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U.K. JOURNALISTS FOCUS ON JAPAN, GLOBALIZATION

Sustained growth needs more access, ambition

by Takashi Kitazume

Despite its demographic problems, Japan has room to aim at higher growth by pushing harder on reforms, opening up more to foreign capital and making better use of unused female labor, visiting journalists from Britain told a recent symposium in Tokyo.

Japan is now in its longest postwar period of uninterrupted economic growth, with major firms reporting record profits. But some of the journalists noted that the boom is taking place amid rapid worldwide growth, and warned that some of the favorable conditions for Japan — including the yen’s weakness — may not last.

Five members of British media organizations were speaking at the May 25 symposium, organized by Keizai Koho Center under the theme, “How to live with globalization? — Japan and the U.K. viewed by British journalists.” They took part in the event at the end of a weeklong series of exchanges with Japanese business executives, professors, government officials and lawmakers.

“Globalization has been very kind to Britain,” said Ambrose Evans-Pritchard, international business editor of The Daily Telegraph. Britain has had 14 years of unbroken economic growth, with annual growth now running at 2.7 percent, he added.

In light of the British success, Evans-Pritchard said he frequently hears that Japan wants to learn from the U.K. turnaround that started in the era of Prime Minister Margaret Thatcher. “But I’m not entirely sure that these can be picked one by one and imported into Japan,” he said.

What Thatcher did in the 1980s was “a regime overthrow . . . it wasn’t just a set of reforms, it was an overthrow of an entire system” that existed during Britain’s economic woes in the 1970s, he noted.

It marked “an era of Schumpeterian creative destruction,” he said. “Our steel, coal, shipbuilding and car industries were allowed to collapse.”

The British car industry has since been revived and exports more vehicles than it did in the 1970s, with foreign-owned automakers, including Japanese, producing more than half the cars in the country, he noted.

Evans-Pritchard said there were “cries of horror as the barriers were torn down and the British crown jewels were taken over by foreigners.” When, for example, Britain’s No. 1 investment bank Warburg was purchased by Switzerland’s UBS bank, “people were afraid that we were going to lose our investment banking business to Zurich,” he said.

UBS now runs its global operations out of Liverpool Street in London, Evans-Pritchard said. “It was not Britain that lost out. Ultimately, you could argue that it was Switzerland that lost out. We were the beneficiaries of the foreign takeover,” he noted.

“The City of London is in effect almost wholly controlled by foreigners. There is very little left that’s owned by the British, and it doesn’t matter at all. The place is thriving,” he said.

Evans-Pritchard said Japan — despite the continued growth in recent years and the technological edge it retains in many of its key industries — appears to lack ambition about its potential, even as a mature economy. “There is something wrong here when everybody seems to see trend growth of 1.5 percent as the best you can achieve,” he said.

“I wonder whether the ‘lost decade’ (of Japan in the 1990s) has been traumatic enough to really shake up the system,” he said.

He noted that deregulatory reforms in the airline industry in Japan, for example, appear to be far behind those in Europe, where the emergence of discount airlines has revolutionized air travel. “I wonder if this is a sort of metaphor for other closed areas of the Japanese economy,” he said.

“There seems to be a mood that things are going well, that Japan is out of the woods,” he said. “But this improvement is taking place against an incredibly benign global economic backdrop. You’ve got the highest rate of global growth in half a century,” with a major portion of the growth taking place on Japan’s doorstep — China, he added.

“I’m not sure how long this can continue,” he said, noting that the world economies may be reaching the late stage of the growth cycle. He also warned that the weak yen — which has supported Japanese export industries — may not be politically tolerated for much longer in Europe and the United States.

Chris Giles, economics editor of the Financial Times, said Japan has so far responded to the challenges of globalization in much the same way as other industrialized economies.

Japan appears to understand better than many Europeans that China — often considered the big threat hanging over industrialized economies — is more of an opportunity that makes imported goods cheaper for advanced countries and presents the world with high growth in trade, he said.

Still, Giles said that Japan can benefit by pushing reforms further — and “looking a bit more abroad.”

“I think it’s almost certain that the answer to globalization is more openness, more innovation, more ideas from outside, and not insular ideas from the Japanese system,” he told the audience.

Giles urged Japan to be moreopen “both to foreign money and foreigners.”

