A Japanese View of Why U.S. Is Strong

If we wonder whether the buoyant U.S. economy, not to mention the stock market, can keep growing and prospering, we should see ourselves as others see us.

“The Americans went through major change in a very short period of time, and now they are getting stronger and stronger,” says Tachi Kiuchi, a managing director of Mitsubishi Electric. But, he adds, “what do we have in Japan? Very little.”

Kiuchi, 62, is a significant observer of the two business cultures. He worked and studied in the U.S. and Canada for many years, beginning with training courses at Westinghouse in the 1950s.

Kiuchi was here when U.S. companies ruled the world and when they were dismissed as losers. He ran Mitsubishi Electric’s Cypress-based, $3-billion-sales U.S. operation when Japanese companies were seen as world beaters--and resented for it--and later when they were regarded as a spent force and ignored.

He won distinction for leading the Japanese business

community to reach out and get involved in American life, organizing events all over the country, raising money for Southern California schools. Now he has gone back to Japan to help change his own company and his own country’s business system.

From Kiuchi’s insights about both countries, we are reminded of truths about the changed U.S. economy, and, even more timely, we gain an appreciation of the deep-seated difficulties of the Japanese economy.

Japan may tumble into another recession this year, despite recent reports that business is strengthening. The economy’s problems go far beyond Japanese banks’ $350 billion in bad loans. The financial system has distorted the economy. Many of Japan’s companies are not really profitable. More important, Japan’s pension funds have failed to earn sufficient returns to pay the pensions that are coming due in an aging society.

So Japan’s financial system is being changed to one that emphasizes return on investment and closes down unprofitable businesses. Hundreds of companies will fail.

Ironically, the changes will involve many of the restructuring and investment ideas of U.S. business. Japan’s transformation is already giving opportunities to U.S. companies.

But that is only fair because, as we see from Kiuchi’s insights, Japanese competition and ideas helped start U.S. business on the road to its current prosperity.

Kiuchi, an enthusiastic man who still runs marathons, ticks off half a dozen ways in which U.S. business has changed for the better.

“In the 1950s and ‘60s, American companies never looked aggressively overseas for new business. Now every company is doing business outside the U.S.,” Kiuchi says.

“It’s significant,” he adds, “that the top men at the automobile companies”--Chairman Jack Smith at General Motors, Chairman Alexander Trotman at Ford and several top executives at Chrysler--”won their jobs because of success in foreign markets.”

True enough, but it was Japanese competition that forced Detroit to change. “American companies used to have an attitude that ‘if we didn’t invent it, we don’t want it,’ ” Kiuchi says. “But now U.S. companies are making alliances with others. Long-term thinking has replaced short-term focus, and companies are paying attention to customers,” says Kiuchi, who is probably being too kind.

Nonetheless, he has a point. Adaptation to global change has brought the U.S. economy enviable success.

“Job creation is running at 1.5 million a year, and inflation is low with growth of 2.5% to 3%, slightly higher than average projections,” says economist Allen Sinai of Primark Decision Economics, a Waltham, Mass.-based provider of databases on finance, governmental affairs and weather conditions. “And there is no sign of recession through the year 2000,” he adds.

Wonderful, but it was Japanese ideas of alliances and investment that inspired change in the U.S.

Kiuchi shakes his head, dubious about Japanese companies. “I don’t know that many that are truly profitable,” says Kiuchi, who studied business at Tokyo’s Keio University and at the University of Vancouver in Canada.

In his eyes, America can’t help but adapt and innovate. “Who else would need 500 television channels? Only a place like Los Angeles that has 83 languages. With such diversity, you have to cater to different tastes,” he says. “But when was the last time you saw something new from Japan?”

Kiuchi is worried because digital television is promising to marry the TV set and the personal computer. And Mitsubishi Electric, a worldwide leader in big-screen TV sets and other electronics, with $33 billion in annual sales, will be facing new competition.

He is going back to Japan to reform his company, starting by “increasing the promotion of women,” Kiuchi says. And he dreams of creating a research lab to attract scientists from all over the world.

In a sense, Japan’s current predicament arose from its postwar economy, in which government directed banks to lend to companies to expand employment. That government-run system, in which profit was not a priority, persisted for too long. A recent survey, reported by Economist magazine, found that Japan’s major companies earned only 3.5% on investment, compared with an average of 22% for the 400 U.S. companies in Standard & Poor’s industrial index.

Japan’s pension funds earned only one-fourth the returns of U.S. pension funds. Worse, many pension accounts are under-funded, and some have lost money in Japan’s real estate crash. Yet within a decade, more than 20% of Japan’s people will be over 65. The problem is acute.

So the financial system is being opened up to competition. Nippon Telegraph & Telephone last week chose U.S. investment bankers Merrill Lynch and Morgan Stanley to underwrite a massive $90-billion bond issue being floated in London. NTT bypassed four uncompetitive Japanese brokerages.

Foreign brokerages now have 27% of the transaction business on the Tokyo Stock Exchange, and their share will grow with financial deregulation.

Japan is restructuring, enduring the pain that U.S. companies and employees bore in recent years. “Small companies are being pushed to the wall; many will fail,” says Andrew Callender, Tokyo manager for G.T. Global funds, a San Francisco-based mutual fund company.

But when restructuring runs its course, over the next five years, some companies will emerge stronger.

“Nomura Securities will be very powerful,” Callender says.

In other fields, Sony, Toyota and NEC will do well, Japanese experts say. And with Kiuchi bringing it the cross-fertilization of ideas from America, his own Mitsubishi Electric should be a winner.

For as the U.S. economy now demonstrates, the real secret to success in the global economy is the ability to learn from each other.