism and Cold War hysteria.

Over this period, the US spends 10% of its GNP on Capital Investment and sustains a 3% growth overall. Japan invests 33% and sustains an 11% growth. Japan develops an incredible trade surplus - they export much more than they import - which means they have lots of money to invest that the US does not, having a trade deficit. A powerful, advanced economy, well-educated workforce, and plenty of money to invest make Japan the formidable competitor it is today.

But the "Japan vs. US" battle is less and less relevant. Japan holds a great deal of American currency, and could have a significant effect on American markets depending on how they invest it. On the other hand, they depend on a strong American economy with consumers who can buy their products. Automobile production has blurred - American cars are made in Japan, and vice versa. With a global economy, everyone loses when an economy fails.


Reveal each Blog Post as each round begins. Do NOT share with anyone prior to a given decade round.

Sources: Reformatted from for educational use.

  1. Steve Nadis and James J. MacKenzie, Car Trouble, (World Resources Institute, Washington, D.C., 1993) and Jean-Pierre Bardou, et al.,
  2. The Automobile Revolution: The Impact of an Industry (Chapel Hill: The University of North Carolina, 1982).

Reprinted from the Teacher's Guide to World Resources 1994-95, World Resources Institute, 1709 New York Avenue, NW, Washington, DC 20006 (202/638-6300; fax: 202/638-0036). For more information contact

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