For a nation that prides itself on monozukuri, an almost mystical belief in the art of making things, this is a shocking conclusion for the boss of Toyota to arrive at. In feudal times, artisans came above merchants in the pecking order. Even today, the Japanese hold a residual suspicion of finance – ‘money made from money’ in the words of one economy minister, who told me that Edo Japan outlawed usurious interest rates.38 The Japanese still consider making things to be more honourable. Some Japanese business leaders, perhaps remembering the disastrous forays abroad of banks, worry that the service industry is not cut out to compete internationally. Japanese standards of service are rightly legendary but not easily transferred abroad. When they have made bold gambits overseas, for example in banking in the 1980s, Japanese companies have tended to overpay for acquisitions and to struggle to convey a global vision to an international workforce. ‘Japan’s whole identity is tied to manufacturing,’ says Yoshikazu Tanaka, founder of Gree, an online gaming company and one of the most prominent recent success stories outside traditional industry.39
Few companies epitomize the decline of manufacturing like Sony, a byword for Japanese quality and innovation after the war. The company that invented the Walkman, the world’s first portable music player, and the Trinitron TV, with its revolutionary bright picture, has become shorthand for the dismal slide of manufacturing prowess. By 2012, Sony had not turned a profit in five years and, in that year, announced the sidelining of Sir Howard Stringer, the razor-sharp Welshman it had hoped could turn its fortunes around. For years, Sony has been outflanked by rivals such as Apple and Samsung. Though it has shed jobs by the tens of thousands, shipped out production to China and come up with device after unmemorable device, it has only fallen further behind. By mid-2012, its market value had dwindled to one-thirtieth of Apple’s. Samsung, a company from the former Japanese colony of South Korea, now regularly makes more profits than the top fifteen Japanese electronics companies combined.40
Sony’s biggest failing was its inability to navigate the industry’s transformation from analogue to digital, or from ‘knobs’ to ‘menus’ in Sir Howard’s clever phrase.41 That was more a question of lack of imagination than of technical knowhow. Akio Morita, Sony’s legendary co-founder, had thought hard about digitalization early on and Sony had a library of music that had come with its acquisition of CBS records. But Sony’s engineers, the mainstay of its early success, resisted what they saw as flighty ideas about networks and convergence. As late as 2004, the company’s devices did not support the standard MP3 format. Sony’s PlayStation video console was more successful. But even that lost its lead, failing to stave off the challenge from cheaper rivals and online games.
Yasuchika Hasegawa, boss of a pharmaceutical company and chairman of the Keizai Doyukai business lobby, says Sony illuminates a broader Japanese failing. ‘We continue to excel at developing and manufacturing the parts that go into machines and devices, but we miss the larger opportunities that developing new product concepts would bring,’42 he says. Japanese companies knew how to make more than two-thirds of the parts that went into both the iPod and the iPhone. But they were so focused on ‘partial optimization’ that they missed out on what really mattered: creating and marketing a digital ecosystem. Where, in the commonly heard cry, is Japan’s Google, its Twitter or its Apple?43 Where is the Japanese Steve Jobs? For Hasegawa it comes as only mild consolation that many devices still contain Japanese components of the sort made by Nichicon. In his view, Japan has downgraded from ‘Made in Japan’ to ‘Japan Inside’.
