Commentary / Japan

Japan's place in the world

by Hugh Cortazzi

The statements and attitudes of some of Japan’s right-wing leaders often undermine the nation’s reputation in the rest of the world. Japan’s influence and prestige are also jeopardized by the way in which business and government are operated as well as by Japanese adherence to traditional behavior patterns.

The problems caused by industrial and financial scandals are not unique to Japan. The scandalous and fraudulent fixing of emissions and fuel-efficiency tests has dealt a serious blow not only to Volkswagen but also to Germany’s industrial reputation.

There have been industrial and accounting scandals in every jurisdiction. The long-term impact of such scandals depends on the speed and efficiency in the way they are handled.

The reputation of Japanese companies before the war and for some years after the war was tarnished by accusations of copying of designs and trademarks, low quality and poor safety standards. This image was swept away by Japanese insistence on high-quality products and superior technology. Japanese business leaders gained respect for their integrity and trustworthiness. Unfortunately the recent Japanese record in dealing with business scandals, which has often seemed dishonest and inept, has undermined Japan’s reputation for integrity.

The Fukushima disaster revealed serious shortcomings in the official supervision of the nuclear industry and in Tokyo Electric Power Co.’s management of the nuclear plant. The picture that has emerged is of a concerted attempt to cover up failings by the responsible bodies and individuals. I am unaware of any successful individual prosecutions or financial penalties other than those arising from the inevitable consequences of a natural disaster. Japanese companies involved in nuclear designs in other countries will find it hard to live down the damage done to Japan’s reputation.

The Olympus scandal was not the first or the last example of fraud and cover-up, but it was particularly egregious. No one has gone to jail for dishonesty and deceit. The Japanese reaction seemed to be “loyalty to colleagues and the company first and last.” The way in which top Japanese business leaders endorsed this strategy and the way in which the Japanese media were corralled into the coverup have left a very bad impression.

Unfortunately, it would seem from the Toshiba profit scandal that the sort of attitudes that allowed the Olympus fraud to grow were not confined to medium-size companies but have infected at least some of the mega-firms.

The Takata Corp. air bag scandal suggests that Japanese commercial morality leaves a great deal to be desired. It also demonstrates that Japanese companies need to learn quickly that if something goes wrong the worst response is to obfuscate and lie.

The wise response is to recall the product immediately and agree to compensate those affected, even though this may cost the company a lot of money and red faces among those responsible. Contrition needs to be demonstrated before, not after, the scandal has blown up. Only by so doing can damage to reputation be limited.

The new rules for the appointment of outside directors to the boards of Japanese companies, part of Prime Minister Shinzo Abe’s “third arrow,” were supposed to prevent these sorts of scandals arising, but outside directors are often chosen through old boy networks. Companies can also filter the information that independent directors receive about the operations and finances of their firms. Accountants are often too close to management and even if they do spot potential problems they are reluctant to make trouble in case their contracts are not renewed.

A fundamental problem is that Japanese are not encouraged in school to challenge their superiors and question their mentors. If they do they are unlikely to be promoted and may be ostracized for alleged lack of loyalty and community spirit.

In the Meiji Era, the government sent many students abroad to study. Many of these people became the leaders who transformed Japan from a largely feudal agricultural economy into a leading industrial power.

Unfortunately, while they brought revolutionary thinking to the organization of government and industry, they did not challenge the growing ambitions and chauvinism of Japan’s military leaders. That said, Japan and Japanese companies would benefit from the fresh air that could be brought into strategic and tactical thinking by more young Japanese men and women being exposed abroad to controversies and encouraged to debate and argue.

Not so many years ago, Japanese students were competing to get into the top universities abroad. If you saw an Asian in a major university town you could be fairly sure that he, or less frequently she, was a Japanese. Today the vast majority of such students are Chinese.

Japan has a population less than one-tenth that of China, whose economy has been growing at a faster rate even than that of Japan in the “double the income” decade. So perhaps the number of Chinese students is not so surprising.

Willy-nilly, China and Japan are being thrust ever deeper into globalization in trade, manufacturing and services. This makes it all the more important that Japan should have business and political leaders not only competent and trustworthy but also with an understanding of the world outside Japan as well as imagination and energy.

Such leaders are needed to ensure that the Japanese economy is able to respond flexibly and positively to the changing world environment. Japan and Japanese companies cannot afford to be complacent about competition from China (or South Korea) in science, technology and innovation.

Japan does not have enough articulate and effective English speakers capable of arguing Japan’s case in international meetings. The Japanese government and Japanese business organizations, in collaboration with major Japanese companies, should ensure that more outstanding young Japanese study abroad and become global thinkers who can earn international reputations and can argue effectively for Japan’s interests in international forums.

Those selected should be chosen for their willingness to accept challenges and must be assured that on return to Japan they will gain rather than lose as a result of their studies and service outside Japan.

Hugh Cortazzi served as ambassador from the United Kingdom to Japan from 1980 to 1984.