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The Reckoning
The Reckoning
The Reckoning
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The Reckoning

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New York Times Bestseller: “A historical overview of the auto industry in the United States and Japan [and] the gradual decline of U.S. manufacturing” (Library Journal).
 After generations of creating high-quality automotive products, American industrialists began losing ground to the Japanese auto industry in the decades after World War II. David Halberstam, with his signature precision and absorbing narrative style, traces this power shift by delving into the boardrooms and onto the factory floors of the America’s Ford Motor Company and Japan’s Nissan. Different in every way—from their reactions to labor problems to their philosophies and leadership styles—the two companies stand as singular testaments to the challenges brought by the rise of the global economy.

From the Pulitzer Prize–winning author of The Fifties and The Coldest Winter, and filled with intriguing vignettes about Henry Ford, Lee Iacocca, and other visionary industrial leaders, The Reckoning remains a powerful and enlightening story about manufacturing in the modern age, and how America fell woefully behind.
 This ebook features an extended biography of David Halberstam.
LanguageEnglish
Release dateDec 18, 2012
ISBN9781453286104
The Reckoning
Author

David Halberstam

David Halberstam (1934–2007) was a Pulitzer Prize–winning journalist and bestselling author. He is best known for his brazen coverage of the Vietnam War for the New York Times and for his twenty-one nonfiction books, which cover a wide array of topics such as the plight of Detroit and the auto industry, and the incomparable success of Michael Jordan. The recipient of the Mailer Prize for distinguished journalism, Halberstam wrote for numerous publications throughout his career and, according to journalist George Packer, single-handedly set the standard of “the reporter as fearless truth teller.” Halberstam died in 2007. 

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  • Rating: 4 out of 5 stars
    4/5
    02-25-2000This was a very interesting book, most especially because I read it 14 years after its publication. The author, completing this before the internet was even a blip in everyday consciousness, based his conclusions on a "pre-net" analysis. Concerned with industry, and unaware of the computer revolution only then beginning, this book is an artifact of its time, only 14 years after publication. It was a very interesting read, particularly because of the mini-biographies it contains. Well-written, but a bit light. Fascinating however, as a record of the state of thinking about economics at the time, and some nicely done summation of the history of post-war Japan.
  • Rating: 5 out of 5 stars
    5/5
    Excellent book.
  • Rating: 5 out of 5 stars
    5/5
    David Halberstam wrote The Reckoning in 1986 to explore a simple question – why was an industry as strong and storied as the American car industry brought to its knees by competition from far less experienced Japanese upstarts? I read The Reckoning in 2013. As a fan of David Halberstam, I knew to expect strong writing and narrative, but I wondered how relevant I would find this history, given that close to 30 years had elapsed since its publication. Would it be filled with predictions of Japanese world domination and paeans to the cultural superiority of the Japanese?Anything but. The Reckoning’s relevance today is almost haunting – the discussions of topics such as Detroit’s addiction to large automobiles, the pressure to underinvest to meet Wall Street expectations, and the relationship between government and industry could have been written during the most recent crisis in 2008-2009. Prescient for 1986, a chapter near the end explores whether political forces at home might stifle Japan’s further economic expansion.The Reckoning is also a good history, using two companies, Nissan and Ford, to illustrate the general trajectory of the industry. Halberstam explores both companies’ histories in detail (my paperback version is 750 pages long), giving the reader an understanding of what forces drove the actions of each company, as well as anecdotes and personal histories that bring the stories alive, such as the head of Nissan’s western U.S. division prying the “Fair Lady” label off their first entry into the sports car market in 1970 (he replaced it with their internal designation, the 240Z). While some of the content in “The Reckoning” may be of less interest now than it was to the 1986 audience – we are probably less interested in the power struggle between Lee Iacocca and Henry Ford, for example - “The Reckoning” still provides today’s readers plenty of lessons about corporate and national competitiveness.

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The Reckoning - David Halberstam

The Reckoning

David Halberstam

For Alan U. Schwartz

Contents

PART ONE

1. Maxwell’s Warning

2. Amaya Surveys the Oil Age

3. Detroit’s Bleak Winter of 1982

PART TWO

4. The Founder

5. The Destroyer

PART THREE

6. The Victor

7. The Banker

8. The Turning Point

9. The Crushing of Masuda

PART FOUR

10. Tough Little Rich Boy

11. The Whiz Kids

12. Ford Goes Public

13. The Quiet Man

PART FIVE

14. The Gaijin Teachers

15. The Engineer

16. The First Victory

17. Deming Finds an Audience

PART SIX

18. Henry Kaiser Tries Detroit

19. The Organizer

20. The Mustang

21. The Rivals

PART SEVEN

22. The Statue

23. The Boss

24. The Pioneer

25. The Liberation of Yutaka Katayama

26. The Emperor Shioji

PART EIGHT

27. War and Oil

28. Henry Ford Besieged

29. The Alienated

30. Citizen Nader

31. Datsun Saves

32. The Struggle at the Top

33. Big Cars Again

34. A Vacancy at Chrysler

PART NINE

35. The Arrivistes

36. Greathouse in Tokyo

PART TEN

37. A Man of the System

38. Hard Times Come Home

39. The Fall of a Free Trader

40. Amaya Ends an Era

PART ELEVEN

41. The Defection of Marvin Runyon

42. The Hammer and the Nail

43. A Grateful Worker

44. Bonus Time Again

45. The Scion

46. The New American Hero

PART TWELVE

47. The Raiders

48. OPEC Unravels

49. The Upstarts

50. The Jobs Depart

51. Instant Replay: The Rise of Korea

52. The Venerables

53. The Reckoning

54. The Past Becomes the Future

Author’s Note

Bibliography

Index

A Biography of David Halberstam

PART ONE

1. MAXWELL’S WARNING

THERE HAD BEEN PLENTY of warnings. Some experts had pointed out that the sources of oil were not limitless, that consumption was rising faster than production. Some noted that certain of the oil-producing countries were politically unstable and hostile to the United States. The men of the auto industry had never heeded the warnings. They dismissed them as veiled criticisms of the cars they were making.

