Where Have All the Samurai Gone?

It's time for a reality check. Let's put aside all the talk about DoCoMo and the New Economy for a moment. According to the World Economic Forum, Japan doesn't even make the Top 20 list of competitive nations anymore.
by John R. Malott

John R. Malott was a noted "Japan Hand" during three decades of service as a U.S. diplomat. He now resides in Southern California and can be reached at Johnmalott@aol.com.

It's hard to believe that just a decade ago, Japan was taking over the world economy. At least, that's what the majority of American and Japanese believed. The Japanese economic tsunami seemed unstoppable. The world rushed to learn Japanese quality control and management practices. Japanese business confidence -- and sometimes arrogance -- was never higher.

That's why it's so shocking to see the results of the latest survey on global competitiveness by the World Economy Forum (WEF).

The WEF is best known for hosting the annual business summit at Davos, Switzerland, perhaps the most prestigious economic gathering in the world. The WEF's survey on competitiveness is almost as well known.

And this year, Japan has fallen from 14th to 21st place among all nations in the world in global competitiveness. The United States, which a decade ago feared Japan's economic prowess, is first.

The WEF this year introduced other measures of competitiveness. One is the economic creativity index, which measures such things as technology, R&D, and new company formation. Japan ranks 20th, just above Hungary. For Hungarians it must be a source of pride to be listed next to Japan, but what should the Japanese think when they see the gap with their longtime economic rival, the United States? The US is first on this list as well.

(For more information on the WEF competitiveness report, check their website at www.weforum.org.)

Is it really this bad? Not for those of us who follow Japan's New Economy. For there certainly has never been a more exciting time to be young, entrepreneurial, and in Japan. There also has never been a better time to be a foreign company in Japan, armed with a great product or service, and willing to make the changes you need to succeed. (See "Always Remember the 80-20 Rule.")

But once in awhile, it's worthwhile to step back and realize that Bit Valley is not the whole of Japan, that not every company is as forward-looking as NTT DoCoMo or Sony, and that Japan's economic and technological strength will never revive on the basis of just one product, cell phones. Even on cell phones, the Finns are more than prepared to argue that Japan is number two, not one.

As Sherlock Holmes reminded us, sometimes we need to pay attention to the dogs that aren't barking. So the next time you see yet another article on NTT DoCoMo, ask yourself, what am I not hearing? What else is happening in Japan's economy and business world?

We've watched the Japanese economy go through years of stagnation. We've watched the once vaunted Japanese bureaucrats and economic planners at the Ministry of Finance fail to turn the economy around after years of effort. Now they want to try again, as they plan yet another economic stimulus package.

They say that insanity is doing the same thing over and over again, and expecting a different result each time. What makes the mandarins at MOF believe they will be successful this time? So far all they have given Japan are tax increases and the highest debt in world economic history, at 130 percent of GDP. And that's a debt that will have to be paid back by a shrinking population and workforce, in the world's fastest-aging society.

We've also been shocked by the life-threatening (yes, life-threatening) actions and inactions of Japanese companies and the bureaucrats who were supposed to oversee them. Blood tainted with the HIV virus; contaminated milk; a nuclear accident caused by negligence and inadequate training; concrete pieces falling from Japan Railways tunnels on the Shinkansen (Bullet Train) tracks; and two decades of automobile defects that were never acted on by Mitsubishi Motors. Now we have the exploding Firestone tires produced by a Japanese subsidiary in the US.

The issue is more than the damage to Japan's reputation for quality. Of greater concern are the actions of the companies to cover up these problems for months or even years. Also scandalous was the inaction of Japan's regulators, who claimed for years that their mission, with all of their regulations and trade barriers, was to protect the health and safety of the Japanese people. Now we know that for many of them, that was not true.

Then there is Japanese management -- the mistakes they made, the corruption in which they engaged, and the authoritarian rule that passed for corporate governance from banks to department stores. Bad loans, kickbacks, and false accounting seemed the norm at many companies and led to more of the same. How many more scandals are yet to be uncovered, and how many more companies will go bankrupt?

Finally, there is the political system: Politicians who pass their seats on to their sons and sons-in-law, and who spend their waking days and nights engaged in internal political maneuvering that has nothing to do with the problems the country faces.

Perhaps all this sounds like I got up on the wrong side of bed today. But I think it's something that needs saying as we think about Japan's economic future. Japan's New Economy will never go "mainstream" and become the driving force in Japan as long as it is surrounded by these kinds of economic and political problems. No matter how competitive Japan's cutting edge companies are, they need a larger competitive economy in which to operate and prosper.

For years Silicon Valley's entrepreneurs ignored the larger problems of the US economy and of Washington politics and policies. They were too busy starting and growing their own companies. There was a strong libertarian, "who needs the Government" streak among them. There was also the young, hip attitude that politics and politicians existed only for entertainment, as something to make jokes about. As for what bureaucrats and regulators were up to -- well, the attitude was condescension. If those guys are so smart, why aren't they out here, starting a dot-com?

Now all of that has changed. Silicon Valley is thriving not just because of what it is doing, but also because it is inside a larger economy that is quite vibrant and competitive. (Obviously they reinforce each other.) High-tech entrepreneurs are showing a greater interest in issues of national policy that affect them, from education to immigration to trade policy. They have opened Washington representative offices to monitor what the government is doing, to try and influence policy and legislation. Politicians from Al Gore to George Bush cultivate information technology CEOs, and the CEOs reciprocate by reaching out to the country's political leaders. And they care what happens in the larger economy, because it affects sales of their products and services. So macroeconomic policy, interest rates, tax policy, and so on all matter to them -- now.

To paraphrase Jon Donne, no man is a valley, not even Bit Valley. What happens in Japan's larger economy and political system will have a major impact on Japan's new entrepreneurs and help determine whether they will succeed.

And those entrepreneurs in turn have much they can contribute as Japan deals with its future. Far better for Japan to hear those new voices than to listen to the cliché of Japan's "usual suspects," the old guard that has created so many of Japan's problems and has failed for years to provide any solutions.