Japan After the Bubble Burst: Traditional Values Inhibit Quick ComebackSkip other details (including permanent urls, DOI, citation information)
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Those Were the Days
In the autumn of 1997 I moved back to the United States after living for 18 years in Tokyo. Eighteen years is not long in the life of a nation, yet I was able to witness a sea change in the self-confidence of the Japanese people about the strength of their economy and the reliability of their governmental institutions.
Back when I arrived in 1979, Japan was about to enter its bubble years of economic strength. We didn't know it then, but Japan was ready to confound the world with its economic prowess. The GDP had been rising so steadily throughout the 70s that by 1979 it seemed there could be no end in sight. Many Japanese happily informed anyone who cared to listen that the value of the land where the Imperial Palace sat in central Tokyo was greater than the GDP of a country like Canada. The yen was so strong that Japanese traveling abroad were automatically wealthier than the average resident of whatever country they visited, including the United States. The Japanese custom of bringing presents for everyone within one's circle made for big shopping sprees in the United States: Brooks Brothers ties by the dozen, Gucci handbags in multiple numbers, and Polo shirts in one of every color. Signs reading "Japanese Spoken Here" appeared in the major retailers of most large American cities, and stores hired native speakers for counter sales.
While living as a publishing executive in Tokyo, I received invitations to several large business receptions every week. Any business about to launch a new line of products or marketing initiative felt obliged to throw an elaborate party at one of the city's leading hotels. Tables were laden with an array of foods, and each had an ice sculpture of a swan or cherub as its centerpiece. These tables usually served Western-style foods, such as roasts or smoked hams - dishes that no private home, with its restricted cooking surfaces could hope to prepare. Smiling chefs in tall hats cheerfully carved off slices of succulent meat and ladled on gravy for the queuing guests. Around the sides of the ballroom were stands serving Japanese favorites, like deep fried tempura, grilled eel (unagi) and fresh sushi.
The receptions took advantage of another Japanese custom: the penchant for networking with a wide range of potential clients. My Japanese friends always told me this was the way to "prepare the roots" (nemawashi) for future business dealings. With appropriate expressions of greeting and respect, businessmen bowed and exchanged name cards at every opportunity. My attempts to enjoy the food and drinks were constantly interrupted by yet another executive wishing to exchange yet another name card.
Presenting a good face in public is seen as part of the responsibility of all adults in Japan, and these receptions created an impressive public image of the sponsoring company. The cost to the company hosting a reception was a minimum of 10,000 yen per guest (about $90), and most receptions easily had more than 200 guests. Such lavish receptions allowed each company to demonstrate its own financial well-being, assuring all guests that not only was the company itself sound and prospering, but that its new initiative was sure to be successful. I came to relish the few evenings when there was no reception for me to attend so that I could return home at a decent hour in the evening to enjoy some quiet reading time.
Along with Japan's economic strength came a sense of supreme self-confidence. A story went around that when the management guru Peter Drucker visited Tokyo for a talk, one Japanese businessman stood up and asked why the Japanese should listen to an American management expert. Everyone knew, the businessman said, that Americans were lazy. Americans paid too much attention to protecting their personal time and thus never put in total effort for the sake of the company. Mangers fired workers at will, eager to do anything to gain financial results for the short term and please their demanding stockholders. And Americans produced shoddy goods anyway, which is why U.S. consumers preferred Japanese cars, TVs and VCRs. Americans, he said, should learn from Japan. It seemed hard to argue with obvious success, and Drucker's reply, whatever it was, did not make it into this widely circulated story.
Americans, to their credit, did begin investigating Japanese management practices to see how they could be applied in the American workplace. It became a time when, as Harvard scholar Ezra Vogel's book proclaimed, Japan was "Number One." Many American managers agreed that indeed Japan had many lessons to teach Americans. Workers cooperating as "production teams" and the delivery of a "just-in-time" supply of components from outsourcing suppliers were some of the innovations adopted at American plants.
That was then.
