PDF file of Ulmer`s report

Report from Tokyo
The Unbearable Lightness of Japan
Robert Ulmer
This article is based on a presentation made to the Japan Society on September 15 2010.
The opinions expressed are those of the author only.
Headlines in newspapers and magazines have, for many years, proclaimed the demise of Japan.
Recently The Globe and Mail ran a series on Japan highlighting the challenges faced by a country
with a rapidly aging population, corporations moving offshore, bellicose neighbours, and growing
divisions in Japanese society.
While some of these stories are news, many have been reported from time to time over the last
twenty years. Japan continues to be a country facing major challenges and offering real
opportunities for Canadians.
To better understand what is happening in Japan now – and what could happen in Japan over the
medium to near term, I have gone to the streets of Tokyo to provide an overview and assessment
of the challenges – and more importantly – the opportunities that exist for Japan, and for Canada.
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But before we look at what is happening now, let’s start with the big news story from September
in Japan.
Photo: Itsuo Inouye/AP
Yes, he Kan!
On September 14, a leadership vote confirmed Naoto Kan as Prime Minister of Japan. Ichiro
Ozawa, a.k.a. “the destroyer” and also called “toxic” by one newspaper, lost his bid.
The populist politician – the first prime minister in a decade who did not come from a political
family – Naoto Kan, confirmed the democratic process (and the public opinion) that he should be
given a chance to try and solve Japan’s problems.
In an interview that Kan gave to the Christian Scientist Monitor, he told the journalist:
“Eighty percent of the policies in Japan are made by bureaucrats and only 20 percent by elected
political leaders. In our current system, a minister, including the prime minister, has no final
power. Can you even call that a government?” – Naoto Kan
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Clearly there are huge problems that loom, as these headlines noted the day after the vote.
Kan
urged to
focus on
nation's
finances
Interviewees say sales tax, foreign policy also important
To better understand what is happening now in Japan, it will be helpful to start with some key
events leading up to 2010.
The year was 1979 – I had just started working for JETRO Toronto – and a Professor from Harvard
named Ezra Vogel published a bestseller that was intended as a wake-up call to American
industry. The book was called “Japan as No. 1 – Lessons for America”.
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1979
But 20 years later – after the famous bubble burst in Japan – Vogel was asking the question:
2001
“Is Japan Still Number One?”
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We can all remember the stories of dedicated business people from Japan who travelled the
world to expand their companies’ reach.
A Canadian think tank –The Institute for Research on Public Policy – produced a report in1980
called “The Men with the Yen” and predicted that the wave of Japanese investment and
acquisition would only grow.
Some people thought that the success of the electronics and auto industries would be duplicated
in the financial industry.
Well, there was an invasion, but it came in the form of comic books, or manga and animated
films or anime.
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Cover from WIRED Magazine
It was a slow and carefully planned invasion that was led by Godzilla in the 1950s, followed by
Game Boy, Transformers, Pokemon, and Sailor Moon.
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Today the “cool Japan” wave has covered the world and when Japan looks at its economic
strength compared to its “soft power”, acknowledges that there is more than one way to win the
hearts and minds of the rest of the world.
The Japan Times Online
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One of the bestsellers in Tokyo bookstores now is a manga titled “If a female manager of a high
school baseball team read Drucker’s ‘Management’…” which introduces Peter Drucker’s theories
of management in a new and entertaining way.
“If a female manager of a high school baseball
team read Drucker’s ‘Management’…”
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And this recent sighting on the floor of the New York Stock Exchange may be a sign that the next
takeover is being planned by the least expected person.
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But nothing changes the fact that instead of actually becoming “number one” – whatever that
really means – Japan has, as of the latest GDP numbers, become the third-largest economy in
the world.
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Enter China:
In 2004 China overtook the United States as Japan’s largest trading partner. According to a
report released in August by JETRO, Japan’s total trade with China rose 35% to over US$138
billion in the first half of this year, setting a new record.
Exports from Japan to China were up nearly 50% and imports from China were up nearly 25%.
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Both Chinese and Japanese leaders can be very practical when it comes to business.
China Official Urges Closer Econ Ties With Japan
In spite of the obvious strains and tensions that history has caused – and continue to cause such
as the recent flare up over islands in the East China Sea - the relationship is mutually recognized
as vital to both countries’ well-being.
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From a booklet published by The Ministry of Foreign Affairs of Japan
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It is not only the products that Japan exports to Japan that count – it is the ever-increasing
number of Chinese tourists and shoppers you can see on the streets of Tokyo – and in the luxury
stores of the Ginza too.
In July of this year, 170,000 tourists came to Japan from China and Chinese visitors spent on
average 136,870 yen per person (about $1,700 dollars) which is more than the average American
or South Korean tourist spent.
But the stories keep coming out about the size of the Chinese economy.
