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In the U.S. case, after having only pessimism, complaining and criticizing every body else other than themselves, with business leaders visiting not markets but Washington, trying to have political solutions for economic and management issues, her leadership people, both public and private, began to have a true sense of crisis from around the mid-1980's. Symbolical phenomena I now recall are: MIT (The 6 Massachusetts Institute of Technology) in 1989 published an influential report (Made in America) after a two-year comparative study about competitiveness with the interdisciplinary participation of many scholars and specialists; and Paul Kennedy's big volume book, The Rise and Fall of the Great Powers, which was published in 1989 and became a sudden best seller enthusiastically read by leadership people. It is just a brick-thick book that usually makes everybody sleep with the message of the danger of the country's decline by over-stretching described repeatedly and in so much detail. Though the U.S. decline was not mentioned in this book, U.S. leadership people must have overlapped her country's future with many historical examples of declined countries. The consequent emergence of a true sense of crisis pushed forward all types of necessary reforms in public policies as well as in the business management arena. Restructuring became a buzzword on everybody's lips and the new reality of U.S. society.
economy and society, after some years, really rejuvenated, changing U.S. economic landscape after the 1990's fundamentally.
In Japan, people have pessimism and no more than that. Historically Japan has survived many serious crises. The Black Ship crisis produced the Meiji Restoration, which implemented fundamental system reforms in a short period of time without war. The discovery of this Meiji Restoration gave then young Peter F. Drucker too overwhelming an impression to resist his deep interest in Japan ever since.
Oil crises created enough sense of crisis overnight and business management style, people's lifestyle, have fundamentally changed with a sense of crisis leading the economy to be most energy efficient (marked decline of so called energy's original unit). Some years later, Japan’s automobile industry produced dramatically improved fuelefficient engines, which created ever greater international markets for Japanese cars. At that time the almost non-existence of a domestic oil supply gave rise to an acute sense of crisis.
A pollution crisis – air and water contamination – in the 1960's also brought about a sense of crisis that forced businesses to make technological innovations in order to have environmentally friendly technology and systems.
Why doesn’t Japan have a similar sense of crisis leading to changes this time? There is a difference. The past crises Japan survived were all visible and easily perceived crises. In contrast the crisis this time around is a systemic and creeping crisis. People are beginning to recognize the crisis in an
and conceptual manner. People understand that some serious real crisis may happen unless we implement proper reforms quickly. But the crisis is not visible, not the crisis of today or tomorrow. Reforms accompany pains. If people can postpone pains, they prefer no change. Actually, people are eating up 7 accumulated assets instead. Past crises were immediate crises with immediate acute pains, which people understood could be cured only by immediate reforms.
In the 1990's big stagnation, though, Japan did have real pain in a real crisis. That was the case of the November 1997 market panic. Crisis was visible at that time. Many financial institutions, including Yamaichi Security House, went bankrupt, and banks suddenly began to be really hesitant in lending. This led to the macroeconomic disaster of credit contraction, or what economists call a liquidity trap, leading the economy immediately to acute recession. This crisis was visible enough to give people a sense of crisis and to make the government undergo fundamental policy changes.
If I remember correctly, one American economist sees Japan’s situation in terms of CRIC cycles-- namely Crisis produces Reforms which produce Improvement leading to Complacency and a new C risis.
This is the very pattern of recent Japan.
Stealth Government and Disclosure Shortage
I do believe that the one of the most important and urgent subject for Japan to have meaningful reforms by consequence is to have information disclosure. With enough disclosure, the policymaking process will become transparent, making people well informed and giving the market a more reliable signal needed for effective resource allocation.
I can make a bit humorous comparison of some countries.
In Germany, what is banned by law is actually banned.
In Italy, what is prohibited by law is sometimes permitted.
In the defunct Soviet Union, everything was banned except what was permitted by law.
In U.K., the law refers neither to what is banned nor to what is permitted.
In the United States, anything is permitted except what is banned by law.
Then, how about Japan? The answer is that people in Japan must consult the government (administrative government) in advance about what is permitted and what is banned. In other words, though what is banned by law is not permitted as a matter of course, people must still consult the government about every thing except what is clearly permitted by law. If you do something not banned by law without consulting the government, it may exact unexpected revenge on you one way or the other somewhere down the line, or at least so perceived by people. Japan is not necessarily an example of Big Government compared with the United States and many of European countries, 8 given the governments' size in terms of the ratios of tax burden or government expenditures to the size of the nation's economy. At least, not yet. Even so, as the late popular writer Shiba Ryotaro put it, " Japan has a Heavy Government ", because people feel the existence of government about every thing and everywhere in daily life and daily management of business activities.