The Bubble Bursts
As the decade of the 90s began, the Japanese economic bubble burst. During the late 80s, banks had greatly overextended themselves on loans to developers of office complexes. Handsome new office buildings continued to come on to the market, especially in Tokyo. But while in the 80s the buildings rented months before completion, by 1994 the newest buildings (despite being "intelligent buildings" that controlled their own temperatures and reprogrammed their elevators as the volume of users rose or fell) could no longer attract tenants able to pay their high rents. Initially the Japanese landlords held to their confident refusal to negotiate rents, even while the banks were waiting for their loan repayments. It took a few years for rents to begin to fall, but by then far fewer companies were around to rent office space. At first the banks were patient, and they never made public that in many cases the large building loans they had extended were not being fully repaid. In fact, most Japanese banks have still not publicly disclosed the total range of their non-performing business loans.
Land was the key to financial wealth, so in the bubble years families and businesses with land saw their wealth on paper rise astronomically. Many small companies had received capital through loans financed on the high value of the land they held. With consumer spending decreasing each month and confidence among both consumers and businessmen growing weaker, small- to medium-sized companies found themselves unable to generate enough business to keep going. They hired fewer new people, so the availability of new jobs decreased. Many young university graduates continued on to graduate school, since companies weren't hiring and it was nearly impossible to find a good job. More workers were hired on a part-time basis only, and without either fringe benefits or the semi-annual bonuses that in the bubble years had accounted for a large percentage of wages. Gradually, both individual income and government revenues began to decline.
Just as the bubble began to burst, the well-respected financial newspaper Nikkei Shimbun sponsored a debate between a prominent Japanese economist from one of the large think tanks capitalized by an industrial conglomerate, and an American securities expert working in Tokyo. At the meeting, which drew an audience of several hundred, the Japanese economist cited all of the recent historical data to show that continued growth was inevitable for Japan. But the American securities expert said it was clear from what he saw "on the street" that office buildings were empty, that companies were not hiring as before, and that a downward spiral had begun. The downturn would not end, he said, until the problems of bad loans and inflated property values were solved. He felt that sooner or later Japan had to undertake the type of "restructuring" ( resutura) and "downsizing" ( daunsaizu) that many American companies were then struggling through. Overhead costs had to be paired down and brought in line with earning potential. The practice in large corporations of giving lifetime employment and automatic promotions had to change to a system that kept only the number of employees needed and promoted by ability, not by length of service.
I knew these were the buzzwords at the time among managers in the United States, and I knew their decisions were causing much heartache and insecurity to the American workforce, so I found it difficult to endorse my fellow-American's recommendations. Japanese members of the audience would have none of it, rejecting his argument on the grounds that massive firings would destroy their society. Now a decade into the current recession, the same feelings seem to prevail.
As I listened to the debate I shuddered to think what the American's comments would mean for the company I was running, the Tokyo operation of a respected American publisher of legal and accounting materials. But I knew something was about to happen to us, because I saw our largest customers, composed of international law firms, major accounting and consulting companies, beginning to pull back from their earlier commitment to the Japanese market. As large American firms like IBM and Dow-Corning (also customers of ours) downsized their Tokyo offices, the international lawyers and accountants found it harder to secure new business. Soon the key players in my core customer base were all in some form of retreat. Before long, the executives in my company in the United States ordered our Tokyo operations to downsize as well. With both Japanese firms stymied and American firms restructuring, the lavish company receptions disappeared, which of course hit the hotel catering industry hard. At least that was one social obligation I found myself released from.
Local Markets Closed
The professional bureaucrats at the top of Japan's civil service are often given credit for having crafted the country's rapid economic recovery from World War II. They did so by erecting an interlocking barrier of regulations that restricted the ability of foreign companies to enter the domestic market. By prohibiting foreign competition, Japanese industries, such as those in automobiles and electronics, were allowed to dominate the home market. By the 1990s the American Chamber of Commerce in Tokyo, where I had become an active member, was constantly challenging such excessive regulation and calling for its removal. Japanese government officials always listened to these charges, and occasionally made token responses toward market opening, but in general did almost nothing to lift the restrictions. Their intransigence frustrated the Reagan, Bush and Clinton administrations, all of which strongly backed the American Chamber in urging a dismantling of the regulatory barriers.