Using the latest data, I found that in fact it is Lichtenstein who deserves the title of “Number
One” – if we measure the GDP per capita.
#1
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#11
The US only makes it to number 11, and Japan – at number 40 – is behind Canada (number 27).
#27
#40
And where do we find China – and India?
It’s the triple digit list:
#128
Number 128 for China – tied with Namibia, and India is just behind the Philippines at number 163.
#163
GDP Per Capita – ppp basis; Country Rankings 2010 - Source: CIA Factbook
So let’s put this ranking aside for now, but continue to look at some numbers – and at the same
time – I will introduce a short and simple Japanese lesson.
Our first word is ENDAKA – and you will see and hear this everywhere you go in Tokyo now.
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円高
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It means: the appreciation of the Japanese yen in foreign exchange markets.
The last time the yen reached these heights was in 1995.
One of the effects of the “unstoppable higher yen” – as this magazine story describes - is to
drive up the cost of Japanese products overseas. Companies in Japan will find the cost of making
products overseas cheaper which will hollow out the manufacturing industry. But, a higher yen
also makes the cost of imported energy, commodities, and food more affordable – and creates
opportunities for more acquisitions overseas.
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Our next word that we need to remember is: AMAKUDARI.
AMAKUDARI
Literally, it means the “descent from heaven” but is used to describe the practice of
government officers retiring to join private companies in senior positions.
Between 2007 and 2009, it is reported that nearly 2,000 ex-bureaucrats benefited from
“amakudari”.
Companies hire these officials in order to get access to the lucrative contracts and subsidies that
the former government bureaucrats can arrange through their contacts. In August 2010,
Japanese news reported that the total value of subsidies and contracts that organizations who
had amakudari workers in them received was 7.2 trillion yen, or about $87.5 billion dollars.
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The next two words are mostly used with younger people:
“FREETERS” are temporary or “free workers” who hop between casual, low-paid jobs.
NEETs is the term borrowed from the UK referring to young people Not in Employment,
Education, or Training. While exact statistics are unreliable, it has been reported that there are
about two million freeters and possibly six hundred thousand neets now in Japan.
Even those young Japanese who are actually in regular jobs are more risk averse than ever with
hardly any spirit of entrepreneurism seen (less than 20% want to establish their own firms) and
security as the main goal – 60% say they want to work for the same company until retirement.
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Managers complain that young workers do not want to work overseas and an official in the
foreign ministry confided that Japanese diplomats want to stay at home now.
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Another phenomenon that is getting attention is the case of the missing centenarians – we can
abbreviate this to KOREISHA.
高齢者の所在不明問題
In August, it was reported that a couple of hundred people who were registered as being over
100 years old – and were still drawing government pensions – could not be found.
Then in September, this number was revised to 234,000 and the “records” show that there are
884 people in Japan over the age of 150 years old.
But for those older Japanese who are alive and healthy, the numbers show that they are no
longer saving the way they once did.
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The trend that started in the 1990’s continues as less and less of household savings are put away
for a rainy day. Going from 16% in the 1980’s, the current rate is only 2.2 percent.
For many years, the government has encouraged Japanese consumers to spend, and it appears
that their message has been successful.
And the Japanese government has also been spending – huge amounts, as you would expect.
Another number that puts Japan near the top of the charts is the DEBT to GDP ratio that is often
reported.
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COUNTRY
2010 debt-to-GDP ratio
(gross)
Japan
227%
Italy
119%
USA
93%
Canada
82%
Source: IMF
In their latest country report on Japan, the IMF lists the gross government debt-to-GDP ratio of
Japan as 227%, among the highest in the industrialized countries and even bigger than Italy’s.
Good news is that Canada’s level is 82% and is forecast to go down in the years ahead –
unlike Japan’s which will only increase.
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Figures released last month by the Japanese Ministry of Finance show that total outstanding debt
in the fiscal year to March was 883 trillion yen ($9.55 trillion). This amounts to $75,000 per
person. In comparison, the level in Greece is less than half that at $32,500 per capita.
Last year, about a quarter of Japan's entire government budget was spent on just servicing
existing debt. This year’s budget is the first where more than half of the money has been raised
by issuing new debt — in the form of government bonds — to make up the shortfall in tax
revenue.
Who is holding these government bonds?
The good news (if we compare Japan to Greece, for example) is that 95% of Japanese public
debt is held by the Japanese themselves. Japanese banks are the biggest buyers – 43% - with
insurance companies at 20%. This situation is likely to continue.
Before I wrap up with some thoughts about what the future holds for Japan, allow me to update
this gathering on the opportunities for Canadian companies in Japan.
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Many companies have been enjoying successful, long-term business relationships in the Japanese
market.
