Preparing For the Twenty-First Century by Paul Kennedy

Chapter 8: The Japanese "Plan" for a Post-2000 World

Preparing For the Twenty-First Century by Paul Kennedy

Chapter 8: The Japanese "Plan" for a Post-2000 World

• "Can Japan continue to be an island of prosperity in a sea of discontent"

Japan’s Isolation Policy

• Japan's economy and standard of living have skyrocketed over the past 4 decades.

• Japan is a tiny island in the large Asian block of countries.

• Japan has isolated itself from the rest of the Asian countries.

• Keeping all of the prosperity at home while many of the Asian countries starve.

Island of Prosperity

• Since 1945, Japan’s rate of creation wealth has been the fastest in the world.

• GNP has exploded: • 1951 - The Japanese GNP was 1/3 of Great

Britain’s and 1/20 of United States’• 1993 - 3 times Great Britain and 2/3 of United

States

Island of Prosperity

• Social Harmony• Cultural Uniqueness• Strong National Identity• Social and Racial Coherence• Individual Sacrifice for the Good of the

Collective

Sea of Discontent

• Can Japan remain isolationists when an increasingly large number of their Asian neighbors starve?

• In 25 years Asia's population is expected to be as high as 5 billion.

• A widening separation between the "haves" and the "have-nots."

• A more assertive and aggressive China.

• Severe North Korean hunger crisis which could lead to a war against South Korea

• Can Japan overcome a potential negative global reaction against their national protectionism policies, and dominating self proclaimed superiority?

Japanese Educational System (Positives)

• Teachers are highly valued.

• Learning is reinforced at home and with "crammers".

• Japanese study 220 days/year including Saturday half days.

• This compares with only 180 days in United States.

• By the time Japanese are 14 years old, they have as much education as a 17 or 18 year old American.

• Japanese students continue to outscore US and European students on standardized tests.

Japanese Educational System (Negatives)

• Subjects focus on factual acquisition rather than the free flow of debate and ideas.

• The rigid education is based on facts and group think. --not creativity

• This education style tends to lower creativity and self expression.

• This weakness later appears in Japanese factories and organizations.

• Higher education has also underperformed in creative research.

• As of 1987 Japanese had won only four Nobel Prizes in science compared with 142 for the United States.

Japan's Financial Strength

• Tax system encourages personal savings.

• Aging population and high cost of housing further promotes savings.

• Banks and insurance companies are flush with capital.

• Lending money at low interest rates to manufacturers.

• This gives Japanese companies a significant cost advantages over foreign rivals.

• The "Keiretsu" is a form of corporate shared ownership of many firms and banks.

• This shared ownership allows managers plan for the long term without regard for quarterly profits.

The Globalization of Japan• Japan dominates many international market products and

services.

• Highly integrated with western Pacific and east Asia.

• In 1991, 36 out of the world's top 100 companies were Japanese.

• 29 of the world's largest banks are Japanese. Germany has 12, France 10 and US and Italy have 9.

• 4 of the world's top 5 insurance companies are Japanese.

• The top 4 Security firms are Japanese.

• High Soft Power with IMF and World Bank.

• Global economic vulnerability has always been the price Japan has had to pay in achieving global commercial preeminence: and that vulnerability is, if anything, increasing.

Japan’s International Trade Strategy

• “Japan Inc.” avoids the rules of international free trade.

• Imposes Discriminative Tariffs.

• Manipulates the distribution system. Fixing contracts in secret.

• Buy technology -- and then dominate the production markets with exports.

• Establish global points of presence, in order to remove own barriers.

• Japan exports and Sub-contracts on a global scale.

• Perceived victim: US 40-50 billion dollar trade deficit

Japan's Long Term Growth Strategy

• Plan for decades in advance. Ignore quarterly profit reports.

• Increase capital spending. Japan's capital spending has exceeded that of the US in absolute terms.

• Invest heavily in education and Research & Development.

• Highest rate of qualified scientists and engineers.

• Over 800,000 Japanese are engaged in R&D, more than Britain, France and Germany combined.

• Switch to high value added products, and away from labor intense products.

Negative Aspects of Culture and Society

• Rigid Hierarchical Social Structure.

• Rigid social conformity to the point of repression of civil liberties.

• High Suicide Rate

• High cost of living and reduced purchasing power.

• Emphasis on national superiority transcends to a deep streak of racism.

• Reflected on views against Koreans, Chinese, American blacks, and other non-Japanese ethnic groups.

Negative Aspects of Culture and Society

• Enormous privileges to a select group of males who run the large corporations and bureaucracies, and control the ruling Liberal Party.

• Majority of population has cramped accommodations, excessive work hours, group calisthenics, and with the only consolation of national pride.

• Women are meant to take care of the home, manage the savings, and ensure the children's after-school education.

The Costly Life of Japanese Consumers

• Japan's Average per capita income is the highest in the world.

• But real purchasing power is diminished with higher living expenses,

• such as high prices on cost of food, consumer goods, land, and housing.

• Society is also behind in public facilities, sewage disposal and places of recreation.

Japan's Food Crisis

• Uncompetitive Farms translate into higher food prices.

• Restrictions on food imports worsens the dilemma.

• Japan is purchasing agriculture/biotech technologies to improve situation.

• Purchasing and managing beef farms in the US and at home.

• Japan’s food source is dependent on the rest of the world.

• In times of global crisis, food supply and prices could negatively impact their society.

Japan's Aging Population/What to do?

• Life expectancy in Japan has increased dramatically. • From a life expectancy of 45 years to 76 years male, 82

years female.• Total fertility rate has decreased to 1.5 births per

woman. • This is below the average 2.1 births per woman needed to

maintain the population.• In 25 years Japan will have the highest ratio of people

over 65.

Japan's Aging Population/What to do?

• The use of robotics and automation of many processes.

• Allow Immigration only for scientists and engineers.

• Continued Outsourcing as a solution.

• Have women enter the workforce.

Do we want to a militarized Japan?

• No military spending. (Less than 1 percent of GNP)

• Accused of free loading on America's military supremacy.

• Extremely Efficient with a dominating mentality.

• Memories and feelings of the past still present.

• Japan has a proven record of imperialistic expansionist policies.

Japan: A Crisis in the making

• Extraordinary high property prices and almost equally inflated stock prices.

• Volatile paper assets used as collateral on real estate and overseas operations/acquisitions.

• Real Estate industry trouble could require major sell-offs to increase bank liquidity at home.

• Japanese pride and honor could result in an under- reporting of economic problems.

The Big Japanese Question:

• What should Japan do to maintain its global dominance?

• Switch to more value added products.

• Spend more and save less.

• Focus more on consumption, enjoy more luxuries, and be more cosmopolitan.

• Strive for less structured and hierarchical society.

• Reduce trade barriers for better public relations and lower consumer prices.

• Shift from an industrial base to a service based economy.

• Outsource low value added manufacturing.

• Some of these points would deviate from current Japanese philosophy.

Japan's Current Problem

• $600 Billion In Bad Loans

• Billions Of Additional Bad Loans Go Unreported

• Real Debt May Equal 250% Of Japan's Output (11 Trillion Dollars)

• Government Gridlock

What Needs To Be Done

• Leadership/Sacrifice

• Fix The Banks

• Change The Accounting

• Rewrite The Tax Code

• Audit The Government

• Stop The Market Rigging