In June 1973, a young man named Charley Maxwell flew from New York to Detroit to talk to the top executives of the three main auto companies. A decade later astute observers would mark that particular time, mid-1973, as the last moment of the old order in the industrialized world. It was a time when energy was still remarkably cheap and in steady supply, a time when the great business captains could still make their annual forecasts with some degree of certainty. Detroit was still Detroit in those heady days. It regularly sold eight million cars a year, and in a good year, a boomer’s year, the kind loved by everyone in the business from the president of a company to the lowliest dealer, it sold ten or eleven million. More, these were precisely the kind and size of cars Detroit wanted to sell—big, heavy cars loaded with expensive options. In those days no one talked about energy conservation except a few scholarly types. The average American car got about thirteen miles per gallon then, a figure far below that expected of cars in most other modern countries. Detroit’s cars were large, weighty, and powerful. Comfort and power, rather than economy, seemed important in the marketplace. Americans were a big people, and they liked to drive long distances. If the cars were no longer of quite the quality many of the company engineers and manufacturing men wanted, this was deemed a matter of no great consequence, for they still sold. Anyone who complained about the quality of the cars was a quibbler, more than likely an egghead who subscribed to Consumer Reports. After all, a car need last no more than the three years before the owner turned it in for a brand-new model, which would be equally large, or, given the American presumption of rising social status, even larger. As the new car reflected the owner’s climb, so the old car now began its own journey down the social scale, ending up an owner or two later in some ghetto inhabited by members of the American underclass. There, patched and repatched, it would consume even greater quantities of gas.

The intelligentsia of America, much given to driving small, fuel-efficient, rather cramped foreign cars, often mocked Detroit for the grossness and gaudiness of its product. To many liberal intellectuals Detroit symbolized all that was excessive in the materialism of American life (just as to many small-town American conservatives, the companies’ partner, the United Auto Workers, symbolized everything that was excessive about the post-New Deal liberal society). None of this carping bothered Detroit. It was a given that Americans preferred big cars—and only Detroit made big cars. There was a seldom-spoken corollary to this axiom: Big cars meant big profits, and small cars meant small profits. In early 1973 the fact that Detroit was selling what it wanted to sell was considered proof that Detroit, rather than its critics, truly understood the American customer. The future looked brighter than ever. An ugly war in Southeast Asia which had sapped the nation’s strength and resources was finally ending, and Detroit was bullish about the auto economy just ahead. That bullishness seemed to be based on good reason. For if there was one benign economic certainty, as far as American industrialists and American consumers were concerned, it was the low price of gas and oil, a price that seemed almost inflation-proof in the postwar era. In 1950 the price of a gallon of gas at the pump had been 27 cents, 20 cents of it for the gas itself and the rest for taxes. Twenty years later, the price of virtually every other basic consumer commodity had approximately doubled, but the price of gas had remained, tantalizingly, almost the same. At the moment that Charley Maxwell set out for Detroit, in 1973, a gallon of gas cost 37 cents at the pump, 26 of it for the gas itself. The price seemed a blessing so constant that everyone had come to take it for granted.

That was the premise of the city to which Charley Maxwell was traveling. He was thirty-five years old and had spent all of his adult life in the oil business, mostly with Mobil in the Middle East and Nigeria. He was by nature scholarly, and those long years in the field had added practical experience to his theoretical expertise, a rare combination. In the late sixties, when Mobil had started replacing its American overseas employees with foreign nationals, Maxwell had been sent back to the United States. It seemed to him that his career opportunities in the oil industry had been drastically reduced, and, looking around for a way to exploit his knowledge, he had become an oil analyst for a Wall Street firm called Cyrus Lawrence.

Every field has its awesome experts, but there was something about Charley Maxwell’s professional authority that was almost chilling. Part of it was his appearance, the hair plastered down over his forehead and parted in the middle, the old-fashioned, almost prim wire-rimmed glasses, the slightly stooped posture, the preoccupied manner; he looked like the sort of person who as a sixth-grader had been doted upon by his teachers because he had always gotten the right answer to every question, who had been good at what his teachers wanted rather than at what mattered to his peers.

He was an obsessed, intellectually passionate man. It was clear that what he was thinking about at any one moment he thought about to the exclusion of all other things. When Charley Maxwell started talking about energy, it was as if he might never stop, that meals might be missed, engagements forgotten. He answered questions thoroughly, his control of material was total, his voice was quietly confident, his judgments were clearly devoid of bias. He seemed to pursue the truth with so much intensity he made other men nervous. Eventually he would become one of the country’s most prominent experts on oil prices, a man whose opinions would be eagerly sought. He would win many professional awards, in fact would be named the number-one institutional analyst in the field of energy, and his firm would permit him to speak to business groups at a fee of $2000 a hour. By then when he would walk to lunch along Wall Street he would often be hailed by colleagues—and when one of them lightly asked him a question, this most serious and thorough of men would reply at length, his answer becoming an exposition lasting ten or fifteen minutes, as he jumped quickly from one century to another, one American administration to another. He seemed destined to be late to every appointment on his calendar. Reporters interviewing Maxwell would find him always a little short of time, and their interviews would of necessity continue as they walked with him to his subway stop or even rode the Lexington Avenue line uptown with him, Maxwell shouting his answers above the subway’s roar.

In those June days of 1973, however, he was not yet well known outside his field, and his field was not yet a hot one. Americans believed that their own domestic supplies of oil were plentiful and that there were virtually limitless sources in the Persian Gulf. What Charley Maxwell intended to tell the top-level auto executives he believed he would meet in Detroit was what he had been telling his superiors for some time now—that there would soon be dramatic, indeed revolutionary, changes in the price of energy. The assumption of the past, that energy would remain cheap because it had always been cheap and its price would increase only at small, acceptable, noninflationary increments, had to be discarded. America’s own resources were rapidly proving inadequate, and the nation would thus become far more dependent upon the oil-producing nations of the Middle East. But the American oil companies would no longer be able to control the prices set for Arab oil, as they had so easily in the past. The Arabs would set the prices themselves. Since oil was in those days significantly underpriced in terms of its true market value, the loss of that control would have serious consequences for American heavy industry in general and Detroit in particular.

