Summary of a meeting co-sponsored by the Keizai Koho Center with GARY R. SAXONHOUSE, Professor of Economics, University of Michigan; YOSHITO HORI, Chairman and CEO, Apax Globis Partners & Co.; Founder, Globis Business School; WILLIAM R. FARRELL, Chairman and CEO, Dynamic Strategies Asia; NAOMI MORIYAMA, President, Digital Powerhouse

The past ten years have been called Japan’s “lost decade,” and the Japanese economy continues to suffer from deflation, a battered financial system and structural rigidity. Growth will probably remain nearly stagnant for at least the next few years. However, a potential source of dynamism in the Japanese economy is the transformation of business culture. Increased labor mobility and merit-based promotion is allocating resources more efficiently than in the past. Foreign investment and entrepreneurial activity are bringing new ideas and innovations to Japan’s corporate world.

Gary Saxonhouse discussed the demise of the lifetime employment system in Japan, as Japanese courts have begun to allow more bankruptcies and involuntary dismissals (though the change is greater for white-collar than for blue-collar workers). He pointed out that while such change is painful for society, it is by no means unprecedented. Lock-step hiring and seniority-based promotion are often seen as traditional or inherently “Japanese,” but in fact these practices did not arise until after World War II. Before the war, people were paid according to individual performance, as is increasingly the case today.

Yoshito Hori maintained that young Japanese people are less risk-adverse and more innovative than their elders, and the best and brightest no longer desire to work for big companies. During the past two years, he pointed out, more companies went public in Japan than in the United States. Within the supposedly moribund Japanese business environment, many positive growth markets exist. For example, Japan has the advantage in such industries as wireless components, mobile internet, optical fiber and consumer electronics. Deflation and the bad-debt problem hurt the economy overall, but have relatively little effect on “New Japan,” which is funded by equity.

Bill Farrell explored how business-government relations have become less cozy as Japan’s bureaucracies have lost power. Infighting between bureaucracies has increased, rendering the environment less predictable for many well-connected large corporations. Foreigners find it easier to invest and distribute their goods, and “Japan, Inc.” becomes less of a reality with every passing year. Some government entities, such as the Council for Science and Technology, have become stronger than in the past, as “administrative guidance” gives way to more formal regulation.

Naomi Moriyama examined how the attitudes of young people are changing. She pointed out that “freeters” (temporary workers) now make up 23 percent of the workforce, and less than half of them express interest in more stable employment. When these young people take over the reins of Japanese business, the culture will be radically changed. Moriyama also pointed out that women in Japan are increasingly attracted to careers rather than traditional married life: 60 percent of female employees are 35 or older.

Drafted by Amy McCreedy, Asia Program Associate, 202/691-4013
Robert M. Hathaway, Asia Program Director