Wrap Up Japan

Respice, Adspice, Prospice1

The first part of this book focuses on my life in Japan from my early childhood until the late 1970s. In this concluding section I will explore my outlook on my native country’s past, present, and future from a macro perspective. The lessons I learned over the course of my life demand a brief examination of what I believe to be a failing country. Inserting some insight into Japanese current affairs in light of my multinational experiences may add nuance to the histories I have included thus far: an examination of the past, present, and future prospects of Japan.

War was the absolute focus of attention in Japan in the earlier part of the twentieth century—war against the Chinese, Koreans, Russians, and later the Allied powers. Manufacturing, education, politics, and every other arena were geared toward winning the war. Before Japan threw up the white flag after Truman dropped the atom bomb on Hiroshima and Nagasaki, most of the important industrial, political, and commercial cities were bombed—and the infrastructure supporting the Japanese industrial machine was devastated.

Resources were scarce after the war, and the country was dirt poor. With little food and no money, many middle-class people were without water or electricity. The Japanese nation was brought to its knees and forced to live in very inadequate conditions. However, after all of the destruction on both sides, the Japanese nation had to stand and be counted as a part of the bigger picture. In the embrace of defeat, the government needed to step in to offer liquidity to the commercial markets. Entrepreneurs and business owners negotiated with banks in hopes of securing debt to start anew.

In May 1949, the Japanese state responded with the establishment of Tsusho-sangyo-sho,2 known in Euro-America as the Ministry of International Trade and Industry (MITI). This agency rose to become a dominant player until its dissolution a decade ago. Although this agency did so much, its primary concern had been to rebuild and to strategize an economic recovery for Japan. Without going into too much detail, I’ll just say that MITI accomplished its aims first within the sector of light industry. Then MITI guided people toward the manufacture of light machinery and tools, and later toward heavy machinery, chemical, petrochemical, semiconductor businesses, and so on. The later wars in Korea and Vietnam also played a key role in the growth of heavy machinery and the auto trade in Japan. The United States began to use Japan as a base for the production of vehicles and other large machinery to help fight these wars. In turn, Japan received massive infusions of capital to capture their share of the defense and automotive markets.

However, prior to the inception of MITI, the shortage of capital led most Japanese companies to struggle. The government, the central bank, and the smaller regional banks had to work closely with the industries to help develop products at various stages. At that time, the Japanese population was very small in comparison to today—around 40 million. Therefore, domestic consumption alone could not justify a home-grown market. Japan had to depend on the success of its export businesses. A lack of significant natural resources in Japan further reinforced the necessity of successful export. Educational curricula were revised to nurture technicians, engineers, and scientists in an attempt to spawn innovation. However, after the war, the Japanese nation did not have sufficient industrial capacity and Japan was forced to enter the markets as a mimic of the West. The new mantra had been to buy a product overseas, knock it off, and add a little twist that might make it more desirable. Taking such cues from abroad, the domestic Japanese economy thrived and slowly gained a strong presence in international markets.

However, there was already a lot of competition in Japan—and the only way the country could grow would be to undercut current market prices. In addition, other than merely being less expensive, the Japanese added something intrinsically Japanese to its exports. Much like the incorporation of the Chinese character system as a foundation to the language with a native script, the Japanese culture influenced a mimicry and self-insertion in these products. In other words, the Japanese worldview had been to support and sustain an export economy; thus, the products manufactured needed to be both cheaper and in some way better than earlier versions and/or the competition’s versions. In some cases, “better” meant more suited to the perceived Japanese consumer. This was the line of thought that led to the Sonys and Toyotas of today.

The automobile industry had a terrific break during the Korean and Vietnam Wars. After wartime, the factories had already been tooled to make all different kinds of vehicles. The majority of cars in Japan at the time had been imported from the United States. There was a large American military presence in Japan, prompting citizens to favor American-brand cars. However, these cars were suited for a particular kind of driving on long, flat roads; they were automobiles for which the Japanese cities and countryside proved less than accommodating. The narrow Japanese roads with tight corners and bumps were littered with potholes, causing cars to get nicked frequently and forcing drivers to proceed with caution.