Maxwell had seen all this coming for a number of years. As early as 1970 he had started using the phrase energy crisis—apparently his coinage. He used it to refer to a crucial, ominous shift in the supply and demand of oil. He calculated that worldwide oil consumption was climbing 5 to 6 percent annually, and there was no reason to believe the surge would abate. If anything, it was likely to accelerate. New nations, recently graduated from their colonial past, were fast becoming both industrialized and urbanized and demanding far greater amounts of energy. Throughout the underdeveloped world, people were leaving their tribal huts and moving into cities, and, as they did, they took new jobs in factories which required energy, they lived in apartments which required energy, and to get to work they used transportation which also required energy. It was revolution taking place, a revolution of people who were changing their way of life and of nations that were expanding and modernizing their economies. The world, Maxwell concluded, had changed dramatically and was going to continue to change as more and more nations moved toward industrial economies. Ten and sometimes fifteen additional countries were leaving the preindustrial age each year and coming into the mechanical age. But there had not as yet been any reflection of this trend in the price of the ingredient most precious to the modern industrialized state, oil. There was going to be one terrible moment, Maxwell was sure, when the price would simply shoot up, out of anyone’s control, the oil seeking its true market value.

By 1973, Maxwell was expecting the breakaway to come fairly soon, perhaps in three years, at the most in five. He was, he later ruefully noted, far too optimistic. His projections had not given adequate weight to rising Arab nationalism, though he was well aware that as the economic power of the oil-producing Arab nations increased, their awareness of their political power would increase as well. That so finite a resource as oil was remaining so inexpensive in a world that was demanding more and more of it constantly amazed him. Under normal conditions, Maxwell believed, the post-World War II era would have seen the price of oil go up steadily as the Arab nations, finally free of their colonial and semicolonial bondage, took direct control of their resources. But for some twenty years that had not happened. Instead there had been a vast postwar expansion of the Middle East oil reserves, because geologists, using more modern technology in their explorations, were finding more oil. The expansion of these reserves, particularly in places like Saudi Arabia, had temporarily neutralized the political and economic power of the producing states—the Arabs had so much oil to sell that they had not been able to push the price up. Now that was about to change.

Maxwell knew that he was not alone in his pessimism, that a number of other energy experts, using much the same research, had come to similar conclusions. But most of these experts worked for the large oil companies, where the darker view had not yet been accepted. Maxwell’s own superiors at the Wall Street investment firm of Cyrus Lawrence, however, had been greatly impressed by his estimates and the dispassionate way in which he presented his evidence. Both as a courtesy and also out of their own self-interest, for it would not hurt to lend out so brilliant a man with such original and important perceptions, they decided to send him to Detroit. There, the Cyrus Lawrence people proposed, he would talk to executives at the highest level, who surely would be more than anxious to hear these findings that had such fateful implications for their companies.

Maxwell himself was not so sure. He knew Detroit and he knew it well. He had grown up there, his stepfather had been employed at a middle level by Ford, he himself had even gone to Cranbrook, the city’s elite prep school, where many of his classmates were sons of auto titans. Maxwell knew how stratified the city was, how isolated and insular. It was, he believed, a place of bedrock beliefs, a place where new truths did not seep easily from the bottom to the top. In Detroit, truth moved from the top to the bottom.

Maxwell had been promised meetings with the high auto executives, people who operated at the ultimate level of power. He was dubious about that. He might be well known in the world of oil, but he was young, and Detroit did not readily listen to junior people. Detroit believed in hierarchy and seniority rather than in individual brilliance. One advanced in Detroit not necessarily by being brilliant—brilliance meant that someone might be different and implied a threat—but by accommodating oneself to the attitudes of those above one. Maxwell, because of his age and the nature of his message, would almost surely be looked upon as impertinent. These men would have their own sources of information, among them the men who headed the great oil companies, the men still resistant to the pessimistic vision of Maxwell and his kind. Powerful, successful, and conventional, typical of the corporate class, they believed that tomorrow would be like today because it had always been like today and because they wanted it to be like today. In their view, if the price of oil went up, it would go up slowly over many decades. They had controlled the oil world—and thus the price of energy—in the past. They would control that world and the price of energy in the future. So Charley Maxwell had been skeptical from the start that he would get the very top people as promised. If his superiors thought so, he knew better, and he had automatically translated his prospects downward. He would be lucky, he decided, to meet people at the 65 percent level of power. That, he soon learned, was too sanguine an expectation.

He did not do badly at the start. He went first to Chrysler, where Tom Killefer, the senior financial officer, had assembled a group of upper-middle-level executives. They listened quietly as Maxwell made his solemn little speech, saying in effect that all their estimates about what kind of cars Americans could and would drive were about to fly out the window. Killefer himself had been pleasant; he was a Rhodes scholar, different from the average Detroit executive, less narrow, in better touch with the outside world. When Maxwell finished, Killefer thanked him and said, Well, what you say is very, very impressive, very impressive indeed, and of course if it’s true, then we’re going to have to give it a hard, hard look. There were questions, and the bright young men in the group, perhaps less complacent because Chrysler was already a shaky company, were clearly interested. But even as he was finishing his presentation, Maxwell had a sense that it was all to no end, that these men would leave the meeting and shake their heads and say how interesting it had been, what a bright fellow Maxwell was, maybe a bit rash, something of an alarmist, didn’t they think, but bright and interesting nonetheless. Worth thinking about. That would be it, Maxwell thought, possibly a letter or two thanking him, but no real penetration of the process.

Chrysler, unfortunately, turned out to be by far the best of the three meetings. He had been taken seriously there, and Killefer was, whatever else, a representative of top management. Ford was a good deal worse. At Ford he met two people at the lower planning level. They were junior executives, making, he suspected, about $25,000 a year, which was a very small salary in executive Detroit. They were, he knew instantly, completely without power, and they had been sent there because a steadily descending series of Ford executives had told their immediate subordinates that someone had to go and cover the meeting, until finally, far down the line, there had been two men so unimportant that they had no subordinates to send. These two were there precisely because they were powerless. Maxwell felt a bit odd, standing in that room saying that Detroit was going to have to change its whole line of cars and that an entire era had ended, and saying this to men who could not change the design of an ashtray. Somehow that thought made his presentation more impassioned than ever.