Manufacturers do still excel at making niche components as well as specialist equipment such as robots – in which Japan continues to be a world leader – and steppers, the machines used to produce silicon wafers for the electronics industry. Japanese companies manufacture all kinds of specialist chemicals, machine tools, automated systems, lenses, micro-controllers, tiny motors and dozens of other components and inputs indispensable for modern existence. Japanese car-makers, including Toyota, Nissan and Honda, continue to innovate and to excel. Japan, unlike Britain, whose manufacturing industry has shrivelled, is still good at making things you can drop on your foot. The decline of its electronics industry has been highly visible, since the brands that have faded – Sony, Sharp, Hitachi, Panasonic and many others – were once standard features in many middle-class homes around the world. That dramatic slide, though, has obscured the more enduring performance of companies that are less well known to consumers, whether they make industrial machinery, materials or tiny components. Take the case of South Korea’s Samsung, whose success has caused so much damage to its Japanese rivals. Yet Samsung remains a huge importer of Japanese manufactured inputs, the quality of which it still cannot match itself or buy from other South Korean companies. For all its industrial success, South Korea still runs a big trade deficit with Japan, strong evidence of Japan’s enduring competitiveness in certain fields. Japan, after all, continues to head the global league table of granted patents, beating even the US, though it trails in Nobel prizes and academic citations, suggesting perhaps that more of its innovations are incremental improvements rather than revolutionary breakthroughs.44
If, as Hasegawa suggests, the Japanese are somehow better at perfecting existing manufacturing techniques than inventing entirely new concepts, Japan’s best days could indeed be behind it. That would fit the theory of those who argue that the country’s rigid social structure and strong work ethic were better suited to the catch-up phase of industrial development than to the post-industrial era. I once visited a Canon factory on the outskirts of Tokyo where workers in identical jumpsuits perfected techniques to keep their movements to a minimum, the more efficiently to assemble complex devices such as colour photocopiers. There was something of the discipline of karate about the way they moved. So skilled had they become at eradicating both temporal and spatial ‘waste’ – muda, they called it – that the workers were now huddled together in smaller and smaller working zones. Whole areas of the factory floor had been ‘liberated’ by their perfection of techniques to build photocopiers in ever tighter spaces. One rather wondered to what avail. These were the sort of obsessions suited to the production age, when Japan was chasing the world’s leading manufacturers by making incremental improvements to existing techniques. These skills may be less useful in a post-industrial era where the goal is to invent whole new ways of doing things. ‘You need a different mentality to fend off the guy coming from behind. You need different talents, a different organization of society,’ says the economist Richard Koo. Japan, he argues, lacks people who can think independently and ‘not just regurgitate what the professor says’.45
Part of Japan’s problem, say some, is what Yoichi Funabashi had referred to as the ‘Galapagos syndrome’. Named after Charles Darwin’s observations about how animals adapt to specific environments, in Japan it had come to mean the development of technology too narrowly catered to the obsessively finicky home market. Mobile phones are Exhibit A. Japan had phones capable of surfing the internet nearly a decade before the iPhone. Sharp was the first company to attach a camera to a mobile phone. But producers failed to market their innovations abroad or radically rethink their designs. As a result, Japan was eventually invaded by smartphones made by Apple and Samsung. Similarly, Sony invented an e-reader several years before Amazon’s Kindle, but failed to commercialize its invention, which never caught on in the US or Europe.46 ‘Nuts and bolts are Japan’s past, not its future,’ says Masayoshi Son, the founder of Softbank, an internet company, and the man most often mentioned as an entrepreneur suited to the post-industrial age.47 Son argues that Japan should give up on labour-intensive manufacturing altogether and focus instead on capital-intensive, high-tech industries such as information technology, alternative energy and pharmaceuticals. It should emulate Apple by concentrating on designing software as well as hardware, and by developing new business and marketing models, he says. Manufacturing can be done elsewhere.
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Son’s analysis suggests that a certain degree of ‘hollowing out’ may be inevitable, even a sign that industry is adapting as it should to a new era. Increasingly, companies locate routine manufacturing abroad but keep their ‘black box’ technology in Japan. They are also buying companies in what they hope are high-growth markets such as India, Brazil and Indonesia. That may not be good for employment, although, since Japan’s labour force is shrinking anyway, this may not matter as much as it once did. It may not be good for tax collection either. Yet the fact that Japanese companies are buying more and more companies abroad – in record numbers in recent years – may be a sign that they are putting their capital to use where it has a better chance of counting. In 2012, Japanese companies spent $113 billion on foreign acquisitions, buying healthcare, telecoms and food companies among others. That was second only to the US, whose companies splashed out $174 billion in the same year. Japanese companies spent nearly twice the amount laid out by Chinese ones, perhaps surprising given the headlines about moribund corporate Japan and aggressive Chinese companies intent on snapping up assets around the world. Japan also outspent British companies by two to one.48 To those who believe Japan’s great strength is monozukuri, these trends are worrying. But in a world where more countries are getting better at making things and the domestic economy is flat, going abroad in search of profits and innovation may be just about the smartest thing Japanese companies can do.
