Do you remember those fabulous 80s?
Reagan was President, cyberpunk was new, and Jennifer Grey had a nose.
Also, everyone knew that Japan was going to take over the world.
Giant Japanese electronic companies like Sony, Toshiba and Fujitsu were leaders in their markets, Japan had a big export surplus, and Japanese companies were buying up iconic American assets like Rockafeller Center. Experts assured us that Japan was ascendant and that we needed to follow the “Japan Inc.” model of public/private partnerships, as well as the heavy vertical integration of the Japanese zaibatsu conglomerates, if we wanted to compete in the world market.
It turns out that almost all that just about every aspect of that prescription was horribly wrong:
Fast-forward 30 years. When one of Japan, Inc.’s leading corporations makes the news, as often as not it’s the result of an accounting scandal in which corporate profits were grossly overstated for years as a matter of policy–a policy intended to mask the stagnation in the company’s sales, product lines, competitive position and profits.
What happened to the often-copied, much-vaunted Japan, Inc.? Many observers see Japan’s core problem as demographics: as its birth rate has fallen below replacement levels, the population of Japan is aging rapidly. Since young people start households and spend money, economic growth depends largely on the spending of young people rather than the declining spending of older people.
While a decline in the youthful demographic certainly impacts growth, this view overlooks the larger problem: Japan, Inc.–its educational system, government, banking and corporate sector–was optimized for the mode of production that existed in the postwar world from the late 1940s to the late 1980s.
Now that the Digital-Industrial Revolution is remaking the way goods and services are produced and distributed, the system that worked wondrously well in 1960 no longer aligns with the needs of this emerging mode of production.
In the 1980s, Japan’s optimized-for-industrial-exports system reached its zenith, and many US pundits built careers predicting that Japan would soon eclipse the US in every economic and financial metric.
But the excesses of Japan’s banking sector and the rise of new technologies that didn’t lend themselves to gradual improvement and vertically integrated corporations disrupted the predictions of Japan’s global dominance.
Just as Sony ate the lunches of slower, less efficient American companies like RCA, soon the Japanese electronic giants found themselves being beaten by more nimble and disruptive international competitors like Apple and Samsung.
Toshiba is now so broke they may need to spin-off their semiconductor business, despite it being the most central and profitable business in their company, probably because building a new state-of-the-art 300mm wafer fabrication plant for 10nm process technology can now cost up to $14 billion.
Many other Japanese companies have been rocked by accounting scandals:
In the five years since a $1.7bn accounting scandal was uncovered at Olympus, the number of improper accounting cases exposed each year in Japan has nearly doubled. It hit an all-time high of 58 cases in the 2015-16 fiscal year, according to Tokyo Shoko Research, which provides data on corporate failures.
In many cases, the revelations have shone a light on malpractice and subterfuge dating back years — the legacy of management terrified of failure but left fighting decades of economic stagnation, squeezed costs and a shrinking domestic market.
And those demographics don’t make anything easier:
Children accounted for 12.8% of the population, the ministry said. By contrast, the ratio of people aged 65 or older was at a record high, making up 25.6% of the population. Jiji Press said that, of countries with a population of at least 40 million, Japan had the lowest ratio of children to the total population – compared with 19.5% for the United States and 16.4% for China…
The proportion of people aged 65 or over is forecast to reach nearly 40% in 2060, the government has warned.
Japan’s government has been running huge budget deficits since 2009, and debt now stands at about twice the size of the economy.
For a while, the South Korean chaebol looked like they were going to supplant the Japanese zaibatsu as world beaters, but Samsung and LG have started running into some of the same problems.
The lesson here is not “Merica, fark ye!”, it’s that capitalism works. The creative destruction of capitalism is necessary to keep economic progress moving forward. My biggest fear is that in his efforts to save American jobs, President Trump will prop up the GMs and Boeings of the world at the expense of smaller, nimbler competitors looking to supplant them.
For the country’s long-term economic well-being, government should get out of the business of picking winners and losers entirely.