General Motors, of course, was the worst. There were no high-level meetings scheduled. In fact, there were no meetings scheduled at all. Someone very junior asked Maxwell if he would like to drive out to the testing grounds and meet with some GM people there. He did, encountering no one in any position of responsibility, though for his troubles he was able to see some of GM’s new models. They looked rather large to him, cars that would surely use a great deal of gas.

Such was Charley Maxwell’s trip to Detroit. He had not even gotten across the moat. Detroit was Detroit, and more than most business centers it was a city that listened only to its own voice. But he left town worried about what he was sure was going to happen to a vital American industry. Maxwell did not think that the coming change in price would necessarily be so great that even a Detroit that was prepared for change would be severely damaged. Rather, he was worried because Detroit was unprepared—because no one in America seemed willing to practice even the most nominal kind of conservation, which suggested that the country was psychically unready for major increases. A big jump in price might trigger a panic, which would compound the difficulty of entering a new economic order. Those who were set up for change could deal with it, he suspected; those who were not were likely to come apart. Detroit, he feared, was going to have to learn its new truths the hard way.

A few months later, on October 6, 1973, on the eve of Yom Kippur, the holiest of Jewish holy days, Egypt tried a military strike on Israel. Eventually Israel struck back and once again, for the third time since World War II, defeated the Egyptians. To the Arab world this humiliation was one more demonstration of its powerlessness. The Arabs blamed Israel’s existence on its American sponsorship. Thwarted both militarily and politically, the Arabs now turned at last to their real strength, their economic leverage. They began an oil embargo on the West. Before it was over, the price of oil had rocketed from $3 a barrel to $12 a barrel. The United States, long accustomed to cheap energy, was completely unprepared to respond to the Arab move. Unwilling to increase the taxes on gasoline and oil and thus at least partially stabilize the price of energy, it had in effect permitted the Arabs to place a tax not just on the American oil consumer but on the entire country. The effects on the American economy at every level were dramatic. The era of the cheap energy upon which so much of America’s dynamism and its broad middle-class prosperity was premised was beginning to end. A new era with profound implications for the industrial core of America, the great Middle Atlantic and Midwestern foundry of the nation, had arrived. Occasionally in later years Charley Maxwell would run into Tom Killefer, who by then had left Chrysler to become the chairman of the United States Trust Company, and when he did, Killefer would shake his head and say, You—you’re the one man I hate to see. God, I still remember that warning.

At almost the same time that Charley Maxwell went to Detroit, a man named David E. Davis, Jr., was also given a special mission. Davis—David E., as he was more commonly known in Detroit—was a prominent and ubiquitous figure in the city. He was a certified car nut, and far more than most senior auto executives, who lived for their careers, he lived for cars. He loved them, he was always to be found tinkering with them, or racing them, or hanging around the men who designed them. In a previous Detroit incarnation he had been the editor of Car and Driver, a magazine by and for car nuts.

Davis was a close friend of Tom Adams, a major Detroit shaker who headed the local office of Campbell-Ewald, a New York advertising agency that handled the GM account. Campbell-Ewald had hired Davis not so much because it needed his advertising expertise but, it was widely believed, because it was doing a subtle favor for GM, finding a place for a talented car man whose instincts were clearly first-rate but whose style was too outrageous for that most conservative of American business institutions, General Motors. Thus though his salary was laundered through Campbell-Ewald, Davis in effect worked for GM. At the agency, his manner, his clothes, his beard, his passion for the truth would not offend his superiors, and their manners and dress would not offend him. For as far as Davis was concerned, the GM executives all wore the same suit, spoke the same language, lived in the same Detroit suburb, even, he believed, drank the same wine, which, he was convinced, was Blue Nun. (Davis claimed that GM tours of Europe—rewards for executives who had surpassed their quotas—were carefully arranged so that all the inns along the way would be sure to serve thick steaks and Blue Nun.)

Tom Adams of Campbell-Ewald was glad to take Davis in. Adams knew that if his agency was to serve its huge client well, it would not only have to show GM’s products to the world, through advertising, but keep the cloistered executives of the gigantic corporation in some kind of touch with that world. Between GM and the world a man like Davis was a good bridge.

Adams himself had played the role of bridge before, not always with complete success. During the late sixties, when John DeLorean was the enfant terrible of GM—at once a very able car man and a violator of all unwritten codes for GM executives, in dress, length of hair, and youthfulness of female companions—Adams had found himself constantly mediating between DeLorean and his older, more traditional superiors. Once in those years, in the middle of a high-level Campbell-Ewald meeting, Adams had been obliged to take an urgent phone call. A few minutes later he returned to the meeting.

I will never, he said, shaking his head, be able to explain to my grandchildren the business I have been in all my life.

What happened, Tom? one of his colleagues asked.

Well, he replied, "that was Roger Kyes, the head of General Motors, the largest corporation in the world, and he asked me if I was a good friend of John DeLorean’s. I said yes, I was. Then he asked me if I had any influence with John. I said that was a completely different matter, but what could I do for them? Roger said that he and the top executives of GM were all concerned about the way John dressed. Very concerned.

I told Roger I thought John dressed very nicely. ‘No,’ he said, ‘we’re all very upset with the boots he’s wearing—you know, John has started wearing very high, very fancy boots.’ They wondered if I might talk him back into wearing regular shoes of a normal height and style.

Thus it was not surprising to Tom Adams that Pete Estes, one of the top executives of General Motors, wanting to keep David E. Davis around but not in his hair, had placed him under Adams’s wing at Campbell-Ewald.

In the spring of 1973, Estes, who was soon to become GM’s president, had called Davis in and asked him to undertake an important assignment for General Motors. Davis’s mission was to go to Europe and take a look at the new front-wheel-drive cars that were just coming out there and to check on their suitability for the American market, a market, which because it was composed of larger sized cars, had always favored rear-wheel drive. Volkswagen had just brought out the Rabbit, and the Rabbit and comparable European front-wheel-drive cars were generating excitement as no small cars had done in years. The excitement was not just among customers but among auto professionals, who saw in these cars a significant break from the past. They not only used less fuel but, because they had front-wheel drive, which saved weight, they achieved it without sacrificing performance. By contrast, when Detroit had brought out small cars in the past, they had been merely sawed-off versions of the industry’s larger cars. What they gained in economy they always lost in performance.