The Japanese automakers responded to American innovation. Because of the conditions, they concentrated on manufacturing small, durable cars to navigate the treacherous roads and narrow streets safely. There were also economic incentives for these kinds of vehicles in Japan. The cost of oil went through the roof during the oil crisis of the early 1970s—causing automakers to set out to design the smallest car possible. The oil crisis of 1972 put the spotlight on Japanese cars. However, engineers did not account for the fact that Japanese-made cars would also be driven in other countries. Although these automobiles fared well in Japan, a reputation for their unreliability arose outside of the country. The engineers didn’t stop to think that if the cars were driven on long highways, such as those in the United States, they might overheat and just stop. After many field tests, these fuel-efficient vehicles garnered more attention, and necessary improvements were made. The initial adjustments in automobile design suited a Japanese driver, but the engineers eventually learned to accommodate a much larger audience. This is why Toyota dominates today.

Playing catch-up for Japan worked very well for about 50 years. However, this rapid growth had to come to an end at some point. Japan established itself as a major exporter in an incredibly short period of time. It had been easy for Japanese industries to copy others’ ideas and then make improvements upon them. Resting on the laurels of the West allowed Japan to coast its way to capitalist prosperity; however, there was stagnation once Japan caught up to the rest of the Western world. Much like most Western nations, the Japanese built upon previous generations—standing on the shoulders of others. This new precipice of economic stability required that the country devise a road map for the future—otherwise, further inactivity would ensue. And for the past 30 years, Japan has unfortunately struggled.

The Japanese population was growing until the last couple of decades. Perhaps this is an indicator of a developed nation: young Japanese men and women don’t marry as much, and if they do, they average only one child per couple. Japanese people now want to relax and enjoy their lives. There is a catch-22, however, as slowing reproduction rates will more than halve the nation’s population. The world’s third largest economy may self-implode as a result of having fewer people and, consequently, less spending—both domestically and abroad. The Far East—and perhaps the entire world—relies on heavy Japanese consumption to sustain many of its industries.

This decreasing population affects every aspect of life, ranging from pension plans and health insurance to consumer businesses and real estate. The exponential rate of decline in population may result in a population of 70 million by 2060 from an already decreased number of 120 million today. Exacerbating matters will also be the ratio of elderly to young. Japan has only 1 million births a year at this time—a number that is sadly still decreasing. Some basic mathematics in combinations and permutations tells us that the Japanese population may shrink to 580 people in the year 2300 if nothing changes. In 2200, the Japanese will be added to the endangered species list. The probability that Japan will be a nation of 580 by 2300 is low but the country will halve without any significant changes in immigration policy in our lifetime. If the demographics continue to move in the same direction, this is what would happen but most likely policies will change.

Applying this logic to the retirement savings system, one person eligible to receive the government pension currently is supported by four working citizens. By 2060 the ratio could be one to one. Similar to the American Social Security system, the decline of which has been much discussed, Japan’s pension system is not currently sustainable. Health insurance plans are supported by young and healthier workers as well, and those who seek medical assistance from the government tend to be elderly. When the ratio of the elderly to the young becomes too high, the current health care system will simply stop working—there will not be enough people paying into the system to support it.

Adding insult to injury, Japan’s once ravenous consumer culture also has been stunted. I am not optimistic about Japanese retail markets; although retail stores are presently geared to cater to 120 million people, the current economic conditions have left mountains of inventory on the shelves with more price-conscious consumers. Overstock is then sold at whatever price consumers will pay. These massive discounts have started a microcosm of the deflationary environment in Japan. Consumers only begin to show interest once the big stores dump their inventory. In order to combat these kinds of problems, I believe that retail and office spaces should halve their sizes.

No matter one’s social circles or place in the economic hierarchy, everyone in Japan will be negatively impacted by this dramatic transformation. Japan must stabilize the population by encouraging people to have more children or encourage immigration immediately. The latter has already begun to bring changes to the once homogeneous society. As with any change, many people simply don’t like it. In fact, many fear that these kinds of changes may cripple politicians’ campaigns. But without imported labor forces, Kansai Airport would never have been built, farmers could get no help, nursing homes would have no nurses, and garbage would be left on the streets. The average federal or municipal tax revenues have decreased, resulting in the country, municipalities, cities, towns, and villages finding themselves in terrible financial situations with no light at the end of the tunnel. The only hope is for the success of business to contribute to the country’s infrastructure and economic growth.

