https://hbr.org/1998/01/reinterpreting-the-japanese-economic-miracle
by
Patrick Smith, Japan: A Reinterpretation, (New York: Pantheon Books, 1997).
Noboru Yoshimura and Philip Anderson, Inside the Kaisha: Demystifying Japanese Business Behavior, (Boston: Harvard Business School Press, 1997>
Whatever happened to Japan? In the early 1990s, the nation lost its status as an economic juggernaut—the model to emulate in industrial policy, management techniques, and product engineering—and found itself a beleaguered nation in its worst recession since World War II. Japan’s political process now appears hopelessly stalled, its bureaucracy top-heavy and meddlesome, and its business practices entrenched and inflexible. The competitiveness debate of the 1980s has petered out as the resurgent U.S. economy leads the way into the Information Age. It is as if Japan, the eager pupil of U.S. business success, had briefly become the teacher only to be demoted after a few lectures.
In the wake of this astonishingly rapid transformation, it is time to reexamine the Japanese economic miracle. What can we learn from the country’s solid 40-year record of success? Has it exhausted its system? Can other countries adopt Japan’s system piecemeal, picking and choosing elements to enhance their own industrial performance? Or is the system a coherent whole, as many have argued, and thus difficult to emulate?
The end of the Cold War has allowed the West to get beyond what had been a confining and oversimplified view of Japan. That view took shape following the communist invasion of South Korea in 1950, when a group of U.S. academics created a sanitized picture of the nation. They portrayed Japan as a land of harmony (wa) and the wholesome values of hard work and long-term vision, and in doing so, they turned the United States’ recent enemies into allies who would lend their efforts to the anticommunist crusade. As a prelude to U.S. authorities’ reinstallation of Japan’s prewar elite, the academics helped to explain away the recent militarist past as a historical aberration.
The end of the Cold War has allowed the West to get beyond what had been a confining and oversimplified view of Japan.
As Japan’s economy began to take off in the 1970s, a series of laudatory books cemented this benign image in the American mind and created a number of management myths that persist to this day. The books developed a formula that became tediously familiar: choose some aspect of Japan’s management style or industrial policy—such as bottom-up decision making, Deming-style quality control, or diffusion-oriented technology plans—as the hidden key to Japan’s “smarter” capitalism, and then build an overarching argument around it. At their worst, the books extolled phenomena that existed only in their authors’ minds, from companies so democratic and cozy that they served as surrogate families, to prescient bureaucrats masterminding 100-year economic plans. Even when the authors got it right, they tended to focus narrowly on management innovations, neglecting the larger context of trade and industrial policies.
It was not until the late 1980s that revisionist critics effectively presented an alternative view. Their timing was good: not only was the Cold War nearly over, but Japan’s enormous trade surpluses were becoming a cause of great concern in the United States. For these critics, Japan’s success came from its adversarial trade policies and powerful industrial cartels. They claimed that the country was run by an entrenched oligarchy that sacrificed the well-being of its citizens to cold economic imperatives. Instead of playing better, they argued, Japan wasn’t playing fair.
The revisionists made many important points, but their shrill denunciations of Japan and its apologists frequently bordered on the hysteria and personal bitterness that afflict pioneers of long-ignored points of view. Now that Japan’s presence has faded somewhat from the international scene, more balanced analyses are beginning to emerge. Patrick Smith’s Japan: A Reinterpretation thoughtfully explores post-World War II cultural developments from a journalist’s standpoint. Inside the Kaisha, by Noboru Yoshimura, now at Bankers Trust in Tokyo, and Philip Anderson, a professor at Dartmouth College’s Amos Tuck School of Business Administration, offers an insider’s view of why the managers of large companies in Japan behave as they do. Both books analyze Japan’s strengths without romanticizing them; they also acknowledge its weaknesses while avoiding excessively negative judgments.
The Roots of Japan’s Success
Japan is the purest example of what has become known as a producer economic state, and many of its economic practices are now familiar. For nearly 40 years, the country subordinated other goals in favor of catching up with—and perhaps surpassing—the U.S. economy. The revisionist critics correctly emphasized the role played by Japan’s government in working toward that goal, but they neglected the other two pillars of Japanese success: large companies and a well-educated workforce. Those three pillars cooperated on an unusually focused developmental strategy that generated impressive economic efficiencies.
A key element of Japanese success was the keiretsu. By banding into keiretsu—huge business groups that link industrialists, banks, and trading companies through reciprocal ownership of stock and long-standing exclusive relationships—individual companies gained financial strength and connections that allowed them to undercut foreign and domestic rivals. Their mission was to gain market share rather than accumulate short-term profits, and they aggressively entered high-growth sectors with long-term potential. The concerns of consumers and outside stockholders, who had few other outlets for their earnings besides low-interest savings accounts, were secondary.
Although the keiretsu themselves were stable, they created a business environment of extreme competition, at least in the sectors that targeted international markets. Japanese companies (kaisha) went to great lengths to keep up with one another, copying new-product designs as well as innovative production techniques. If they fell behind, they suffered a loss of reputation, or face.
In practical terms, such competition meant that new ideas and technologies could be absorbed throughout the economy with extraordinary speed. Under the envious eyes of Western observers, Japanese managers seemed to easily integrate robots, computer chips, and “fuzzy logic” software into their manufacturing plants and products. And Japan’s competitive spirit also spawned some of the most widely imitated practices in industrial management: total quality control, lean production, and cross-functional product development.
Manning the kaisha were the elite salarymen: loyal, lifetime employees willing to work extremely long hours. Hired directly out of the country’s prestigious universities, they were cloistered in company dormitories and drilled to learn rigid rules of behavior, such as the precisely choreographed submissive posture to take before certain clients and how low to bow to various superiors. The rules constituted an entire coded language incomprehensible to outsiders. Even very young Japanese students were part of the regimen, as they submitted to a grueling examination system that prepared them to enter corporate life with dependable analytical skills and a proper attention to rules.
The Japanese government, meanwhile, acted as a business adjunct and referee, steering keiretsu into promising sectors by providing tax breaks, cheap credit, and “administrative guidance.” A variety of other policies assisted and protected companies, including trade barriers and an exchange rate that discouraged imports and promoted exports. For their part, Japanese consumers accepted high prices and scarce credit. While the kaisha grew in leaps and bounds, their employees and the rest of society made do with relatively low living standards.
How the Bubble Burst
The Japanese economy first showed signs of serious strain when the “bubble economy” of the 1980s—the speculative boom that generated hundreds of billions of dollars in bad corporate debt—burst and brought on a deep, persistent recession. But the bubble of Western enthusiasm for Japan’s business practices has popped only recently. Many of the practices acclaimed as the secrets of Japanese success—such as advancement by seniority and management by consensus—are slowly being revealed as severe impediments to needed reforms. These books are among the first to analyze clearly the costs of such practices. The limits of the Japanese business model, as the competent copier of the inventions of others, appear to have been reached.
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