At my local grocery store in suburban Tokyo, I saw this battle played out over the issue of imported versus domestic apples. West Coast apple growers had been trying for years to export apples from the United States, saying that in spite of the trans-Pacific shipment costs they could place the apples on the market for the same price as or less than domestically-produced Japanese apples. For years Japanese bureaucrats refused to let U.S. apples in, claiming the apples were diseased or had been sprayed with harmful chemicals. But finally in the mid-1990s, in the midst of much controversial publicity, they allowed some large shipments of American apples into the country.
Japanese-grown apples had been selling for 750 yen (about $7) for four apples, so the Americans sold their bags of five apples for 500 yen (about $4.50). The Japanese producers responded by packaging six domestic apples for 500 yen and then put out the word that consumers could be certain the domestic apples had no harmful chemicals. This was a great situation for me, because I now had my choice of either American or Japanese-produced apples at a lower price than before. I thought things might really be changing in the Japanese marketplace. But it was not to be. When my local store sold out its stock of imported apples, no more ever appeared on their shelves. The Japanese producers reverted to their previous price structure, and the apple experiment ended. American apples were no longer to be found in most Tokyo stores..
Aftershocks of the Kobe Earthquake
The inability of the Japanese authorities to respond adequately to the great Kobe Earthquake of 1995 deeply shocked the Japanese people, and removed the last traces of their confidence that the government was capable of effective coordinated action. Because the government is routinely involved in a wide array of local affairs, most people naturally assumed it would lead the relief effort. With the fires still burning, however, private and local groups were the first to arrive with medical help and supplies. When foreign countries offered to send in medical teams and rescue dogs to sniff out possible survivors, the government responded that its own people could handle the problem and that foreign doctors were not licensed to practice medicine in Japan. After a few days the rescue dog teams, but not the doctors, were let in. Instead of providing emergency food and shelter to a disoriented population, the government asked the banks to remain open so that local residents could withdraw cash to pay for their own food and daily needs.
The Japanese public was by this time thoroughly discouraged with its government and business institutions, the pillars that had produced the country's economic strength. The central government in Tokyo clearly had no overall disaster plan. The largest corporations watched in concern, but seemed to do little more. The salt in this wound was provided by the United States, which by then was pulling out of its earlier recession and was about to begin the economic strength that has characterized most of the past decade. It did this without having remade itself in the Japanese model, while Japan appeared immobile and totally unable to pull itself out of its deep and lingering recession.
How Did This Happen?
In the decades following the end of World War II, Japan engineered an amazing recovery by taking advantage of a set of factors well suited to the country and its people. The system of lifetime employment and controlled competition among businesses allowed employees to accept lower pay initially and to put in long hours of work for the sake of their future. And because their future was tied to the future of their company, they worked extremely hard and made products of the highest quality. From top government and business officials to the lowest office clerk, all Japanese people desired a society of only gradual and predictable changes. The predilection for a stable society led quite easily to the creation of an over-regulated and protectionist economy. It sat well with the traditional Japanese propensity for identification with group goals and a commitment toward one's immediate social circle.
Japan is in many senses a village society writ large. The Japanese people feel that they all belong to the same cultural and linguistic community, linked by a distinctive set of shared values. Within this village, the bonds of inclusion are most strongly applied to those who are members of one's in-group ( uchi), in clear distinction to those who exist in the out-group ( soto). In terms of personal relations, all of the people who live in the village try to get along by being polite to each other and by avoiding unpleasant topics.
Universal human rights standards are rooted in many cultures. We affirm the basis of universality of human rights which afford protection to all of humanity... While advocating cultural pluralism, those cultural practices which derogate from universally accepted human rights, including women's rights, must not be tolerated.
Meanwhile, politicians are finding it difficult to break out of the patterns of the past. They still court the rural voting block, even though the population shifts have all been to the large cities. Since most urban dwellers do not bother to vote (recent elections have seen a turnout of sometimes only 17 to 20 percent of eligible voters), politicians can ignore their concerns. If "all politics is local," then Japanese politicos have the formula down pat. They are experts at small talk and ritualized expressions of concern. When they do discuss issues with a larger national or international scope, few display any depth of thinking or analysis.
