Happy New Year. I rang it in with the vestiges of the stomach flu and am just now pretty much back to my usual state of figurative, rather than literal, dyspepsia.
It’s now the Year of the Rabbit in Japan, and it, too…Japan, I mean, not the Rabbit…is looking to make a recovery from what’s been ailing it. The Nikkei has been publishing a series of editorials over the last week about Japan’s economic prospects, called “Opening the country and clearing a path,” and this was its sober beginning:
This is a New Year one is hard-pressed to call Happy.
Although the Japanese economy has somehow managed to overcome the Lehman Shock, it’s gotten to the new year without finding any purchase on a path to full-on recovery. Over the past twenty years, the nominal economic growth rate has had an annual mean of a mere 0.5%. The balance of public debt has gone up by a factor of 3.3, the worst among developed countries. Japanese have seen the nightmare of a drop in our economic status threaten our security, as in the dispute over the Senkaku Islands.
This stagnation, once loose in the land, is not the kind of thing that will resolve itself naturally.
The editors preview the contents of the next several days in the series, then identify who they hope is paying attention:
Whether we will move forward with opportunities for an economic renaissance will in large measure depend on our politicians.
Despite the necessity of major surgery, they dispense painkillers. The DPJ administration has continued with those sorts of policies, just like the LDP. Make-nice-with-everyone policies cannot be anything but deleterious. Politicians should learn from the example of the bravery of UK prime minister Cameron (44), who pushes determinedly forward with necessary policies no matter how much hatred is heaped on him.
The other major role in the Japanese renaissance is that of business leaders. Technological might we have, but we’re being outstripped in new products and new services by US enterprises such as Apple and Google. Also, there are plenty of industries in which any number of companies are jockeying for position, with Japan falling behind foreign forces in large-scale research and investment. Aren’t our conservative business practices killing off the untapped power of our workers?
We call on politicians and business leaders to realize that they bear an extremely weighty responsibility in this time of major transition for the Japanese economy.
Installment 2 focused on the need for more Japanese to understand foreign realities that shape markets:
Japanese economic missions now frequently visit India, with which we have a basic agreement through the signing of an economic partnership agreement (EPA). And yet, competition in its markets, to which companies the world over are thronging, is fierce. For example, one local says, “Korean brands like Samsung and LG have even more penetration in India than Japanese brands.”
Korean enterprises have increased their market share by offering up products that respond to local needs, such as refrigerators that can be locked. That’s an example that demonstrates the strength of having company employees that are dug in locally.
Every year, Samsung Electric sends a bunch of employees to places throughout the globe and grooms them as territory specialists. Many Korean businessmen stationed abroad have family living with them long-term, even in India and the Middle East, and so they continuously expand their network with the locals. Japanese enterprises, with their preponderance of unaccompanied transfers* and their short tours of duty, have a tendency to be weak at making inroads. Japanese enterprises must also make haste to address [customers] from the human angle.
Installment 3 focused on the need for technological compatibility with world markets:
Japan has had some bitter experiences. Japanese prowess led the way in the development of car-navigation systems that used US military satellites; but each of the companies vied to produce proprietary technology and kept its specifications under wraps, and they thereby ended up creating a closed market. As a result, it was not only high in functionality but also high in price. By contrast, low-cost dumb terminals have become mainstream overseas, with Japan now in the position of playing second fiddle to foreign enterprises.
Further reasons that Japan is behind in standardization are that it has placed excessive faith in manufacture and been late to make the transition to digital technologies. Products such as gasoline-powered cars and household appliances will sell abroad provided their functionality and quality are good. At the same time, integrated products such as cell phones can’t be used if they’re incompatible with [regional] standards.
Installment 4 braved pitchforks by outlining why Japan needs to reform its farm policies, which produce mind-boggling drag on the economy:
Japan’s national territory is small, and there’s a lot of mountain and forest land; those are facts. However, they’re not the only things hobbling agricultural productivity. One main reason that no agricultural sector that can withstand market liberalization has grown up is a failure of government policies.
Isn’t it time we junk old ways of thinking, change direction, and start proclaiming loftier goals, sufficient to develop the rice-growing sector into an export industry? It’s necessary to rethink the subsidy system and make determined strides toward stout-hearted reforms that will lead to the expansions of scale that include rice growing. The TPP negotiations that the US is spearheading will not wait around for Japan as it dithers over opening its markets.
In order to boost our competitiveness, we must quickly rethink our farm system, which makes it difficult to lease farmland and throws up barriers to new entrants in the agricultural sector. And concerning reform of the agricultural cooperatives that have grown up over the now-subdivided rice-growing sector, we must deepen the debate to include the perspectives of consumers.
It’s no misstatement to say that the agricultural sector is a crucial industry that takes responsibility for the feeding of the citizenry. Even if Japan decides to participate in the TPP and takes steps toward opening its markets for agricultural products, continuing the necessary level of domestic production and [adopting] policies to support maintenance of its ratio of food self-sufficiency will be indispensable.
Based on considerations of protection, what will be critical will be a vantage point that asks, “Who are the farmers we should be protecting?” If we proceeded from the fact that rice farmers with other income make up the majority of domestic farmers, it would seem that most farmers are office employees who work for private enterprise and public employees who work in government offices.
Only 14% of Japanese farm families actually depend on agriculture as the mainstay of their income, say the editors.
