In Japan the old ways still exist side by side with the disruptive influence of technology and innovation ©Getty Images
In Japan the old ways still exist side by side with the disruptive influence of technology and innovation ©Getty Images

Lessons from Japan

The world’s third-largest economy has benefited from years of careful attention to infrastructure and international trade. But can Japan’s industrial titans change fast enough to stay at the top for the 21st century? SM explores the complex relationship between the country’s traditional past and its high-tech future 

In the 1980s, Japan was hailed as the nation of the future, where capitalism was being reinvented. Business leaders and management gurus flocked to Tokyo, hoping their visit would unfold the shining secrets of the country’s economic miracle. Its cult image began to unravel when a clairvoyant called Nui Onoue – who was so successful at turning the ‘insights’ of a brown ceramic toad into investment advice that she controlled a $20bn share portfolio – failed to anticipate the stock market crash or the ‘lost decades’ of economic stagnation that followed. 

Since 2012, Abenomics – as the strategy named after long-serving prime minister Shinzo Abe is known – has stimulated the economy, but structural reform was required to improve labour supply and deregulate domestic markets. And as Brad Glosserman says in his 2019 book Peak Japan: The End of Great Ambitions: “The government’s willingness to make the hard choices to achieve that remains open to question.” 

He suggests that the Japanese concept of ‘wa’ (harmony), as nice as it sounds, is holding back innovative thinking and policies. As the UK and Japan have both discovered, no country is immune to the vagaries of the economic cycle, no matter how robust its economic model appears to be. So will Japan be future-proof? Here are our observations.

Wanted: a new outlook
Japan’s post-war economic miracle was partly inspired by the savvy senior civil servants at the legendary Ministry for International Trade and Industry (MITI). From the 1950s to  the 1970s, during its heyday, it was effectively deciding where resources should be allocated, and every potential prime minister was expected to do a stint there. Attempts to replicate MITI’s success elsewhere have, with the possible exception of Singapore, been thoroughly unproductive. 

It’s time to recognise this and move on, advises Glosserman. “The digitally powered, creatively entrepreneurial global economy is moving too fast for that kind of intervention to work any more,” he says. An effective industrial policy for the 21st century is more likely to focus on creating the conditions for entrepreneurial success, and Abe’s government is now, somewhat belatedly, trying to encourage innovation and a start-up culture. 

The ‘keiretsu’, as Japan’s traditional corporate titans are called, are finally getting the message. Toyota is investing $500m in Uber’s driverless vehicle unit, Honda is backing GrabTaxi, one of Uber’s rivals, and Nintendo is developing mobile games with Korean-owned messaging app Line Corp. 

Environmental stagnation
The country will become carbon neutral “at the earliest possible time in the latter half of this century”, the Japanese government announced in June. This will be achieved, officials say, through “disruptive innovation”, a view that has left critics wondering what kind of innovations reduce the nation’s dependence on coal (which supplies around 33% of its energy). 

The pledge typifies Japan’s inconsistent record on the environment. On the one hand, the town of Kamikatsu is on course to recycle all of its waste by 2020, and on the other, the country is resuming commercial whaling (a move perceived as driven by national pride). The nation also seems addicted to single-use plastic – it is the second highest user per capita in the world after the US – and the plans to reduce that dependence are, comparatively, unambitious. Yet Japan has a lot to gain from a bolder environmental policy. Jared Diamond argues in his book, Upheaval, that as one of the biggest importers of natural resources, it should be leading the world in the sustainable use of resources. It isn’t. He concludes: “If I were an evil dictator who wanted to ruin Japan, I would do exactly what Japan is doing to itself.”

Positive infrastructure
By 2030, a passenger on Japan’s latest shinkansen train could be travelling almost as fast as Lewis Hamilton in his Mercedes F1 car. Tests have begun on the new bullet train, being developed by Hitachi and Kawasaki, which could run at 224mph (360kph). This could be good for the UK – and for the HS2 rail project – as Hitachi is set to manufacture trains in Newton Aycliffe, County Durham. 

Hitachi sent a senior engineer to study British railways in 1926. By 1964, just as the UK government was cutting routes following the Beeching Report, Japan was welcoming the Tokyo Olympics with the first shinkansen. Such forward thinking may help explain why, according to the World Bank, Japan’s infrastructure is the second best in the world after Germany’s. (In 2018, the UK was ranked eighth.) Japan is so good at infrastructure, it is beating China in the south east Asian market for it. Despite the hype generated by the One Belt, One Road initiative, Fitch Solutions estimates that, in Indonesia, Malaysia, The Philippines, Singapore, Thailand and Vietnam, Japanese-backed projects are worth $367bn, compared to $255bn for China. 

Targeting the rest of the world
Abe is passionate about Japan’s global leadership role and yet, Glosserman says, most of his compatriots are not. “They don’t share the bold ambitions of previous generations, partly because they are understandably ready to cling to an economic model that has steadily improved their living standards over the past 50 years.” This also reflects a native distrust of Anglo-American laissez-faire capitalism – 51% of people in a recent survey felt that most people are not better off in a free market society. 

Yet Japanese businesses are still looking outward, with the global market in their sights. In 2017, Japan pumped £27.1bn into the British economy, accounting for 29% of foreign direct investment in the UK. According to the Office of National Statistics, the UK imported goods to the value of £11.5bn from Japan in 2016. Tokyo-based SoftBank, one of the world’s most prominent technology investors, is now backing start-ups in South America, drive-sharing in India and e-commerce in Indonesia. In June, Cars.com’s annual survey of the 15 cars that did most for the American economy, seven were made by Honda and two by Toyota. 

Japan Inc is still open for business.  

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