The only way to increase profitability if domestic consumption shrinks is to sell products and services overseas and include other countries’ populations in the market. The age-old requirement that Japanese companies keep employees has been rendered obsolete by international markets. More dynamic and flexible approaches to employment are necessary to compete. When Japan is the only nation to support lifetime employment, public companies become so-called value traps to foreign investors, and future growth can be stunted by obsolete divisions. This not only limits the amount of public equity available to the companies but also reinforces the market’s perception of the potential value that could be unlocked within the company if such divisions were to be excised.

Most of these problems have arisen as a result of good intentions with poor execution. The Japanese political machine suffers from a kind of autoimmunity. The first architects of modern Japanese government had great vision. In the 1860s, the Meiji Revolution in Japan brought the brightest minds together to form a mix-and-match combination of various Western modern political systems, the structure of which has remained largely unchanged despite regime changes and the World Wars. However, this government is failing itself.

Modeled after the British, French, and American systems, Japan’s government has the Emperor as figurehead with a Diet legislative arm supported by an executive branch headed by a Prime Minister; the executive and legislative branches provide the glue that holds the government together. There are also judiciary and police branches. In the United States’ Federalist Papers, Alexander Hamilton, James Madison, and John Jay forged older ideas into a new, cohesive mix—one of their key innovations was the separation of branches of government to offer a novel system of checks and balances. Although Japan has these separate arms, there are almost no checks and balances between them. Perhaps the communitarian nature of the Japanese culture has skipped checks and balances, but at the end of the day, far too much fear of change exists. The US system is certainly not flawless, but there is and always has been contention among the House, the Senate, and the president. Recent financial reform and health care bills speak to this.

What makes matters worse is that many Japanese politicians have little knowledge of law. Instead, many come from good families that have previously been in politics; as a result, they believe that they and their offspring are fit to remain in the game. Much like the British system, the Prime Minister (PM) is elected from the house members of the majority party; he is not elected by the public. The PM appoints ministers according to seniority order, not because they have experience or special knowledge in a certain discipline. These appointees may have zero knowledge of what they are getting into. Consequently, minister appointees have to listen to or depend on their cabinet of ministers to tell them what to say and do. Under this system, the advisors of the ministry are the ones who end up proposing new laws. The PM then has the power to dictate terms to the Diet and pass the laws.

I believe that the executive branch should administer the law in the most efficient way possible to avoid confusion and increase solidarity. Members of his cabinet should not propose new laws; that is the supposed duty of the representatives. The current administration wants to change this so that all the ministers are able to propose new laws—something that seems ludicrous to me, considering how few of them have any legal experience. Chaos, in turn, has ensued, because it should be the Diet primarily proposing new laws and the executive arm administering them. I cannot say precisely how this system could be fixed, as it is outside of my area of expertise. However, it needs to be addressed; Japan needs new regulations—and much less confusion—for changing times.

The current world economic situation has forced Japanese businesses to move away from doing things the traditional Japanese way. If, for example, the general economy suffers in the United States, companies can trim the fat by firing unnecessary employees, closing divisions, and reducing expenses in an attempt to stay profitable. However, tradition has dictated that when someone is hired by a company in Japan, he or she is with that company for life. People interview for positions in the United States, letting their future employers know what they can and cannot do. In Japan kids fresh out of college have no experience and have never been exposed to business. They are hired and trained by a company for life. This is another reason why the Japanese economy has yet to recover: these companies shoulder the costs of unnecessary employees.

In a way, the Japanese nation is very wasteful. Even if a company does finally fire an employee, the employee may look only for another white collar, nine-to-five job, with all holidays respected. Employees want two weeks of vacation, and if they don’t get it, their savings will allow them to hold out longer. However, their personal consumption drops as a result; there are articles in every major newspaper about the loss of the Japanese consumer in the international markets. Job seekers are selective even when unemployment is high. There is a tremendous shortage of employees in certain areas—nursing, trash collectors—even though salaries are relatively high and benefits are good.

