The New Japanese Mythology
Up-and-coming challenger to
undisputed champion to complete basket case in the span of two decades: The
saga of the Japanese economy looks more and more like a late-1940s boxing
melodrama--though one imagines that if this were Hollywood, the producers would
demand that Japan ultimately get up off the canvas and retake the title.
Where's John Garfield when we need him?
While
that narrative may be accurate enough in broad outline, on the level of actual
companies it tells the wrong story. The current stock market's infatuation with
all things Internet has led to indefensible overestimation of the actual
strength of most Net companies. So too has the prevailing picture of Japan as a
sclerotic economy of tightfisted oversavers and corrupt politicians led to a
dramatic underestimation of the crucial role the best Japanese companies
still play in the global economy.
There's no denying the short-term macroeconomic picture for
Japan is dismal, though it's hard to resist the thought that if the Bank of
Japan just ran its printing presses and dumped piles of yen out onto the
street, things would be OK. But it's probably true that the Japanese who picked
up the yen would immediately bank it, instead of buying a brand-new suit or
power mower as any patriotic American would. As a result, until the
long-promised overhaul of Japan's financial sector is complete and its web of
subsidies and regulations is simplified, it's hard to see the country getting
the dose of creative destruction it sorely needs. The impact of domestic
stagnation on large Japanese companies has, of course, been dramatic. In the
auto industry, for instance, sales have declined to nearly half their 1990
peak. The same is also true, albeit to a lesser extent, of the
consumer-electronics market.
Japanese corporations have
also been hit much harder than their U.S. counterparts by the crisis in Asia.
While much of U.S. business relies on Asia for sales growth in the future, most
important Japanese corporations have been relying on it for growth in the
present. Japanese companies own more than 80 percent of the Asian car market,
excluding Korea, and are dominant players in most other industrial categories.
As a result, when Thais and Malaysians are forced to slash purchases of new
cars or investment in earth-moving equipment, Japan feels it long before the
United States does.
Add to
this the fact that, for most of this decade, the cost of capital in Japan
actually went up, as bank lending was cut back, stock prices declined, and
Japan began to dismantle its elaborate system of cross-institutional
shareholding. In real terms, that means it has cost Japanese companies more to
do business--to expand plants, develop new products, and market. Even with
near-negative interest rates, the cost of capital in Japan is now much closer
to what it is in the United States and Europe.
Nonetheless, the best Japanese corporations
still occupy places in the global economy remarkably similar to those they held
in the 1980s. Toyota, for instance, continues to be the pacesetter in the world
auto industry, and most other Japanese car makers and parts producers are
thriving as well. (Click for more details.)
Sony is,
if anything, more influential than ever. Its successful integration of its
entertainment operations into its core manufacturing business--in stark
contrast with Matsushita's experience with MCA/Universal--has made it one of
the only companies that can be plausibly described as horizontally integrated.
Sony makes not only the televisions and the Discmans but also the movies and
music that play on them. Given the track record of most diversification
experiments, Sony should have a "do not try this at home" label attached, but
its adaptability and innovation belie the traditional critique of Japanese
corporations as hidebound and conformist. The same might also be said of
Nintendo's rise from the dead and of Canon's emergence as a key player in
what's now called the "imaging" market, thanks primarily to its aggressive
introduction of new technology and its relatively unusual alliances with U.S.
companies.
The fact that successful Japanese corporations have not
rolled over and died with the rest of the country's economy is hardly a
revelation. After all, these companies were able to export cars and televisions
to the United States even when the yen was trading at 85 to a dollar. Now that
the dollar is worth half again as much, and Japanese goods are correspondingly
cheaper in U.S. markets, business is that much easier. Still the companies are
suffering guilt by association with the generally failing Japanese economy just
as the Net stocks are prospering for precisely the opposite reason.
An
important consequence of this dismissal of Japanese business is the dramatic
revision of our understanding of what has happened to U.S.
corporations--especially manufacturing--in the past decade and a half. In the
1980s, American businessmen were beseeched to adopt "the art of Japanese
management," to pay more attention to quality and market share, to push
authority down to the factory floor. Of late, that whole phenomenon has been
the subject of considerable mockery, along the lines of "Remember when we
thought we should emulate Japan? How foolish we were!" Dramatic improvements in
U.S. manufacturing productivity, as opposed to simply corporate profits, are
attributed to greater emphasis on "shareholder value" and improved cost
consciousness, not to the impact of Japan.
What's ironic about this revisionism is that
it's easy to dismiss the 1980s vogue for Japanese strategy and techniques only
because so many of those techniques have become part of the fabric of everyday
life at many, perhaps most, U.S. industrial companies. The cords that assembly
line workers can pull to stop the line are now ubiquitous, as are Japanese
quality control standards. Continuous improvement, which compels workers to
look for ways to make their jobs more efficient, is de rigueur at
companies ranging from Polaroid to GM. And just-in-time production is not
simply the goal to which all manufacturing companies now aspire. It has also
spawned an entire new business model, exemplified by Dell Computer, that is
reshaping the entire personal-computer industry. Much that was said about
Japanese management style in the 1980s--with its supposed Zen focus and greater
sense of process than outcome--was pure buncombe. But the value of Japanese
manufacturing practices was, if anything, understated.
Insofar as the best Japanese
corporations are not the global hegemons we once thought they would be, it may
be because everyone else has learned from them, which is of course exactly how
competitive markets are supposed to work. In this moment of American
triumphalism, it's hard to resist the temptation to rewrite recent history as
the narrative of America's self-reliant, inevitable rise, and to see the future
as the story of America's continued ascent into the higher reaches of the New
Economy. Recognizing that Japanese business is not down for the count--and
remembering the role it played in getting us to where we are--is a necessary
step toward a saner appraisal of where this economy might be going.