An American lawyer, Glenn Fukushima, one-time chief of the Japan desk of the USTR, described Japan's various regulations as being structured like an onion, with one regulation layered by another – at least seven layers,: laws, cabinet orders, ministerial ordinances, notification, regulation, internal regulations and administrative guidance.
Official government documents disclose the fact that there are 20 types of regulations alone. They are kyoka (permit), ninka (authorization), mennkyo (license), shounin (approval), shitei (designation), shodaku (consent), nintei (recognition), kakunin (confirmation), shoumei (verification), shinnsa (investigation), toroku (registration), todokede (notification), teishutsu (filing), houkoku (report), shinkoku (statement), kofu (submission) and so on.
Nobody, including the regulators (bureaucrats), can have a clear definition of these bureaucratic jargons. For bureaucrats definition is just one thing. The important thing is they keep opacity or intransparence of administrative procedures or to keen people not enough informed.
These regulations deprive Japanese society of transparency. The 2001 edition of the World Competitive Yearbook, published by the Lausanne based business school, IMD, contains shocking statistics. In the global ranking of government transparency (a degree of how clearly the government informs the public of its policy intentions), Japan ranked at the very bottom, amongst the 49 countries covered by this survey.
Indonesia, Venezuela and Argentina are all a bit better than Japan.
In Japan the nation's power is excessively concentrated in the administration. The Diet (legislature) makes laws, upon which the administration executes its rights. But most legislative bills submitted to the Diet are prepared by administrators, and the Diet approves most of them almost automatically without revision. Bureaucrats prepare bills to use at their convenience. They tend to incorporate discretionary rights for their convenience. And the bigger the discretionary rights, the less transparent the administration becomes for people, and consequently the more power and influence it gains.
Such discretionary policies create serious unpredictability in the economy and in business management in particular. To push up the trend line growth rate of the economy, Japan needs to encourage risk takers. Venture business tends to be discouraged by such nontransparent processes.
Corporate governance is getting more important in this increasingly 9 globalized world. As is often the case in Japan, under the main-bank system, many companies' governance is introduced by their mainbanks. And corporate governance of banks is given by the regulator, the Ministry of Finance (MOF). But such a system has recently been forced to modify because the MOF lost credibility after a series of poor policies and scandals. MOF's governance is being tested, and banks have lost the governance provided by the MOF. The main-bank system is in the process of being dismantled.
The situation is thus quite messy and confusing. To reestablish a sound and viable system and practices, we do need more transparency through enough information disclosure. Information disclosure is a powerful tool to make government transparent, policy more predictable, business more self-disciplined and self regulated.
Needed Capital Market
The financial system needs urgent and fundamental reform. The early bank-centric system lasted too long after Japan shifted from a domestic savings shortage economy to a savings surplus economy since around the second oil crisis. The failure of early enough transformation of the financial system toward a capital market-led economy was one of the fundamental causes of the bubble economy of the late 1980's. The bank-centric system tends to discourage risk takers, challengers to new frontier territories of business and technology. To create a better functioning capital market, bold incentive policies are needed while abolishing all incentive measures to banking business. For this we need to change our mindset and even our value system.
Information disclosure is also a key to a capital market. A transparent and less discretional government is also a prerequisite for a good capital market. Karel van Wolfren, in his The Enigma of Japanese Power, describes Japan's power system as something like a pyramid without a spire – a flat-topped pyramid.
This means there is a nonexistence of clear leadership that is accountable. But a transparent capital market can show strong leadership. Leadership for reform can come from a market that gives important signals. For the moment, the market signal is a half-signal.
But it is better than no signal.
Transparency, information disclosure, an accountable capital market – mobilization of resources and policy measures toward such priority systems – should be the key to reform, pushing the trend line growth ratio of Japan’s economy. Better-informed people can have a better understanding of reality and more readily have a sense of crisis.
Japan’s government district is Kasumigaseki area, which literally means foggy checkpoint, namely nontransparent regulation. Different from