Thursday, January 31, 2002

Japan Inc. in Chapter 11?- Kevin Holtsburry's Beauty of Gray link is working, and I've found an interesting writer in Douglas Turnbull. He's wondering what caused Japan's downfall: the central planning and protectionism, the overextention of debt or both? He is looking for "more than an interested layman's knowledge of this area." Stand back everyone, this is a job for (ta-da-ta-da) Finance Man! (1) Central planning works if you bet right. The MITI focus on automotive and consumer electronics went well up to the 90s, when other countries applied Japanese production techniques (tight quality control and just-in-time {kanban} inventory systems) with lower labor costs and beat them at their own game. The interesting thing is that those production techniques were American ideas. Edward Deming taught the Japanese production management after WWII, while the prevailing US idea of the era was to make things cheap and market the hell out of the product. (2) Cozy conglomerates- Big Finance in Japan is focused around semi-conglomerates called keiretsu, where a major bank will have a string of other companies it has a minority but controlling stake in and be a large lender to the companies in its circle. These companies will have many of the same directors on their boards. The resulting old-boy-network will be hesitant to be harsh on one of its own, as a bankruptcy in one could bring down the whole group, not to mention cause a friend to lose face. A large part of the banking problem is keiretsu-related. (Note, South Korean chaebol are similar to keiretsu and cause the same problems) (3) Localism- in both retail and farming, there is an emphasis on mom-and-pop small businesses. Small farmers were traditionally big LDP (Liberal Democrat) donors, who made sure imports were blocked. Localist laws allow small retailers to have effective vetoes on category-killers opening up in their neighborhoods. This creates inefficiencies in the Japanese economy. (4) Collectivism- Individuality isn't a strong suit of Japanese culture. Decision-making by consensus is a Japanese trait; it takes them forever (by American standards) to make a decision, but the decision is usually well-hacked and ready to roll, whereas American decisions may be quicker but buggier and needing revision along the way. An unwillingness to rock the boat ("the nail that sticks up gets hammered" is a common proverb) may result in unproductive groupthink. I think these four concepts, plus a possible ethnocentrism resisting further westernization, have combined to slow down the Japanese economy. Political reform is slow in coming, as the LDP, though weakened, still is the cornerstone of Japanese politics. The recovery may be long in coming.

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