What would most strike a foreign visitor returning to Japan after a gap of several years? Most likely it would be the gloom surrounding the future of Japan, and at street level, finding how many people from a distance look Western — because their hair is dyed brown, blond or every other color you can name.

Both phenomena are bound up with what, at the end of the 20th century, has come to be called globalization. Japan is clearly not at one with this phenomenon, and the gloom has much to do with this because it seems that Japan is being bypassed by the new global forces.

At the economic level, the impact of globalization is most evident in Japan’s financial “Big Bang.” Here the threat comes from what could be called the “Ripplewood Effect” (the ripple from Wall Street’s Big Bang some 20 years ago, finally reaching Japan’s shores like a tsunami in the form of Ripplewood Holdings). In fact, the local press and the Financial Supervisory Agency have made Ripplewood’s proposed purchase of the LTCB look like a tsunami in order to frighten the life out of the domestic banking industry. Here the thinking is that, historically, Japanese companies have responded best to shocks — a bit like the British, who only get going when their backs are up against the wall. Britain’s own Big Bang in the mid-1980s came when the British economy had been pushed to the wall and then-Prime Minister Margaret Thatcher released the creative energy of the nation and the whole economy recovered.

Banks have responded to the Ripplewood/LTCB “shock” by forming tieups with all and sundry across the financial sector. Before Big Bang, each financial activity was kept in a separate compartment, so this itself is a sign of major change. But is there a vision driving this change? From my point of view, it looks more like fear than vision is at work. Fear is prompted by the fact that globalization, and the information economy that underpins it, can now produce “virtual banks” like Ripplewood from nowhere, and that these new “masters of the universe” can, in a matter of months, pull together the resources to place themselves at the heart of a financial system.

Ten years ago, Japanese banks were similarly poised to take over big-name banks around the world. The difference then was that their weapon was cash, not knowhow. Around that same time, futurist Alvin Toffler was writing about the new knowledge economy, and how knowledge would secure power, not industrial or military might. His book, “KnowledgeShift,” became a best seller in Japan, but its contents were probably not fully appreciated until the impact of what he described reached Japan’s shores in the form of Ripplewood, a pure example of a knowledge-based company.

Japanese banks and other financial institutions have responded by closing ranks in the most extraordinary way — “keiretsu” banks have joined other keiretsu banks, life companies have joined up with trust banks and city banks have joined other city banks. It all looks like a run to safety in size and numbers. Looking at the most extreme example — the proposed merger between Sumitomo and Sakura Bank — one can only wonder at how two of the oldest “zaibatsu” banks, with their correspondingly different cultures, will be able to maintain the relentless focus that will be needed to squeeze costs and add value in the new era of global competition.

Size might make sense for cross-selling financial products in the new Big Bang era, when multiple distribution channels will be an advantage. But what about the Internet, which makes most physical distribution outlets unnecessary? Here the threat comes from a combination of foreign companies and new startups that will confound the megabanking groups. This is where the real battle in the knowledge economy is going to occur.

Around the time that Toffler published “KnowledgeShift,” Sony’s Akio Morita helped to coauthor “The Japan that Can Say, No!” It did not discuss the knowledge economy, even though it was trying to explain how Japan could become the foundation for a new kind of global economy. It was written mainly to assert Japan’s potential to strike out independently in the next century, when it was widely expected that cultural paradigms and economic models would flow more heavily from the East than from the West. No one could know then that the global economy and the knowledge economy would merge so quickly through the Internet, but Toffler at least understood the direction.

The question this poses as the new century opens is whether Japan is going to remain essentially inward and preoccupied by its own rituals, as the banking mergers suggest, or whether new generations, with dyed-blond hair, will be running a new information economy. To achieve the latter (with or without dyed-blond hair) Japan might be wise to retain its Swiss-like neutrality and its self-effacement, rather than to choose the self-confident assertiveness promoted by Shintaro Ishihara, Morita’s coauthor and Tokyo’s present governor. One of Japan’s strengths in the global era will derive from the ability to remain open and receptive to outside ideas, humble in seeking advice, commercial about using it and flexible in reacting to change. The bubble economy destroyed some of those virtues by producing too strong a belief in Japan’s unique capabilities. When Ishihara and Morita tried to capitalize on this they got their timing badly wrong, for within a handful of years the bubble had burst and the Internet had exploded.

Japan’s political modesty and focus on commercial self-interest have become the model for countries like China and most of Asia, but it is now Japan’s challenge to go much further than this and use its earlier openness and receptivity to become a model participant in the global community. In this respect, the final hope for the “new Japan” may lie in the new generation of simultaneous personal translator machines. It seems almost too good to be true, but recent breakthroughs promise machines that will translate our voices in real time as we talk over the telephone or cell phone. Can you imagine Japan overrun by cell-phone-toting visitors, connecting with people around the world all speaking different languages. In the reverse direction, picture Japanese people suddenly liberated to visit places that they hadn’t dared visit alone before. Imagine Japan’s island people suddenly becoming powerfully connected with the outside world. Here is a powerful vision and starting point for a new millennium.

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