Estes told Davis he wanted him to see how good these cars really were, and above all to find out whether front-wheel drive was the kind of product innovation that GM might be able to charge extra for as an option. Our people are telling us that it’s going to be very expensive—a whole new engine, a whole new power train, Estes said. They think it will cost us about eighty-five or ninety dollars a car. So if we put it on our small cars, will we be able to charge extra and make it work? The question struck Davis as precisely the wrong one, but at the same time typical of what he had come to expect in the new Detroit, where car people and their standards no longer dominated the industry. The proper question, Davis believed, was not whether this could be a new option for which a little extra could be charged. On an innovation of this magnitude, the right questions were whether it worked, whether it was as good as everyone said, and, if so, how quickly it could be introduced. Davis believed that in the old Detroit, the Detroit of car men, no one would have asked what it might cost as an option but simply whether it made the car better. If the answer was yes, the manufacturers would have gone ahead and done it.

To Davis the old auto executives were men who had little financial sophistication but trusted their almost primal instincts. The new Detroit, he thought, was more cautious, a place of people who had made their way up by taking as few risks as possible and never letting their eyes waver from the bottom line. Innovation cost money and entailed risk, and they had little stomach for it. The three main Detroit companies believed that they were fiercely competitive with each other, and in a sense, he thought, they were, though mostly on trivial matters. The more important the issue, the less they competed and the longer they waited for someone else to take the first step, lest it be a mistake. It was, in the words of another Detroit journalist, Pat Wright, a shared monopoly. Davis agreed; he did not see them as they saw themselves, three intense rivals flying the banner of free enterprise and fighting against one another at every level of operation. He saw them as one big company with three divisions, in which everyone played it safe and no division tried something new unless it was reasonably sure that the other two were going to try it as well. In the new Detroit, it was mainly the engineers who still cared about innovation and whose principal pleasure came from changing and improving and probing into the future; and the engineers, he had seen, were almost completely stymied by the power of the financial people, and were frustrated and angry. The auto industry was static. Its member corporations changed hemlines every year to give the illusion of change, but in truth they were more concerned with preserving their positions than with improving their products.

Davis undertook the assignment from Pete Estes with a certain ambivalence. He liked the idea of scouting the new European models, but he doubted that Detroit would commit itself to genuinely new small cars. Its heart had always belonged to big cars. The cars he found in Europe were an auto enthusiast’s dream. By having the engine drive the front wheels instead of the back, the designers had eliminated the drive shaft that had always run through the rest of the car, creating weight and a hump in the floor. Without the drive shaft the car, though smaller, could be roomier. It was also lighter. Because it was smaller and lighter, the engine could be smaller, and the cars demanded less gas. They cost less and demanded less fuel than anything comparable which Detroit had yet produced. Davis was immediately converted, not just because the cars were more fuel-efficient, though that was important, but also because they responded better to the driver’s touch. Driving them provided something that had long been missing in the small-car range in America—fun.

A few weeks later. Davis was back in Detroit reporting to Estes, telling him everything he had learned. They were better cars, he said, better engineered and better built than those Detroit was making. Front-wheel drive, he declared, was a breakthrough of immense significance. It was not a question that could be debated anymore, because it had already happened. It was the state of the art. It was the way all cars would be built in the future, not just small ones. There was, he emphasized, no turning back. The European market was extremely competitive, and thus the cars were likely to get better and better. Eventually Detroit would have to respond.

Davis tried to be dispassionate in his report, but it was difficult, because he felt such enthusiasm for what he had just seen. Pete Estes listened to him patiently, but when Davis was finished, he shook his head. When I was at Oldsmobile, he said, there was something I learned that I’ve never forgotten. There was an old guy there who was an engineer, and he had been at GM a long time, and he gave me some advice. He told me, whatever you do, don’t let GM do it first.

That was it, Davis thought later—the Detroit line, the symbol of the protected industry. Don’t let GM do it first, let the other guy make the early, expensive mistakes. Right then, he was sure, at Ford and Chrysler there were people who were also deciding not to do it first because somehow someone else should do it first. It was, he thought, management by default. He knew there were businesses in America, typically smaller ones in various fields of technology and medical science, that were authentically competitive. There, companies lived on the edge, their survival depending on innovation and technological advantage. But in the auto industry, as in most big industries, it was not like that. It was a protected world, the shares of the market already apportioned, GM big, Ford moderate, Chrysler small, with the government watching to see that GM did not put either of the others out of business. It was not a vibrant industry anymore, he thought, because the top people were no longer doing things simply because they were the right thing. Those who had the most power had the least passion.

He told Pete Estes that he believed he was making a major mistake, and that eventually the customers would let him know. Privately he felt even more strongly about it. Someday, and probably soon, Detroit was going to pay for this attitude. As it turned out, David E. Davis was right. The American auto industry was completely unready when the oil embargo hit, its products suddenly very wrong for the marketplace. The manufacturers had squandered a decade in which they could have created cars suited to the new nature of the industrialized world.

That was the first oil shock. Some six years later, in 1979, just as the American auto industry was beginning to recover from the trauma of the first one and its customers were becoming accustomed to the higher gas prices and beginning to return to big cars, there was a second shock. This one resulted from the disintegration of the government of the Shah of Iran.

If there had been a keystone of American economic policy in the Middle East, it had been support of the Shah. The Shah, in fact, had been installed by the Americans, after a CIA coup in 1953 had overthrown the leftist prime minister, Mohammed Mossadegh. I owe my throne, the Shah later told Kermit Roosevelt of the CIA, who organized the coup, to God, my people, my army—and to you! For almost twenty years a series of American administrations had kept the Shah on a relatively short leash, but in 1972 Richard Nixon and Henry Kissinger had changed the policy and given the Shah a virtual carte blanche to the American armory. This was done not so much because anyone in the national security complex believed that Iran needed advanced weapons, but more as a means of flattering and appeasing a leader whose ambition for world position manifested itself, among other ways, in a voracious appetite for the newest of the Pentagon’s toys. In the four years after Nixon and Kissinger had visited him, the Shah had ordered $9 billion worth of America’s most sophisticated military equipment. To some high Washington officials that leap in Iran’s military capacity signaled mounting problems for both Iran and the United States.

