Why Japan isn’t ready for a comeback

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My first visit to Japan came in the sticky late summer of 1998. Fortune had sent me across the Pacific to figure out whether there was any end in sight for the island nation’s long economic nightmare. That’s not really the kind of question you can answer in a week of interviews in a country where you don’t speak the language, but I had read Karel van Wolferen‘s The Enigma of Japanese Power, so I sort of had an idea going in.

Van Wolferen is a Dutch journalist-turned-professor, and his book–one of the most important written about Japan in the 20th century–described how difficult it is for Japanese society to change course. In Van Wolferen’s telling, power in Japan was exercised not by individuals but by interlocking groups. And it took deeply traumatic events like the arrival of Commodore Perry’s warships in 1852 and defeat in World War II to get Japan’s groups to adopt new objectives.

So in 1998, I wrote that Japan wasn’t going to change anytime soon, and its economy wasn’t going to turn around anytime soon. It was a pretty good call: It wasn’t until 2004 that Japan’s economy showed real signs of life. But since then a lot of people, among them Fortune‘s Asia editor Clay Chandler, have been proclaiming that the country is now truly on the comeback trail.

Not everyone, however, agrees. During my 1998 visit, I got to spend a weekend at Van Wolferen’s country house outside Tokyo. I met a bunch of interesting people there, among them Michael Zielenziger–then Knight-Ridder Newspapers’ man in Asia–and his wife, artist Diane Abt. Now Michael, who has since moved back to the San Francisco Bay area, has written a book, Shutting out the Sun, arguing that Japan is nowhere near a real turnaround or comeback. (Similar sentiments can be found on a near-daily basis on Michael’s blog.) The book is only partly an economic tract, though. Michael also spent a lot of time among the hikikomori–young male recluses whose plight, he argues, encapsulates much of what’s wrong about Japan.

Because I’m too lazy to take notes, I conducted the following interview with Michael via instant message. I edited it somewhat for length and comprehension.

JF: I thought everything was turning around for Japan. The economy was growing again, the politicians were more dynamic, etc. You saying that isn’t so?

MZ: The conventional wisdom is that Japan is about to “turn the corner.” That has been the line for some five years now.

You say it’s wrong?

It is a very l-o-n-g corner. The surge of growth in China (on the investment side) and the U.S. (on the consumption side) has masked Japan’s deep structural problems. Japan is very much a HIGH COST country in a LOW COST region. Japanese firms–the 90 percent that are domestic focused–are almost uniformly unproductive (by global standards) and unprofitable. Zero interest rates hide that problem.

And consumption in Japan isn’t really back?

Consumers are pessimistic, worried about the collapse of the safety net, and getting older. The only reason SPENDING grew is that so many young people are out of work…


Their parents have to help support them. There was a “modest” uptick in consumer spending last year. This was a reflection of the fact that Japanese had to dip into their enormous nest eggs because wages were no longer growing. We have 4 million PLUS young Japanese who only have part-time work. They earn about 15K a year, and their chances of getting hired mid-career are small.

Wow, you’re just the gloomy gloomster. Isn’t anything positive happening over there?

Positive? Well Toyota and Nissan are kicking ass…but that’s overseas.

But still, there’s stuff going on–in terms of foreign investment, startups, etc.–that wasn’t there 15 years ago, isn’t there?

Yes there is some more foreign direct investment. The corporate rules have been eased somewhat, corporate cross-ownership of shares has been reduced. But certainly there has been NO radical restructuring of the system, and the Japanese consistently demonstrate that they DON’T WANT any radical restructuring of their system. Those who say Japan is “turning the corner” also insist that Japan will “converge” and emerge like us. I say, it just ain’t so. Take that, Tom Friedman. The world is not “flat.”

Tell me about your hikikomori buddies.

I argue in the book that if you understand why about 1 million young men isolate themselves in their own homes, don’t work or go to school, then you begin to understand why it is so hard for Japan to globalize, “play well with others,” open their economy, etc.

Those are the hikikomori?

Yes, to be hikikomori is to become socially isolated, alone at home, not going out. I use the Japanese term because Japanese experts (and I, based on my research) believe this pathology does not exist in other societies. When you test these folks, they are not agoraphobic, schizo, psychotic, or anything like that. When you sit and talk to them, they are highly engaged, self-aware and creative young people. They COULD be creative if allowed to actually express their individuality and intelligence. But that is not what Japanese society wants, or expects. From infancy they have been taught to suppress their own true feelings and put on a mask to “get along with others” in Japanese group-dominated society.