• • •
A few years ago, an opinion piece in the New York Times caught my attention. Written by Norihiro Kato, professor of Japanese literature at Waseda University, it was titled ‘Japan and the Ancient Art of Shrugging’.49 It was a celebration of slow growth. Kato had written his essay just as China had overtaken Japan as the world’s second-largest economy.50 For the first time in more than four decades, Japan was back at Number Three. Rather than fretting about it, as the country’s old economic warriors did, Kato said the national levelling off was something to celebrate. ‘Japan doesn’t need to be No. 2 in the world, or No. 5 or 15. It’s time to look to more important things,’ he wrote. Kato called it the end of the ‘right-shoulder-up’ era, a Japanese term for a graph that keeps ascending. Well before the burst of the bubble in 1990, there had been signs of a tapering off, he said. The population had risen by more than 1 per cent each year from 1910 to 1977, at which point it began to slow – until 2005 when it actually shrank.51 Right shoulder down. Similarly, a graph of rice production between 1878 and 1980 showed a slowdown from the 1960s after nearly a century of steady expansion. ‘Decades before China overtook Japan, the country had started downsizing, preparing for a smooth landing.’
Of course, the old guard would never let go of their dreams of endless expansion, Kato said. But Japan’s youth seemed quite content with the new state of affairs. They had become, he said, ‘non-consumers’. Japanese in their late teens and early twenties, ‘did not have cars. They didn’t drink alcohol. They didn’t spend Christmas Eve with their boyfriends or girlfriends at fancy hotels downtown the way earlier generations did.’ They worked hard at part-time jobs, and spent hours at McDonald’s sipping cheap coffee. They ate fast-food lunches at Yoshinoya, a restaurant chain of good quality but very low prices, serving grilled beef over rice for as little as $3 a bowl. The Japanese, he suggested, were pioneering a new sort of high-quality, low-energy, low-growth existence.
I thought Kato’s was a brave article. It was certainly open to ridicule. It challenged one of the unspoken tenets of the modern age – that an economy, like a shark, has to keep moving forward if it is to stay alive. But it broached a subject that was too often ignored. Was growth the be all and end all? Did decline have to mean death? After all, Britain was overtaken by the US as the world’s biggest manufacturer in 1900, just as Japan had been pushed behind China in 2010. Yet most British citizens live far more comfortably today than their ancestors at the turn of the last century. Japan too was in relative decline, but according to Kato, it was learning how to live better.
Kato’s was also an expression of something I had heard many times in Japan. Typical was a friend of mine, the photographer Toshiki Senoue, who travelled with me to the battered northeast coast in the days after the tsunami. ‘They talk about Japan’s decline,’ he said once when we were driving up to the same coast another time. ‘But there’s no potholes on the street, there’s good quality cars, no violence, clean air. It’s OK.’ Japanese food was the best and healthiest in the world, he said. Life was pretty comfortable. He paused. Decline wasn’t too bad. ‘And if you decline, maybe one day you can go up again.’ Machiko Satonaka, a well-known illustrator of manga comics, had said something similar. ‘People talk of Japan as losing its economic power. But that’s OK. We don’t care. We don’t want to be a superpower,’ she said. ‘Our values are evolving. Now our dreams should be how to create a safe society and a clean environment.’ Such views can sound almost like heresy, but they are a powerful undercurrent of Japanese thinking. Growth was not all it was cracked up to be, these people were saying. There was more to life than the endless pursuit of GDP.
I arranged to have coffee with Kato. We met, suitably enough, in the lobby of a hotel built during the bubble years. It was a little too garish for its own good, and looked dated in a Japan where the understated is once more a sign of good taste. Kato’s hair, slightly tinged with grey, was sticking up as if responding to an unseen magnet hovering above his head. He was wearing blue jeans and a purple shirt. His face was animated, an ironic smile never far from his lips. His brain seemed to work faster than his mouth, and he occasionally struggled to order his thoughts properly.
