Japan Is Proving to Be a Toothless Tiger
For a country that so readily adopts foreign fashions, Japan has been very slow to embrace the Western governance standards that are increasingly becoming the world’s norm. This reluctance stands at the core of Japan’s financial and economic problems.
Japan, for example, has only 17,000 lawyers to service its population of 125 million. It has a similarly small number of accountants. Because it lacks independent auditors and similar professionals, Japan stutters along from one crisis to another.
The nation’s banks exemplify these problems. For each $1 million they admitted to having in bad debts, they actually owed more than $100 million. As a result, the Japanese banking system, taken in its entirety, is technically bankrupt. Worse still, the government colluded in the banks’ unethical creative accounting practices. This, needless to say, has undermined their credibility considerably.
Japan continues to pay for this mismanagement. Now, when Japanese banks merge, it is out of fear, not out of a desire to compete with their European and American rivals. They are still crying out for government protection and government handouts. And this is while they are getting “free” money from Japan’s savers. The Japanese, who are the world’s biggest savers, earn the world’s lowest interest rates on their savings accounts. And the banks don’t know what to do with the money.
Formerly, they pumped it unthinkingly into their affiliated companies. Nissan Diesel, for example, has not made a profit in more than 25 years and is unlikely to do so in the near future. If this division were a U.S. company, it would have been closed down--probably 25 years ago. This would have preserved shareholder value. Not so in Japan. Now that Nissan is under Renault’s control, the fat is being shredded. Renault has dispensed with the services of Nissan’s 1,145 suppliers and share price has soared as a result.
DaimlerChrysler is trying to do something similar with Mitsubishi Motors. The Mitsubishi Group epitomizes all that is wrong with Japan’s keiretsu system of affiliated companies. The group has about 200 companies, 150 of them listed on the Tokyo Stock Exchange. Mitsubishi is involved in activities that include banking and insurance, producing paper napkins and ballpoint pens, operating nuclear power stations and the money-losing manufacturing of cars and trucks.
The group is not focused, and in the past there was no need to be. The government, together with cheap loans, protected it from foreign competition, just as they protected Japan’s farmers. It takes $1,550 to produce a ton of unhulled rice in Japan. Californian farmers can do it for less than $200. Surely, Japan should concentrate on producing Sony PlayStation 2, Toyota SUVs and camcorders while California grows rice and makes Hollywood blockbusters.
The Japanese system is held together by making competitive companies, like Toyota and Sony, keep the noncompetitive companies in business.
Japan’s banks and insurance companies, meanwhile, are pitiful giants that cannot hope to compete with the Americans or Europeans. That being so, the Japanese government should take a page out of its own history books. At the time of the Meiji Restoration in the 19th century, Japan’s leaders took the best technology the West had to offer, reverse engineered it and pushed the nation into the modern age. History must now repeat itself.
Japan must learn from Western corporate practices, and rid itself of the noncompetitive companies and build on its considerable strengths in auto engineering and opto-electronics. Most of all, though, it needs political leaders who can make the hard decisions. Until then, the strong companies will still be saddled with the weak, and Japan will remain the world’s most emasculated economy, hobbling along from one crisis to the next.