So basically, they’re the people who don’t have many friends in high school, who in the U.S. grow up to be superwealthy software entrepreneurs…

That’s one way of thinking about it. Steve Wozniak was probably not the most popular guy in h.s., but he had the courage and guts to go do his own thing. He wasn’t “bashed” all the time and told to just be like everyone else. Bill Gates wasn’t exactly Mr. Magnetism either as a kid.

Entrepreneurship, risk taking and critical thinking are all in very short supply in Japan. Which is why it’s been hard for Japan to move from the comfortable, gradual improvement world of the industrial society, to the chaotic, turbulent, paradigm-breaking world of the post-industrial world. Continuous improvement of door hinges or even Megaflops of a semiconductor chip only gets you so far.

So is Japan just going to shrivel up and become irrelevant?

Yes, that is clearly one possible outcome. When South Korea fell apart, the IMF had to write a check and helped force the ROK [Republic of Korea] to make some big changes. But the Bank of Japan could OWN the IMF. Who has the leverage?

And there’s no significant force in Japan pushing for a change in direction?

Yes, but only at the margins. Young people in Japan have very little power. The push is thru rebellion: Young women refusing to have kids, or moving to Manhattan. Young men hiding in their rooms. Rising suicide rates. Because in Japan, as opposed to the U.S., you don’t “Act Out” … you “Act In.”

So basically it’s Karel van Wolferen all over again?

Well yes, and no. I am very sympathetic to Karel’s book, obviously. But Karel wrote about a very different time. The Japanese Model was still successful then. Now we have had FIFTEEN years of bad economics and NO Rebellion, which demands some explanation. I actually discuss some psychological and social theory to expl
ain this. For instance, do you know the argument about the “strength of weak ties”?


This is the basis for conversations about “social capital,” i.e, that we benefit from knowing many people, in many diverse fields, from different ethnic groups. etc.–having weak ties with many people.

Like u and me

Yup. The reverse is to be like a Mafia don, or a resident of North Boston. You ONLY hang out with the people you already know: from your own family, or your own “house.” These sorts of people only have STRONG ties. They don’t want weak ones. Japan is more like a Mafia family than two Western journalists who met at a cocktail party in Japan ten years ago, and discovered mutual interests.

As long as you are IN a Network, you are fine. That’s why being a COMPANY MAN is so important. But fall out of that network, and you are toast. No one will give you the time of day. Hikikimori want to live in a world like ours, but are trapped in a Mafia family…

And so people like Ken Ohmae and Joi Ito are just totally anomalous? Or total outsiders?

Most Japanese think Ohmae is a wack job. And Joi Ito represents a new class of global Japanese who trade on their “globalness” but have little clout or influence on the domestic scene. These are smart Japanese who have been POLLUTED by living and/or studying abroad. Once they leave the “famiglia” they can’t really get back in. That’s why they work for foreign firms, or just leave. A guy like Ito or Masayoshi Son can do okay for themselves in Japan. Quite well, even. But I wouldn’t say they can “change” Japan. What does it say about society that after 15 years of DEFLATION…there still hasn’t been a change in government???

So 15 years ago, Americans were all freaked out that Japan was going to take over the world economy. Now that they so clearly aren’t doing that, should we be happy about it or sad?

We should be sad, and worried. The world needs an engine of growth in Japan. We are too dependent on U.S. consumers to stimulate global expansion, and we should worry for the Japanese, who, as a society, are deeply unhappy and pessimistic.

A question about South Korea: You mentioned already that the IMF forced change there. Are there other reasons why Korean society, which is similar in some ways to Japanese, has adapted so much better to 21st century commerce and life?

YES. Of course ROK is somewhat smaller than Japan, and therefore less insulated. So when ROK gets flooded by a big wave, Japan just rolls along like a supertanker. But the HISTORY of Korea’s modernization is different. Korea FOUGHT for democracy. Japan had democracy imposed by MacArthur. Korean society was constantly in upheaval because of colonization and war.

And interestingly enough, one of the most salient forces that drove Korean modernization was the Protestant Church. Protestant missionaries came to Korea in the 1880s. These missionaries taught peasants to read. They built western-style hospitals. And they told Koreans to manage their own churches.

So church groups in Korea consistently fought against Japanese occupation. They also helped build those “loose ties” that connected students and workers to protest martial law when Park was strongman. I argue that it is no accident that the Koreans were able to say “we screwed up. we have to change our system. we have to open up our country…”

So it’s Hooray Protestant Missionaries, Boo Shinto Priests!?

Now that sounds like Jon Stewart… But yeah, I guess.

No, it sounds like a Red Stripe beer ad.

Sorry, we don’t get them in S.F.

UPDATE: For Joi Ito’s reaction, either scroll up to the next post, or click here.