The relationship between the Shah and his principal allies, the Americans, had never been an easy one. Because the Americans had helped create him, the Shah had to go to lengths to prove that he was not a puppet; that particular challenge, to show he was his own man, seemed to fire his megalomania. The Americans had constantly pressured him to modernize and liberalize his regime, but he always seemed to disappoint them, as they disappointed him by finding too many flaws in his rule. The modernization of any Islamic country was a difficult task under the best of circumstances, but for someone who owed his original legitimacy to Westerners, it was an almost impossible one. To many Islamic fundamentalists, the Shah’s ties with America, his relentless buying of arms, his modernization of many traditional aspects of Iranian life meant too much and too rapid change. Westoxification, the Ayatollah Khomeini called it—intoxication with all things Western. On the other hand, some middle-class, educated Iranians who had found their way into the Tudeh, the Iranian Communist party, felt the Shah was changing too little too slowly. Increasingly it seemed as if he could please fewer and fewer of his subjects.

When protest began against the Shah in 1978, he seemed likely to ride it out as he had ridden out earlier periods of unrest. But it soon became clear that this time it was more serious. The true base of the protest was Islamic religious leaders, rather than radical leftists, and therefore it was harder to crush. For it was one thing to send the security police or the army against Communists; it was quite another to challenge the power of the mullahs, or holy men. That was a popularity contest of a different sort, one the Shah might well not win, for in a conflict like that there were no guarantees of the loyalty of his troops. If he moved against the mullahs, he might momentarily slow them down but create powerful martyrs. To step on a Persian carpet or a mullah, went an old Iranian proverb, increases its value. The Shah had plainly underestimated the strength of the resistance to his reforms among his own people; there had been little protest against him earlier in the seventies simply because the country, bulging with oil revenues, had been distracted by its immense new prosperity.

Week after week as the protests grew, the Shah seemed immobilized, unable to act, wary, he said, of constantly shedding the blood of his own people in order to hold power. The weeks turned into months. In the end what was negotiated was the terms of his departure. He had spent billions in buying America’s most modern weapons, and in the end they had done him no good; not a bullet had been fired on his behalf, and his administration had collapsed of its own weight and grandiosity. On January 16, 1979, the Shah left Teheran.

2. AMAYA SURVEYS THE OIL AGE

ONE JAPANESE CIVIL SERVANT watched the fall of the Shah of Iran with considerable misgivings. Naohiro Amaya, slim, graying, scholarly, a senior bureaucrat in a nation in which bureaucrats wield exceptional power and influence, had to a large degree foreseen the events now unfolding, and he thought that their consequences were likely to be profound for the United States, and thus for Japan as well. Thinking about the future was Amaya’s particular responsibility. His job was to make sure that Japan, a most vulnerable nation, was not surprised by catastrophic events outside its control. This duty had made him an expert on world energy, and as such he had realized by the late sixties that his country was becoming far too dependent upon oil. The Japanese economy was like a miniaturized version of the United States economy. Like the Americans, the Japanese had shifted from coal to oil as their prime source of energy, leaving Japan exceedingly exposed, since it produced no oil of its own. Japan was highly industrialized, and at the core of its postwar economy were the traditional smokestack industries, steel and shipbuilding, auto and petrochemicals. All of them were heavily dependent upon oil, every drop of which had to be imported.

Bureaucrat but also political visionary, poet, and amateur historian, Amaya was a senior official in the Ministry of International Trade and Industry, one of the most powerful institutions in Japan. MITI helped decide in which industries Japan would concentrate its limited resources, which companies would receive vital government subsidies, and which potential imports Japan would discourage. There was no comparable agency in America, for in America, a rich country well endowed with farmland and minerals, there had never seemed much need to plan and regulate. Because Japan was poorly endowed with such things, Amaya was important in a way few American bureaucrats were. So critical to Japan were the central issues of trade that someone like Amaya, who had risen to a high level at MITI, was comparable to someone at the very highest level of America’s national security complex, like someone at a decision-making level at the State or Defense Department. If Amaya or one of his fellow bureaucrats at MITI decided that a certain policy on a crucial issue contributed to the greater long-range good of Japan, and if that policy went against the wishes of a group of leading industrialists, then in the end, after much subtle negotiation, Amaya and his colleagues would quite possibly win; they spoke for Japan and its future, and the industrialists spoke for a more narrow, parochial interest—the present, at best. Planning was an urgent fact of life in Japan, a country that a generation before had fought a disastrous war in no small part to secure its sources of oil and other essential materials. Because its population was so large, 117 million people in a small and infertile land, and because its desire to be a great industrial power was so strong, Japan had to plan everything. It could not afford to let events take their own course as America had for so much of the postwar era. A rise in commodity prices of the sort that might send a ripple of discomfort through the American economy could devastate the Japanese.

Amaya was chosen from among the best products of the Japanese system. He was born in Fukui province in 1925 of farmers who managed a simple living on a small plot of land. His family, he later said, resembled the people once called yeomen in America—hardworking, uncomplaining, and proud. The first son of his grandfather was immune from the draft—his duty was to work the land—but Amaya’s father, the second son, went into the army and became a lieutenant general. He was away a great deal, and eventually he and Amaya’s mother divorced. The Amaya family held a council and decided that two-year-old Naohiro should be adopted by his oldest uncle, who had no children of his own. The arrangement was successful until his uncle’s wife died and he remarried and had children of his own. Amaya, then eleven, was returned to his real father. Because his father was away most of the time, Amaya boarded at a dormitory. He had a sense in later years that his independence stemmed from his having always been set apart. His father wanted him to go to a military academy in preparation for a career in the army, but a teacher argued that he would not fit into the mold and was better suited for intellectual pursuits. His father conceded and allowed the boy to go to a good local high school and then to Tokyo University, called Todai, the most prestigious of Japan’s universities.