ThermoFisher Scientific – a company that makes sophisticated analytical instruments for testing
purposes. Their Japan representative recently told me that one of their products that tests the
quality of steel used in automobile manufacturing, is sold to both the steel company that
manufactures the steel and the Japanese auto company that uses the steel.
Linamar, after opening their office in Japan a few years ago is identifying new business
opportunities in not only automotive, but also renewable energy.
Husky, a leading maker of injection molding equipment, has a significant share of the market
among Japanese companies that produce products such as PET bottles.
Since 2006, when Research in Motion introduced BlackBerry to Japan with their partner NTT
Docomo, they have been seeing steady growth and increased subscribers. And if you have one of
the newer BlackBerries, it will now work in Japan.
Manulife is also growing its business and represents the largest investment by a Canadian
company in Japan.
Getting back to the streets of Tokyo…
Here is an unusual vehicle that has been recently spotted in downtown Tokyo.
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It is called “T-Rex” and is a three-wheeled, two passenger car built by a company in Montreal,
Campagna Motors. Price is around $70,000
There is also more interest in the cultural exports that Canada offers to Japan.
VIVIAN REISS
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GEORGE RAAB
These are some recent examples of Ontario artists who visited Japan for exhibitions. Vivian Reiss
has also had an exhibition in Toronto – with the support of The Japan Foundation – of the work
she produced while in Japan. George Raab’s prints were praised in this review: “For audiences
here it has been a delight to see the uncanny similarities between Raab’s Canadian landscapes
and those of Japan by Japanese artists.”
And on September 26, Canada’s Margaret Atwood presented the keynote address to open the
PEN International Congress held in Tokyo for the first time since 1984.
One more Japanese lesson – which will introduce my final theme.
ガラパゴス化
or “Galapagos syndrome” in English
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“Galapagos syndrome” – you can Google this to learn more – refers to the phenomenon of a
product or a society evolving in isolation from globalization. The term is a reference to a similar
phenomenon observed in the Galápagos Islands, and described by Darwin.
The example used most often is： "Japan’s cellphones are like the endemic species that Darwin
encountered on the Galápagos Islands — fantastically evolved and divergent from their mainland
cousins” as a Keio University professor has written.
This leads me to what I see are troubling signs for the direction that Japan is now heading.
Photo – Oliver Wolfe
About 20 years ago I attended a meeting of the Japan Society where the President of Mitsubishi
Canada at the time, some of you may remember him, Sam Eto, was asked the question: “what
direction is Japan going?”
I always remembered Sam’s thoughtful response, and over the years, when Sam returned to
Japan we kept in touch. He said: “Japan could go one of three ways: more Westernized, more
Asian, or more Japanese.”
Recent evidence suggests the third course – more Japanese.
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I also see a Japan that is turning inward, becoming more and more isolated from the rest of the
world.
Even while on the surface there is an influx of things, ideas, products from the outside – such as
McDonalds in Japan – the manifestation and adaptation of these Western ideas take a strangely
Japanese turn – like these eating booths at a restaurant in Kyoto.
What are some other signs of this trend?
Artist: Chris Ballantyne
A popular book in Japan in 1989 carried the title: “The Japan that can say ‘NO’” which
referenced a newly-found confidence in Japan as an international player capable of establishing
its own policies without the need of the US always guiding its direction.
Now I hear the attitude is more like “the Japan that can say ‘so what’” as a Waseda university
professor recently wrote in The New York Times. This may be a sign of Japan becoming more
apathetic, inward-looking, and cut off from the rest of the world.
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Already we read about fewer and fewer Japanese who want to travel and study overseas. Glen
Fukushima, in this recent article in The Japan Times, cites the fact that Japan has become so
safe, secure and comfortable that there is little incentive to go abroad where one has to speak
foreign languages, deal with people of other cultures and often engage in difficult negotiations
or unfamiliar and competitive situations.
Glen is a Harvard grad and notes that there are only five Japanese undergraduates enrolled at
Harvard, and only one in the current freshman class. Compare this to the 463 Chinese students
and 315 South Korean students at Harvard now.
Whether Japanese go to Harvard or the University of Toronto is less important than the attitudes
seen among many Japanese to stay at home, surf the net, watch more Japanese movies, stop
learning foreign languages, and engage with the rest of the world.
As an individual Canadian who has been closely involved with Japan for close to 40 years – living
in Japan for more than 18 years – I deeply appreciate the role that organizations such as The
Japan Society, The Canada-Japan Society, JETRO, The Toronto Shokokai, and The Japan
Foundation play in continuing to engage Japan with the rest of the world, especially with
Canada.
I urge you to continue your efforts in the face of the growing tsunami of enthusiasm for China
and India among Canadians and the increasing insularity of some Japanese.
Canada is not a heavyweight – but we can be effective at many levels when we connect with
Japan.
For Japan, for Canada, and for the world, let’s continue our efforts.
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