Up until three decades ago, businesses were run by entrepreneurs or traditional conglomerate families. Even for companies like Toyota and Sony, the original founders, owners, or managers continue to remain very much involved in executive management. They are also involved in an economic group called the Nippon Keizaidantairengoukai,3 or Japanese Business Federation, and have some influence over the country’s economic policy. But for many companies today, their top executives are hired help; they stay in the position for a couple of years and then leave for a comfortable retirement. These short-term executives are not looking for a challenge. They try to pass their term safely and collect their payout. As I mentioned earlier, Japan has no natural resources. The only resource is its people.

Educating the nation is critical. To be hired by a large company, a student has to graduate from a top Japanese university. Alumni networks also play a large role in placement. Parents are therefore hesitant to send their children overseas to study because this networked structure is what will help them find jobs after they graduate. This system has hurt Japan’s children more than helped them. Very few Japanese travel overseas, live in various countries, learn to speak other languages fluently, and see how other cultures function. It should be a top priority in the global world in which we live today for students to expand their knowledge outside of Japan—particularly because Japan’s demographic and economic base has been shaken.

Another example testifying to this need for increased foreign exposure is the Japanese real estate bubble of the 1980s. Japanese companies were buying American real estate in excess—from Pebble Beach to Radio City Music Hall. At one point, it seemed that Japanese companies owned all of New York. However, these companies didn’t enter US markets at the right time; also, the Japanese business executives had limited understanding of property values in other countries. There is a very limited amount of real estate in Japan, and demand has exceeded supply until recently; thus, all Japanese real estate purchasers assumed that real estate would be a guaranteed moneymaker abroad as it was at home. But overseas real estate is different; if the property isn’t utilized, it doesn’t produce profit and the price decreases. Just recently, we’ve seen the mortgage meltdown cripple the New York City real estate market, depressing prices by about 30 percent. Unlike in Japan, New Yorkers have nearby options for alternative locations to run their businesses. In fact, many international companies’ headquarters are no longer in Manhattan, but in nearby New Jersey, Westchester County, and Connecticut. This migration out of the cities is a recent development in the United States.

Another massive stumbling block is the refusal to learn the culture behind the languages foreign to the Japanese. Even if a Japanese company buys an overseas establishment and sends a representative to that acquired company, the representative doesn’t understand how to communicate with the local people. As a result, without any real exposure to the outside, it is almost impossible for a Japanese person to run any business outside of Japan, except into the ground.

Many companies acquired by Japanese companies have failed. Japanese management has a tendency to send a person to do a job for which he or she is not fit. Not trusting local management has been Japan’s Achilles’ heel. Japan is a very homogenous country; if you look around, you notice that everyone is Japanese. If you look around in the United States, on the other hand, you see people from everywhere. So whereas Americans basically know how to manage people who come from various countries and cultures, the Japanese have not had those opportunities or experiences. This leads to the potential for massive miscommunication, which can destroy any chance of managing multilingual—let alone multicultural—business societies.

Having said all of this, my thoughts about the necessary improvements in Japan are to establish strong leadership, domestically and internationally. Japan is a small country without a military, so to speak. How can it exist in the world? We have to consider five different branches, economically speaking:

Leadership has to put emphasis on one of these fields. We can foresee a trade deficit because it is very costly to manufacture in Japan, so most manufacturing is now subcontracted overseas. A primary concern should be to focus on capital improvement—welcoming investment from overseas into Japan to strengthen the financial sector, introduce new technologies, and work together with Japanese methods of innovation. Finally, a major problem in Japan today is taxation. I would propose getting rid of taxes, except for real estate taxes, which would contribute to domestic revenue for local municipalities. We have been putting a tremendous amount of energy toward trying not to pay taxes. The amount of money and time that each individual and corporation spends on this is astonishing. We would be much better off if we could eliminate these. Money transferred or deposited into a bank or institutional account should have 2 percent automatically deducted to cover all taxes. This would reduce both individual companies’ and the government’s costs across the board in terms of salaries, expenses, and so on. Basically, most people who work at the tax office are looking for errors in order to collect more tax: a very expensive and time-consuming system. Therefore, eliminating the need for such intensive auditing would offer an incredible boost to everyone’s bottom line.

1 This Latin phrase means “a look at the past, at the present, and into the future.”

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