In America the ablest students were, as now, often restless and contentious, but this was rarely true of Japan, where the most valuable students proved their worthiness by accepting rigorous discipline without challenge or complaint. Western professors teaching in Japanese colleges for the first time were often worried by the lack of response in the classroom, fearing it meant that the students had not understood or that the language barrier was too great. However, it was simply that the students had been told that questioning authority was wrong. Teaching was more about molding egos than molding minds. But Todai was important as a symbol. Acceptance there almost guaranteed a young man, even one of modest means, like Amaya, a place on the great conveyor belt. The critical part of the delivery system was getting in. From then on a bright and eager young man could hardly fail to get a job in a ministry or large company. He did not even know if he had done well as a student until upon graduation he was accepted at MITI, one of the choice places for an enterprising young man. He enthusiastically accepted the job, because he had graduated right after the war and felt it his duty to help his country extricate itself from economic ruin.

At MITI he gradually developed a reputation as a kind of one-man think tank. To many of those in authority he was an enfant terrible, an unlikely product of Todai, too sure of his skills and his intellect and short on the selflessness befitting a young man—a kozo, one of them told Chalmers Johnson, the Berkeley political scientist, using the Japanese word for a little squirt (although Johnson noted that it was also the word for a Buddhist monk who tells his superior a truth he does not want to hear in a less than reverential manner). At one point in the early sixties Amaya was exiled to a post in Australia for the dual sins, it appeared, of a lack of deference and an inadequate job of hiding his own intelligence. He was not especially popular among his peers at MITI either. Something of an outsider, he never rose to quite the level he should have within the ministry. It was considered a small payback for his arrogance. This did not bother Amaya. Whenever there were difficult negotiations, particularly with the Americans, his colleagues came to him. He had a good reputation with the Americans—for understanding American political realities and for being able to get Japanese support once a position was staked out. He is the key man on their SWAT team, said one American diplomat. Whenever they’re in trouble, they go to Amaya.

In the United States, a land where so much opportunity awaits the graduates of the best schools and where the pressure for individual achievement is immense, the word bureaucrat is almost pejorative, implying, first, that someone who works for the government does so because he is unfit for the private sector and, second, that his duties consist largely of impeding the normal free-market efforts of his fellow citizens. But the civil service in Japan is different, more like that of the British tradition, in which distinguished officials put country above all else and are truly servants of her majesty’s realm. Japan’s civil servants are honored as few nations honor their officials. A businessman, no matter how much he accomplishes for the good of Japan, represents finally a selfish interest, but a top man in one of the choice ministries has pledged himself completely to the good of the nation. Nothing reveals this more than the word the Japanese have for the moment when a senior bureaucrat leaves one of the key ministries late in his career to be farmed out to a company—amakudari, which means that the bureaucrat has descended from heaven into the more plebian world of business. Although the top ministerial jobs do not pay particularly well, that in itself is an asset, for it shows that the official has no purpose other than serving the nation. Near the end of Amaya’s career in the ministry, Jim Abegglen, an American consultant in Tokyo, had dinner with him at a restaurant in the Ginza and asked him what his plans were.

I don’t have any, Amaya replied.

Why not? Abegglen, a little worried, asked.

Because, he said simply, MITI will take care of me. And of course it was true; he was taken care of.

The honored place held by a senior bureaucrat in Japan, as opposed to the status of a comparable American official, reflects the tremendous differences between the forms of capitalism in the two societies. In Japan, because there are so few resources, all rewards and profits must be shared. No one may become too rich, since his opulence would come at the expense of too many ordinary citizens. To ensure a fairly equal distribution of wealth, Japan developed not just a communal capitalism but a capitalism in which the arbiter of what is good for the nation is the high-level bureaucrat. In America it is assumed that capitalism is the right system. The immense prosperity of the postwar years made the possibility of a conflict between what was good for the individual capitalist and what was good for the nation seem inconceivable. What’s good for General Motors, Engine Charley Wilson more or less said (and was certainly credited with saying and probably meant), is good for the country. Therefore, American capitalism evolved to benefit the individual, while the Japanese variety was tailored to benefit a more complicated assortment of interests.

Amaya was someone special within the Japanese bureaucracy, a practicing intellectual who on occasion seemed more historian than bureaucrat. He was more willing than many of his colleagues to hold and pursue ideas that differed from current assumptions, and he always seemed to be thinking about either the past or the future. Characteristic of him were his remarks at a meeting of Japanese and American officials in the summer of 1983, a time when both nations were obsessed with the impact of Japan’s exports on America and when protectionist feeling was increasing at an alarming rate. That was not the problem, he said. Both nations were well equipped for the economic competition ahead; the pie was large enough for both to come out with viable industrial and high-technology economies. The real problem was what Japanese-American competition and cooperation might do to Western Europe, which was lagging in the contest for supremacy in high technology. It was, thought one of his American friends, typical of Amaya to be wondering about an issue farther down the road when everyone else was still concerned about a problem he had dealt with twelve years earlier. Most of Amaya’s contemporaries took their definition of Japan from that which was—the existing power structure of the nation. Amaya went beyond that. His loyalty was to a higher definition, Japan as it might be, the loftiest possible vision of the society. A colleague spoke admiringly of him as a man apart in a nation where few men were comfortable in a role that made them different. He seemed to have such faith in his own judgment as to wear his individualism with ease. As such a person, Amaya let criticism from mere politicians glance lightly off his back. When he was criticized in the Tokyo press, and he often was, harshly, he consoled himself that any truly worthy political act offended important people. Only the most conventional of decisions did not offend. The wiser the act, the more likely it was to cause displeasure. He was openly contemptuous of most politicians anyway. The stronger they were, the likelier they were to lust for power, usually, he suspected, at the expense of the national good. When he briefed members of the Diet, he seemed to take a deliberate pleasure in leaving nothing out of his briefing; it was, thought a friend, as if he were lecturing schoolchildren. He was, like all good senior servants of Japan, duly modest in public comportment, but there was about Amaya’s modesty a subtle prickliness. Dealing with him, hearing his cool and unsparing comments about his own society and observing his exceptional courtesy, visitors knew it was well not to ask any foolish questions. Those who opposed him on a given issue did so with a certain trepidation; they might enjoy superior political connections, but they could rarely argue as forcefully.

