Time for a Fresh Look at Opportunities in Japan
Whatever happened to Japan? A few years ago Japanese industry was seen as an unbeatable combination of the Dallas Cowboys and Godzilla, ready to trounce all before it in international competition.
Today, Japanese industry is humbled by a long-slumping economy that will probably have zero growth this year. Japan’s banks are crippled by an incredible, $200-billion mountain of bad loans to industry and real estate. Even with government help, Japan’s banks won’t be out of the woods until the next decade, say financial experts.
Company earnings are declining. Honda last week reported a 60% drop in half-year profits, Sony’s earnings were off 44%. Japan’s car market is stalled at home and its car makers are losing market share in the United States because the strong yen pushes up their prices. Technologically, Japan’s companies are seen as little threat in advanced industries such as computers and telecommunications.
All that has led to a certain smugness among Japan’s industrial rivals. The Economist magazine recently yawned that Japan is in the same boat as Britain and the United States, stuck with recession and slow growth for years to come. A growing American assumption is that Japan’s policies of government guidance to industry have proved failures and left its companies struggling and uncompetitive.
Such assumptions are foolish. Japan’s economy is going through a bad patch, but it is adapting and moving purposefully in some new directions that Americans don’t seem to understand, says Chalmers Johnson of UC San Diego, a leading authority on Japan’s economy. That’s why President Clinton’s proposals encountered opposition at the Asia Pacific Economic Cooperation meeting in Seattle this weekend.
Clinton was suggesting ways to improve Japan’s economy to newly-elected Prime Minister Morihiro Hosokawa, who privately doesn’t think much of the way America runs its economy. And Clinton was asking for trade pacts with Asian nations, which aren’t eager for such formalities and in which the leading foreign investors are Japanese, not U.S., companies.
What Clinton and all of us need is a fresh look at Japan, where change is creating opportunities for U.S. business and investors, if Washington knows how to demand them.
Economically, the most important development is that Japan finally is shifting to a consumer economy, from the production-oriented machine it has been for four decades. That’s why the Tokyo office of Morgan Stanley, the investment firm, sees growth in food store chains like Ito-Yokado and Seiyu and home builders like Fujita and Mitsui Home.
The new emphasis, in the land that made $100 melons famous, is on discount stores. Nomura Securities analyst Michael Steinberg recommends Aoyama Trading, a discount clothier now selling $80 men’s suits in supposedly high-priced Tokyo. The suits come from South Korea, part of a wave of cheaper merchandise flooding into Japan from other countries in Asia. If Clinton wants to do something, he might demand that U.S. merchandise get some of that action.
Japan also is investing heavily in Asian nations. Having decided that they can no longer count on the home market for easy profit, or on Europe and the United States for export growth, Japanese companies are pouring investments into Thailand, Indonesia, Vietnam and China, where they are way ahead of U.S. companies in levels of investments and scale of operations.
The companies are bold because government backs their play. “American companies wish they had the direct government support and insurance that Tokyo gives Japanese companies,” says Chalmers Johnson. Maybe Clinton should see why U.S. business investment trails Japan’s in such growth markets.
Reforming Japan’s traditional retail system and investing in overseas production is not without a price. Japan’s lifetime employment system is changing, too, with companies sending workers into early retirement or to subsidiary firms with lower pay and benefits. In some cases, surplus managers are sent to U.S. subsidiaries, replacing American managers. Yes, that’s shortsighted as a business move, but government policy means more than Western economics to Japan’s companies.
Yet Japan’s major companies don’t seem terribly weakened by the experience. Toyota has $13 billion in cash; Honda is bringing out new models of the Accord. The music business that Sony bought from CBS for $2 billion in the 1980s, is grossing more than $4 billion a year today.
The truth about Japan’s economy is that it operates on different principles from the U.S. economy, says Richard Drobnick who heads a program that educates Asian business leaders at USC.
And other Asian nations today are following the Japanese model because it seems to work. They see, for example, that despite recession unemployment remains at only 3% of Japan’s work force--partly because government spending on public works is at 5% of gross national product, 2 1/2 times the U.S. rate.
They see investment coming into their countries from Japanese companies and from individual investors who recently poured $3 billion in one day into a Nomura emerging markets fund.
Americans too invest in emerging markets, of course. The point about Japan and Asia running their economies differently, is that we shouldn’t be arguing economic theory but figuring out how to work with and benefit from Asia’s growth.
For a start, Clinton could demand that U.S. companies get a shot at Japan’s public works business. And for the rest of U.S. policy, the Administration should “press Japan to open its market fully to U.S. goods and U.S. business investment,” says Drobnick. If the response is negative, then simply reduce Japan’s $100 billion in annual export sales to the United States.
Such a policy would not be in accord with classical economics, but like Japan’s economy, it probably would work.
