Lehmann responds to Bill Emmott's optimism on Japan. Again, no web link to the original text.
I have to preface my remarks by making a confession. When Bill Emmott's excellent and truly prescient book, The Sun Also Sets, was published in 1989, I wrote a review saying that his analysis was spot-on, but not his timing. In other words, the ills Japan suffered from that he diagnosed were there, but that it would take some time before they were to have any major effect. Two years later, the Nikkei Index dropped precipitously and Japan began its "lost" decade-and-a-half, underperforming all major OECD countries. Both Emmott's analysis and the timing were right and I was wrong.
No one, I believe, apart from Bill Emmott, realised that in fact 1989 was the peak. 1989 was the year that the Nikkei briefly touched 40,000, it was the year that virtually every head of state on planet earth came to the funeral of Emperor Hirohito, recognising Japan's role as global paymaster. It was at about that time that the Japan Economic Research Centre forecast that Japan's economy would overtake the US' in 2005. It was a time of great Japanese hubris and, consequently, considerable contempt for the US especially, but generally the rest of the world. I remember the day the news broke that Drexel had collapsed, I happened to be dining in Tokyo with some analysts from Yamaichi Securities (one of the then "big four") who scoffed at Drexel's collapse and explained how such a thing could not happen in Japan!! This was the period when the Japanese were buying everything, Pebble Beach, Rockefeller Center, etc. There was a cartoon showing a group of Japanese in dark suits in a New York penthouse singing the Woody Guthrie song, "this land is your land, this land is my land, from California to the New York Island..." etc.
It was not just the Japanese lionising themselves. Books on how Japan was conquering the world, how there was so much for everyone to learn from Japanese management, etc, were popping up all over, as business schools taught the great virtues of Japanese management. Emmott's book was really going against the Japanese tsunami! How Japan went from being super-model to basket-case deserves more attention than it has received. The comment was being made in the early 90s that foreigners had gone from Japan-bashing to Japan-passing. As the Japanese souffle collapsed, China rose and Tokyo no longer became a favoured destination. This was also to some extent true of academe and punditry. The world has been generally quite disinterested in Japan. In spite of still being the world's second biggest economy, it is quite amazing how little reference is made to Japan.
Having visited Japan in every decade since the war in one capacity or another and actually having been based in Tokyo in the second half of the 80s, I have often reflected on how we could have all (except Bill Emmott) been so wrong. I will not go into the many things that were either revealed or came to feature more as the collapse occurred. But one thing that I believe is very important is that in Japanese institutions and in the relationship between institutions there was a total lack of transparency. The Japanese approach to "information" is politburo-ish. And this is partly because there is strong control by the Japanese nomenklatura. Take the very prestigious, blue-blooded LTCB (Long Term Credit Bank of Japan). Recruitment was reserved for la creme-de-la-creme of Japanese society! And the bank's senior advisers was a who's who of the most prominent Japanese establishment figures. In such august companies, one does not ask questions, and certainly not difficult ones. The lack of transparency extends to the press, which is totally docile and complicit with the establishment. So we never really knew "the truth" or anything approximating it. And when I say "we", I include not only foreigners, but also the Japanese, not part of the nomenklatura.
So where are we today?
Having been very wrong about Bill Emmott's assessment of the Japanese economy in 1989, I should be very wary of expressing any disagreement in 2006. Nevertheless at the risk of recidivism, let me give a few reasons why I do not believe the sun will rise again to any dizzying heights, though that it is not to say it will undergo an eclipse as it has during the last decade-and-a-half. My basic point may be that while Japan has gone back to what it was, in the meantime the world has changed beyond recognition. Japan will have difficulty adjusting.
1) Japan is not really a market economy. Throughout the 90s and the early part of this decade, I kept being told that "Japan is changing". I agree there is change, but change to what? I thought it quite incredulous that people would point to the fact that it became de rigueur for teenagers to die their hair ludicrous and unbecoming colours to show how society was being "liberated". And the fact that the prime minister has long hair, is divorced, and likes rock (visiting Graceland almost as we communicate), so touted as evidence of a new Japan does not really sound very convincing. The salary-man, the big company employee, the hero of the Japanese anabolic-steroid economy, became more of a laughing stock in the 90s. Suicide rates went astronomically upwards. This may all be true, but I am not sure what it all adds up to. Society is perhaps more in flux. But my own view is that while Japan has changed, including economic governance (the command and control bureaucratic governance is a relic) and industrial structure (the keiretsu/industrial groups a la Mitsui, etc) are not what they were, I do not believe it has become a liberal market economy. There remains a lack of transparency (borne out by the Livedoor and Murakami incidents that Emmott refers to) and a general absence of economic freedom and movement that characterise market economies. Mercantilism and even interventionism remain a powerful ideological force.
2) There is no creative destruction. A must-read on the Japanese economy is a book by the late excellent Japanese economist Shigeto Tsuru entitled "Japanese Capitalism -- Creative Destruction and Beyond", in which he argues, inter alia, that the Japanese do not understand creative destruction. Throughout the post-war decades, there was basically construction, no destruction. As the economy tanked in the 1990s, eventually perforce there has been some destruction (a good number of Japanese companies have disappeared or been merged), but not much evidence of creative destruction. The process has been Darwinian, but it has been so amongst existing players. The leading Japanese companies today - Canon, Toyota, Honda - are the same companies that were in the lead one or two or more decades ago. And they are very good. But there is no new major player -- and not many new minor ones either. The passing glitz of Softbank notwithstanding, there is not a single major Japanese global actor in software, financial services, consulting or in education. (Not a single Japanese business school has ever made it in the FT top 50 rankings.) Part of the reason is that there is little scope for innovation outside the corporation's core competencies. A Japanese friend of mine commented that when Drexel went belly-up, ex-Drexel executives were still very much in demand in the market because of their individual skills, know-how and innovation. When Yamaichi went belly up, Yamaichi executives were not in demand because the only advantage they brought would have been the Yamaichi address book. Without Yamaichi, they were next to useless.