Commentary / World

Japan changes -- its own way

by Glen S. Fukushima

“Is Japan changing?” This is the question asked by virtually every recent visitor to Japan. The question reveals both the long-standing desire by many non-Japanese to see Japan change in fundamental ways and the heightened expectations fostered by years of hope-inducing Japanese rhetoric that the country is experiencing a “Third Opening,” comparable to that following the Meiji Restoration of 1868 and the end of World War II in 1945.

In evaluating change in Japan, one always needs to ask, “Compared to what?” If the comparison is chronological — i.e., between Japan of the past and Japan of the present — there is no question that this country is constantly undergoing change. If, however, the comparison is cross-national — i.e., between Japan and other industrialized countries — the extent of change may be much more modest.

Take, for instance, mergers and acquisitions in Japan. Although M&As here have been rare, there has been a growing recognition recently of the positive role they can play in a firm’s corporate strategy and a nation’s structural adjustment. Accordingly, there was a 38 percent surge in the number of M&As in Japan between 1997 and 1998. This is an impressive number, until one realizes that the actual number of M&As, grew from merely 671 to 929 cases. Britain, with a GDP roughly one-third of Japan’s, had in 1998 over 2,200 cases of M&As, totaling more than 50 times the value of the M&As in Japan. And the United States in 1998 had 11,400 cases of M&As with a total value 564 times those in Japan. So a huge change viewed chronologically is often only a modest change cross-nationally.

Changes can be analyzed for their scope, scale, depth, pace and permanence. First, how widespread or broad in scope is the change? Are changes that are evident in Tokyo — for instance, greater reliance for corporate procurement decisions on market factors such as price and quality rather than long-term supplier-buyer relationships — also occurring in the 90 percent of the population located outside of the capital? Western observers have often been misled into believing that what they hear from a select group of English-speaking informants in Tokyo applies to the country as a whole.

Second, how large is the scale of change? Several Japanese companies have recently reduced the size of their board of directors and added outside board members. Some observers believe this shows Japan’s acceptance of Western models of corporate governance and shareholder value. But in addition to the question of scope (i.e., what proportion of leading Japanese companies have reduced their board size and added outside members), one has to ask whether these changes are of a sufficient scale to make a difference — are the outside board members truly “independent” and do they wield any influence on the board’s decision-making?

Third, how deep is the change? Pursuant to legislation passed in July 1999 based on recommendations by the Administrative Reform Council during the Hashimoto Cabinet, the number of central government entities is to be reduced from the current 23 to 13 by January 2001. But much of the focus has been on how to “rearrange,” “reorganize” and “relabel” the ministries and agencies. To what extent this will result in deep and fundamental changes in the function, power, jurisdiction and intervention of the central government in the political, economic, social and cultural life of the nation is far from clear.

Fourth, what is the pace or speed of change? Since the inauguration of the first Obuchi Cabinet on July 30, 1998, there have been at least three high-profile national commissions to recommend reforms — the Economic Strategy Council, the Industrial Competitiveness Council and the Commission on Japan’s Goals in the 21st Century. Their reports contain a number of creative proposals that might induce positive change in Japan. Yet even former members of these councils have complained that a lack of political will coupled with a lack of a sense of urgency have resulted in no clear timetable or milestones to implement major elements of these proposals in a speedy and concrete way.

Fifth, how permanent is the change? One of the encouraging trends in recent years is the increasing receptivity among Japanese both to inward foreign direct investment and to working for foreign capital-affiliated companies in Japan. When 5,000 Japanese between the ages of 20 and 40 were asked in a recent magazine survey, “To what company would you most like to move?” three of the top 10 companies chosen were non-Japanese (Microsoft, Citibank and Yahoo). This is a dramatic change from a decade ago, when even the most well-established foreign companies had difficulty attracting top Japanese talent. But whether the current change constitutes a growing trend or an aberration caused by the temporary slowdown of Japanese companies remains to be seen.

Finally, outside observers should examine carefully the implications of change in Japan for foreign interests. This is because change is rarely what it appears to be on the surface. For instance, when the “Financial Big Bang” was announced in 1996 by then Prime Minister Ryutaro Hashimoto, the Western media hailed it as a bold step aimed at “liberalizing” Japan’s financial markets. What these accounts missed is that “liberalizing” their financial markets is seen by Japanese not as an end in itself, but rather as a means to create more globally competitive Japanese financial institutions. The Japanese strategy rests on avoiding the “Wimbledon effect,” a term virtually unknown to foreign observers who do not read or speak Japanese.

All of the above is not to deny that changes are taking place in Japan. But whether they constitute the “Third Opening” of Japan comparable to 1868 and 1945 is questionable. External forces played a major role in these two openings. Are internal forces sufficient to bring about similar results this time?

Western observers too often equate change in Japan with convergence with the West. They need to cut through the rhetoric and objectively examine the scope, scale, depth, pace and permanence of changes in Japan and carefully assess their impact on foreign interests. The first and second “openings” led to dramatic changes, but they did not remake Japan into a Western nation. There is little reason to believe that a third “opening” — even if it comes to pass with the power of globalization and the Internet — will replace a distinctively “Japanese-style capitalism.”

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