Perhaps most frustrating of all to observe are the bureaucrats, or career civil service employees. The tightly protected market they created at the end of World War II led to Japan's stunning economic recovery. But their policies have changed little in spirit since then, even as the global economy has undergone a major shift in the way it operates. Today, international companies find hundreds of official standards and procedures on the books that act as effective barriers to doing business in Japan's market. Ironically, even Japanese companies find it hard to break into their own market. Numerous regulations combined with powerful industry cartels created by the major players lock out competition from any new market entrant, Japanese or foreign.
Although many individual Japanese no longer have much confidence in their leaders or in their economy, they continue to apply a set of values that worked well in the past. The situation, however, has greatly changed. Japanese political and business leaders refuse to consider any measures calling for drastic or immediate change. They are different from Americans in this regard, and maybe it is to their credit. Japanese business leaders and politicians do not want to see thousands of people thrown out of work, widening income disparities and disenfranchising many, especially older workers, who spent a lifetime working for the betterment of their families and of society. Over the past decade America has had to deal with the problems posed by downsizing, and many U.S. workers have suffered because of it. Japanese bureaucrats are afraid to dismantle the regulatory barriers that surround Japanese markets, because in their eyes that would mean abandoning their responsibility to shelter the individual consumer from unscrupulous businesses. Most Japanese know the debilitating effects that downsizing has had on the U.S. worker. Although many Japanese enjoy visiting and shopping in the United States, most would not like to live here and very few choose to do so.
Where We Are Now?
However Japan eventually solves this current dilemma, clearly it will have to be in a Japanese manner. It will have to be in a way that allows some of the dominant culturally determined values to continue. Japanese people, for example, prefer to avoid confrontation. This is one reason they fail to hold politicians and bureaucrats strictly accountable for the country's current economic quagmire. They value reserve in personal relations and predictability in social situations. If one loses one's job, it is better to retreat from public life than call attention to one's plight. So to the casual visitor, Japanese society seems to be functioning quite normally, with few obvious signs of economic dislocation. There are no organized protests by people demanding higher unemployment subsidies from the government, as the Germans have been known to do.
Increasingly these days, Japanese people, both privately and publicly, are voicing frustration with continued calls by the United States and the International Monetary Fund that Japan make significant changes to its economic structure. Minister of Finance Kiichi Miyazawa has been telling American reporters that Japan is being blamed for every economic problem that rears its head, not only in Asia but anywhere in the world. He is clearly not prepared to take the steps necessary to deal with the current recession.
The problem seems to be that Japanese society, having assembled a set of economic policies that once worked so well to build a prosperous society, now seems totally unwilling to contemplate any actions that might challenge those policies. Although the global economy, with its instantaneous flow of resources and information, has brought changes to Japanese society, it has not altered Japan's conception about how elements within society or the business world should interact. Those values remain the same as they did in the 1960s. By digging in their heels and refusing to take the steps necessary to effect real change, the Japanese have allowed the current economic depression to continue much longer than necessary. In this sense the average citizen has had as much to do with perpetuating the economic malaise as the politicians and bureaucrats.
This is most surprising because Japan has changed radically several times in the course of the twentieth century. That might be one of the problems. Perhaps Japan has suffered a too rapid and too discomforting rupture between its pre-war and post-war values. In the case of workers and their jobs, the job-security safety net that Japan developed following World War II reinforces the tendency of most Japanese to distrust changes in the relationship between management and labor. The result has been an entrenched aversion to bringing about the changes that everyone else in the world is saying are needed.
But perhaps the Japanese will call upon their traditional values in order to realize the changes that could end the prolonged economic slump. Japan, after all, is a nation heavily influenced by centuries of Buddhist teaching. As their own Buddhist tradition tells them, the only permanent condition of life is change. Japan could start by accepting the fact that a number of things in its economy and society are not working well. Measured and welcomed change is the key to solving Japan's lingering economic recession.
Ronald Suleski, a research associate at the Fairbank Center for East Asian Research at Harvard University, received his doctorate in History from the U-M in 1974. From 1979 to 1997, he lived in Japan working as an executive in international publishing.