Kato likened modern economies to the Hollywood action movie Speed, starring Sandra Bullock, in which a bomb is put on a bus full of passengers. The hijacker warns that, if the speed of the bus drops below fifty miles an hour, the bomb will go off. It was an interesting twist, Kato said. In a normal action movie, everything went faster and faster until the climax. In Speed it was the opposite. If the bus slowed down there would be an almighty explosion. ‘It’s the same with economies. We can’t slow down without provoking a disaster,’ he said. Speed was influenced by a script written by Akira Kurosawa (1910–98), one of Japan’s most celebrated directors. His film, shelved for lack of finance, was to have been called Shinkansen Explosion. In the plot, a bullet train was set to explode if its speed dropped below 80 kilometres or rose above 120. ‘But why do we have to stay between 80 kilometres and 120 kilometres an hour?’ Kato asked. ‘We understand what it is to maintain a certain sustainable growth speed, not above, nor below. Our growth was based on production. The post-growth period is about how to make better use of what we have. Rather than being larger our economy needs to be fitter.’
Kato reached for another metaphor. ‘In the plant world, you can’t constantly pursue growth. A plant can’t bear fruit until it has finished growing and reaches maturity.’ Growth in Japan’s heyday was skewed. ‘It was only growth if you excluded many things,’ he said, referring to what economists call ‘externalities’, the unmeasured spillover effects of actions, for example on the environment or on people’s health. ‘Capitalism speaks in terms of limitless growth, but there are finite resources. What seemed possible in the 1960s and 70s is clearly no longer possible.’ Kato reminded me of Walter Berglund, the heroic crank of Jonathan Franzen’s Freedom, who argues that growth in a mature economy – as in a mature organism – is not healthy. It is cancerous. Kato is a professor of literature, not of economics. But even some economists are questioning how we should measure economic performance. At its crudest, people confuse growth with wealth. Bankers and investors tend to be more enthusiastic about a poor country, say China or India, which is growing rapidly than they are about a wealthy one that is maintaining a high standard of living. That viewpoint, in turn, gets reflected in the business pages of newspapers.
Kenneth Rogoff, professor of public policy at Harvard, has written about the best ways of measu
ring growth. In an essay called ‘Rethinking the Growth Imperative’, he says standard economic statistics do not measure life expectancy, literacy and so on. The United Nations Human Development Report ranks nations according to these broader measures of quality of life. In its 2011 report, Japan comes in at number 12. Norway is number 1, with the US at 4, Germany at 9, France at 20, Singapore at 26 and Britain at 28. As with rankings of the most ‘livable cities’, these exercises can be subjective, but the aim is to correct what Rogoff calls the ‘statistical narrowness’ of GDP.52
In his essay Rogoff argues that ‘people are fundamentally social creatures [who] evaluate their welfare based on what they see around them’. Imagine, for example, the fabulous wealth of Nelson Rockefeller, the American businessman and philanthropist who died in 1979. For all his riches, Rockefeller could never have bought a laptop or an iPhone, items that have become standard fare for pimply teenagers in Tokyo and elsewhere. Rockefeller didn’t feel cheated because none of his associates had an iPhone either. Yet such advances in technology are not captured in standard growth statistics. One only needs to think what kind of television set, computer or mobile phone an average Japanese of today owns compared with her supposedly more prosperous counterpart in the roaring 1980s. If you can buy higher-quality items with the same amount of money then you have become better off. In any case, Rogoff asks, how much we should care whether it takes 100 years or 200 years for an economy to grow eight-fold. An economy growing at 1 per cent would double in size in seventy years and grow eight-fold after 200, he says. One growing at 2 per cent would double in thirty-five years and increase eight-fold in just 100. But, Rogoff wonders, does that matter? ‘There is a certain absurdity to the obsession with maximizing long-term average income growth in perpetuity.’
Bending Adversity: Japan and the Art of Survival Page 23