Foreign direct investment in Japan accounts for a mere 3 percent of national income, compared with 37 percent in Britain and 22 percent in the United States, he said. “If you want to have greater competition, to learn more from outside, openness and trying to encourage more FDI, and takeovers . . . is certainly a good idea.”

The labor market is another area where Japan’s reforms could go further, Giles said.

The end of the lifetime employment practice has had a “generational effect on the labor market” and created something of “dual labor contracts,” he said. Unlike their older counterparts, many younger workers are getting part-time or temporary employment — a situation “neither efficient or equitable because the rewards are probably not going to the right people,” he added.

And managers at major Japanese corporations need to think hard about the potential of female workers, “and about ensuring that half of Japan’s workforce is not wasted,” Giles said.

The potential of female labor was also discussed by other panelists as one solution to the anticipated fall in Japan’s workforce with the declining birthrate and rapid aging of its population.

Anjana Afuja, a feature writer and science columnist with The Times, warned that Japan is failing to utilize its female talent in science and technology — the crucial area in the nation’s bid to survive globalization through innovation.

Because scientific research today is a global operation, scientists examine how receptive a country is to science — or what is the social status of scientists and engineers — when they decide where to study, Afuja said.

In this respect, Japan has a respect for scientists and engineers that you don’t get in Britain, she said.

Among the top executives of Japanese firms the journalists met during the visit was Honda Motor Co.’s President Takeo Fukui, a former engineer. Afuja said she cannot think of an engineer running a major company like Honda in Britain.

But Japan is also a country where the ratio of women scientists is the lowest among members of the Organization for Economic Cooperation and Development, she pointed out. In Japan, only one out of 10 scientists was a woman in 2004, compared with four out of 10 in Portugal and three out of 10 in Britain, she said.

Afuja pointed to the difficulty that women in Japan in general face in keeping both their jobs and child rearing. “If it’s difficult or expensive — or both — for women to combine work and motherhood, they’re just not going to do it. They’re going to take one option or the other,” she said.

And Japan is likely to lose female scientists because they would simply go abroad if they sense that they don’t have the opportunities here, Afuja said. That would not be good for Japan as it pursues innovations to win the global competition because “you cannot innovate properly if half of your population is choosing not to participate,” she told the audience.

On other issues, Susie Mesure, retail correspondent for The Independent, discussed the examples of Japanese and British retailers, and the difficulties that they face in expanding their operations abroad when they fail to grasp the differences in each market.

Mesure described the setback that Japan’s Fast Retailing Co. — the operator of the popular Uniqlo casual wear brand — suffered in its expansion into the British market five years ago as a typical example of profitable retailers trying to replicate their domestic success in overseas markets.

That strategy, she said, is a recipe for disaster because that approach to global expansion misses the obvious point that consumers are different in each country — that they have different tastes, different role models and fashion icons. Failure to pay attention to these differences has cost many retailers their place in foreign markets, including Carrefour of France, the No. 2 global retailer, which pulled out of Japan, she added.

In this sense, British retail giant Tesco PLC has taken a careful approach in entering the Japanese market, Mesure said.

After acquiring a Japanese supermarket chain in 2003, it chose to keep the original Japanese names of the shops instead of renaming them under the Tesco brand, until it finally launched its first Tesco brand shop in Tokyo in April, she noted. It is the formula that has proved successful in Tesco’s expansion into other countries, and the company remains in the difficult Japanese retail market four years after its entry, she said.

Tim Harford, economics leader writer for the Financial Times, meanwhile said that Japan, with its big cities concentrated in the central parts of the country and linked with efficient transportation systems, is “well placed to benefit from globalization for many decades.”

While digitization and mobile communications equipment are thought to have enabled people to work from anywhere in the world, the process of globalization has in fact concentrated economic activity in big cities around the world, Harford noted. So what’s happening in Japan and Britain alike — urban areas performing better than rural economies — “is actually the story of globalization anywhere in the world,” he said.

This is because products and services are becoming more complex and require people working next to each other, he said. Also, innovation and new ideas are crucial to these products and services, and they take place in cities, not rural areas, he added.

Big cities have the diversity and the capability to respond to changes, Harford said, noting that Japan’s structure — with more than 60 million people living in the three major urban areas — Greater Tokyo, Nagoya and the Osaka-Kobe-Kyoto area — is “a perfect response to globalization.”