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Adam Hanft

Adam Hanft

Posted: February 24, 2010 10:14 AM

China Is the Next Toyota

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Here's an instructive thought experiment. Let's read Akio Toyoda's comments about his company's problems, and substitute China as the frame of reference:


"I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota's priority has traditionally been: first, safety; second, quality; and third, volume. These priorities became confused.


"We pursued growth over the speed at which we were able to develop our people and our organization."

The parallels are extraordinary.

China's remarkable economic surge over the last two decades -- and the pride, if not hubris, embodied in that rise -- is a national narrative-in-the-making that parallels Toyota's corporate story.

Just as China's dominance is seen as an inexorable trajectory, Toyota's was too. Year in and year old, Toyota turned out cheap, reliable cars that sucked market share out of an increasingly hollowed-out Detroit. And then, in January 2009, Toyota passed GM as the global leader -- the first time in 77 years that General Motors had lost its perch.

The American ego was crushed. And the headlines duly noted the historical event and all it that symbolized and meant. It was even more in-your-face dramatic than Lenovo buying IBM's PC business.

We now realize that Toyota's growth came at a price. Its much-vaunted manufacturing processes, its business-school model of kaizen -- or continuous improvement (so widely known that its even lodged, I've just discovered, in Microsoft Word's spell check) -- were no match for the perils of ambition, and a growth- at-all-costs ideology.

It's interesting that Toyota's collapse -- and it's not a sensationalist lunge to describe it as such -- comes decades after Japan's own deep shudder. Remember all the handwringing back in the 80s about Japan's race to the apogee, and America's rush to the nadir? Japan was vacuuming up New York City real estate, including Rockefeller Center. "Made in Japan" had been shorthand for junk -- but compared to Sony, RCA's products were even crappier than the old epithet. So we bought books like "The Japan That Can Say No" and resigned ourselves to second-class irony, as the servant state to the nation we rebuilt from the ashes.

There's no need to point out to the erudite readers of HuffPost what happened next. But even during Japan's so-called "lost decade" of the 90s, Toyota powered ahead, seemingly unstoppable.

Today, China has replaced Japan as our source of declinist anxiety. Indeed, we see them as more than an inexorable juggernaut and relentless competitor. We see them as the victor. We're convinced that China has passed the U.S. in the same way that Toyota passed GM: A poll in November of last year found that 44% of us see China as the world's leading economic power, versus 27% for America.

But China's rapid ascendancy carries with it a far greater risk of overstretch and structural weakness than Toyota's. China's problems are more pervasive and threatening than a sticky pedal, lumpy floor mats, or even electronic signaling issues. Bribery and institutionalized corruption have resulted in massive amounts of unsafe construction and inferior products. There is little or no operative regulatory structure.

China barely has a functioning judiciary. Growth is raping its environment. The vast urban migration -- the largest in history -- has created profound tears in the country's fabric. And social unrest is being managed by showering capitalist bennies within an autocratic framework that still views the Internet as a threat.

Toyota, it turns out, had many warnings, which it chose to ignore, to bundle up in bureaucratic wool. But even though China's warnings are far more visible -- tainted milk, kids' toys as toxic as the chemical slick floating on Love Canal -- they're seen more as manageable symptoms of hyper-development, rather than what they are: signals of a what will be a vast, deep and inevitable crisis.

How this crisis will manifest itself I can't say for sure. But let's imagine, for a moment, a national scandal that starts with domestic food safety issues -- say 5,000 people are poisoned and hundreds die. That then spirals into far broader concerns about Chinese exports in food, drugs, and other categories. The U.S. and Western Europe dramatically cut their imports, factories close (as was happening during the Great Recession until China launched its own TARP), and millions turn to the streets.

China's growth grinds to a screeching halt. The fundamental precepts of the "Chinese model" are thrown into question. Experts across the globe re-visit every assumption about China's miracle economy; you can' trust anything about them - even their economic growth, as measured by their GDP has been fudged, the numbers inflated.

Now let's go back to Akio Toyoda's comment that "We pursued growth over the speed at which we were able to develop our people and our organization."

Eerily similar language finds its way into a speech given by the Chinese President, in an extraordinary address televised globally and designed to let the world know that China has learned a very difficult lesson. Commentators say that it's the largest audience for an apology since Tiger Woods:

"We pursued growth over the speed at which we were able to develop the basic structural elements of our society required to sustain that rapid level of economic development."

Wait and see.

 

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