The last installment calls for Japan to bring in foreign knowledge:
In the Japan, the number of foreigners who have specialized knowledge or technical know-how is extremely low. Foreigners living in Japan who hold residency qualifications for “technology” and “research” numbered 202,000 at the end of 2009. That’s one person for about every 300 people in the workforce.
The ratio of direct investment from abroad to GDP is just shy of 4%, very low compared with the US’s 18% and the ROK’s 10%.
The editors call for Japan to learn from the thinking of the engineers of the Meiji Restoration, when Japan first made its major transformation to industrialization. Note, too, that the main editorial one day last week main editorial a few days ago was headlined “Speed up the policy and business pushback against the ROK”:
ROK enterprises have noticeably increased their felt presence in global markets. Japan and Korea resemble each other in the structuring of the electronic, the automotive, and other industries. To the extent that it’s our greatest rival, Korea’s rise cannot be ignored. In both policy and business practices, we need to push back against Korea.
This year for the first time, there’s a product for which the global [market] shares of Japan and Korea look to be inverted. It’s the lithium-ion battery essential for computers and cell phones.
If it can be said that large-scale restructuring takes time, the response is that each company should then expedite its selection of business sectors. Hitachi has made a tie-up with Mitsubishi Heavy Industries on hydroelectric generators. Toshiba is also focusing on investments in nuclear power generation, and when it comes to semiconductors, it will specialize in the memory business, its strength, while contracting out production of its unmonetizable system LSI’s (large-scale integrated circuits) to Samsung Electric.
Another way is to look for profit streams that would distinguish Japan from Korea. This year Panasonic, in televisions and white-appliances, steered away from operations in which per-unit share cannot be captured. It changed its organization to center instead on business that deals comprehensively with house and office-building interiors. The strategy is to look to sell design, construction, and maintenance bundled.
Many of the statistics cited are recent: Japanese youth don’t see a good chance of bettering their circumstances through hard work. Japan is publishing fewer academic articles on physics and chemistry than the PRC, and the literacy rate of its fifteen-year-olds is lagging behind that of Shanghai, Korea, or Hong Kong. But there’s nothing new about the ideas, except the comprehensiveness and relentless directness with which the Nikkei has expressed them. The system by which elected officials, unelected federal functionaries, and leaders of key industries simultaneously work with one another to their mutual enrichment and push against each other to keep reforms from happening was identified decades ago. It’s all very well to tell the government that it will play a key role in helping the Japanese economy adapt to external reality; it’s another thing entirely to convince those who actually populate key ministries in Kasumigaseki that their endless “administrative guidance” is choking economic development at the root and that they need to lay off the control-freak-ism. And for the love of Pete, if someone finds a politically viable way to deep-six the current farm-subsidy system, please tell us in America about it. We’re all ears.
Also note that many of the elements of the Japanese government and corporate systems that the poor Nikkei is pleading to have changed are the very things that used to be held up as the reasons Japan was going to overtake the West—and, indeed, the very things that were seen as the key to the success of Korea and the other Tiger Economies as they “followed Japan’s example.” Now they’re moving away from that example, and in the process they’re leaving Japan behind.
That said, I wonder whether the efflorescence of Korea might not, in fact, turn out to have a salutary effect. Yes, the PRC is a bigger, splashier, sexier topic for business and news coverage, but my feeling is that stories about Korea resonate a good deal more in Japan. (Don’t ever actually tell a Japanese person he seems to find it easy to identify with the Koreans, or vice versa, of course.) Korea’s a small, mountainous East Asian country that was poor and unfree in the recent historical past. Koreans value education and are good with technology. What edge, the Japanese might justifiably wonder, does the ROK have over Japan that’s helping it to grow in prosperity while Japan levels off?
But don’t count it out yet. The ability of the Japanese to grit their teeth through hardship is astounding, but they’ve also been known to adapt very swiftly to new realities when it was borne in upon them that they had no other choice. If Korea seriously starts kicking Japan’s ass in industries that have become a matter of national pride, it may turn out to be the kick it’s been needing.
* There’s actually a word for this in Japanese, 単身赴任, which you learn in third year or so when you study Japanese as a foreign language, along with 定年退職 (retirement at the designated age) and 終身雇用 (lifetime employment). Well, okay, maybe it’s more like an expression than a word, but anyway, it refers to being transferred to a different city by yourself while your wife and children hold down the fort in your hometown. (Except for the wife-and-children part, that’s what Atsushi’s former company did to him in 2004, and the separation was pretty much the impetus for my starting this blog. Atsushi was yanked from one of the Tokyo offices of his bank and rusticated to Kumamoto for a few years, put up in a tiny one-room apartment rented by the company, and expected to come home to Tokyo on weekends however he decided to manage it in order to stay sane.)
This may also be a good place to mention, if I haven’t recently, that it’s important to bear in mind that the lifetime-employment system and its corresponding worker fealty to the company are far from universal in Japan. If I recall correctly, we were already learning when I started college in 1991 that the salaryman contingent was only 30% of the Japanese workforce. There was always plenty of turnover at smaller firms, including subcontractors for flagship manufacturing companies of the big-guns keiretsu, and in service jobs. If you were hired out of college onto the management track at the Nichigin or Mitsubishi Heavy Industries, you were going to stay put for life. But not everyone down to the last elevator or gas-station attendant lacked mobility.