Amaya was aware of this and seemed to enjoy his special position. On a flight to Washington for a summit conference, sitting in the front cabin among his minister-peers—who would be busily studying position papers for the coming meeting—Amaya almost surely would be reading instead some esoteric book on twelfth-century China. The implication was clear: The answers were not in those briefing papers, the answers were in the distant past. On the way back from the summit—while the others were preparing their reports—Amaya would sit there writing his haiku, a treasured Japanese form of poetry, each poem exactly seventeen syllables long. His haiku would be at once delicate and by implication political, perhaps describing his sorrow in seeing the decline of some great Western city.

He loved, while relaxing, to describe the relative merits and perils of ancient Venice and modern Japan, two mercantile shipping societies surviving in a hostile world by their wits. That was Amaya being Amaya, letting the others know he was a little different. When his daughter married, he did not, as was the custom, lay on a huge wedding to which all of his colleagues were invited. Instead only close friends of the two families were asked. Some of his senior colleagues considered it a snub. When he visited MITI bureaus in foreign cities, he did not, as did most Japanese officials, bring some small gift, offered more out of ritual than friendship. If he brought anything it was likely to be an inscribed book of his own poems. Among younger MITI officials, these books were greatly valued, for to them Amaya was almost a cult figure; they appreciated the fact that when they made their presentations he paid less attention to their place in the hierarchy than to the substance of their arguments.

The Japanese economy, Amaya recognized in the late sixties, was perched on something terribly volatile, the world price of oil. What was worse, its oil came from sources that were totally alien to Japan. Only Arab sheiks, Texas oilmen, and acts of God could determine the price of oil, Amaya liked to say, and they were all beyond Japanese control. As MITI’s director of planning, he was asked in the late sixties by one of his superiors to study the energy situation, and the more he studied it, the more pessimistic he became. More and more countries, he decided, were coming into what he had called the oil culture; that is, they were making their economies, indeed their very way of life, dependent upon oil. He believed that sooner or later the price would explode, perhaps doubling or even quadrupling, and if that happened, it would devastate the Japanese economy, virtually unique in the developed world in that it resembled a colonial economy without colonies. The Japanese imported raw materials, negotiating masterfully to minimize the price, used a skilled but (by the standards of Western and developed nations) modestly paid work force to produce at home, and then exported finished goods with a fury at cut-rate prices. Thus any significant changes in the price of oil could throw a finely tuned system completely out of kilter. What was worrisome to Amaya was that in the late sixties and early seventies Japan was taking roughly 10 percent of the free world’s oil; if his country continued at its current rate of growth, Amaya believed, it might soon be taking 20 percent. Thus in order to justify its rate of growth and pay for the immense amounts of energy it was now consuming, it would have to export more and more goods. To Amaya, there was the danger that this would make the Japanese economy, already close to being overheated, genuinely frenzied.

What was more, there was political hazard in all this. Amaya realized, though most of his countrymen did not, that Japan’s success with its exports did not endear it to its Western trading partners, all of which seemed to be undergoing considerable stress in their industrial sectors and most of which were frustrated by their own inability to penetrate the Japanese market. If Japan pushed even harder with exports, then it was likely to cross the line between what was healthy for Japan economically and what was dangerous for Japan politically.

In short, Amaya concluded, Japan was becoming a hostage to oil. He believed that this was as perilous as a military miscalculation might have been in another age. Since there was only a limited supply of oil in the world, the price was bound to go up dramatically one day. It might happen overnight, he thought, a kind of oil shock. Amaya himself did not know the form of the shock, or what would trigger it, but he knew where the epicenter would be. The Muslim states of Iran, Saudi Arabia, Iraq, and Libya, in his view, either were hostile in culture and politics or, if friendly, had fragile governments. It was frightening to be dependent for one’s industrial lifeblood on nations such as these. Therefore, in the late sixties, at just about the same time that Japan had arrived as a true member of the oil culture, Amaya resolved that it must start shifting its economy from the traditional heavy industries, which demanded so much oil, into the new high-technology industries, which used far less.

There was an additional reason for Amaya to propose this shift. The great surge in the Japanese economy had come during the fifties and sixties, when a considerable part of its competitive advantage was due to highly disciplined, inexpensive labor. That era was ending, however, as Japan became middle-class. The same dynamic that had functioned in the West was at work in Japan, no matter how hard the nation’s fathers tried to control the economy and master inflation. The more successful it became, the more the standard of living went up and the more prosperous and better paid its workers became. That meant that there was a serious possibility that the very thing the Japanese had done to the West might now in turn be done to them by their neighbors, countries like Korea or Singapore, where the work force was even more disciplined, hungrier, and willing to labor for a good deal less. Much earlier, Amaya had handled the textile negotiations with the Americans. He had done that well, but he had learned a profound lesson by the time the session ended: Not only did America need protection from the Japanese, but the Japanese also needed protection from Taiwan and Singapore. He was a disciple of the English historian Arnold Toynbee, and this experience had strengthened Toynbee’s influence on him. In the world of challenge and response, Japan could easily become vulnerable at the more primitive end of its economy to a nation like Korea.

By the seventies there were in fact considerable signs that the much-despised Koreans (for the Japanese, having colonized the Koreans, still regarded them as inferior) were about to make a major challenge in steel and shipbuilding. It would not be hard, Amaya thought, for the Koreans to mount a successful assault upon the Japanese in many of these smokestack industries. The true strength of Japan, faced with such a challenge from leaner, poorer neighbors, was in the educational level of its people, which was dramatically higher than that of its rivals’ populations. The only abundant Japanese natural resource, in his own phrase, was the human brain. Japan’s educational level—all the millions of dollars the nation had poured into its universities in order to mount a scientific and technological challenge to the West—translated directly into the difference between the old economy, a smokestack economy, and the new high-technology economy. The Koreans and others might be able to compete quite readily in steel

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