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Japan in danger of becoming ‘just a place to fly over’

By Frank-Jürgen Richter

Nikkei Weekly, November 26, 2012

All the excitement is nearly over. The U.S. elections are settled, and Obama will continue for another four years … unless there is a dire incident. And the Chinese government changeover is done, bar the celebrations, though the slow process will not be finished until March, maybe beyond. Of course, other elections continue; it’s the normal process of democracies, but at least now we ought to be able to look to the future knowing the two big powerhouses are settled.

So we look to Japan, which has often found itself flat-footed when the U.S., and even Europe sometimes, shifts its policy toward China, first blowing hot, then cold. How will attitudes change in the new stability? Certainly many have said time and again that Japan needs to address structural reforms. But like its many Asian neighbors who have embraced Confucianism over millennia, the country has always been slow to change – from the ways of families to the ways of businesses and government. But it might be crunch time now.

During the Meiji Restoration, Japan made many beneficial changes, as it did after World War II, when it became strongly industrialized. I lived there in the 1980s, studying its management processes that were flooding the globe. I saw old-world values juxtaposed with a go-getting spirit. Japan was the first Asian nation to industrialize and to expand its influence by overseas acquisition. It seemed then its prowess was unstoppable. Now Japan needs to revive that double ethos, but to do so it may have to accept immigrants who don’t embrace Japanese traditions.

For the first time since 1979, Japan has a trade deficit (of about $7 billion), though it has massive currency holdings in pension and other state funds. Nevertheless the deficit is worrisome. Japan is heavily dependent on exports, but these fell more than 10% over the past year. Recent monthly figures show a fall of 14% in its China trade (this yardstick has declined for four months in a row). Japan’s main trading partners are the U.S., China and the EU, all of whom have suffered recent recessions, though to different extents. Although U.S. employment has been steadily increasing over several months, this – in its business cycle – has not translated into greater economic activity in Japan. It is time therefore for Japan to grasp an opportunity and do better.

Of course certain firms in Japan are world-class or totally dominant in their market sector. Most of these are in the electronics and automotive industries. Some large firms have revised their views to look outward; Hitachi Ltd. has invested strongly in the U.K. nuclear industry. The hope, no doubt, is to use the U.K. to invigorate its global sales of new power stations that the Japanese people do not wish to embrace even though, if well designed and situated, they should be fail-safe. Most Japanese firms must search for greater innovation in research, development and in their management systems.

Japan faces several big hurdles. Its government debt to GDP ratio is the highest in the developed world, and global sentiment is not helped by the negative trade balance. Japan has an old society, and its birthrate has fallen to desperately low levels, as has the number of marriages. It is almost as though Japanese society is breathing its last! Japanese need person to person meetings to create new families, not more stand-off digital communication. Meanwhile Japan does not favor reduced immigration barriers. Suitable people would boost research, industry and commerce, revitalizing society. With its rapidly aging population, Japan needs to be in the vanguard of immigration theory and practice, to lead the world and show how an enlightened policy leads to greater harmony and vigor.

Note Australia. Recently Julia Gillard, its prime minister, has stated that all students will have access to at least one Asian language – Chinese (Mandarin), Hindi, Indonesian or Japanese. This is to ensure adequate linkage in the future to the continent’s developing economies, especially with China, with which Australia has strong economic ties. Of course, this surge follows an earlier thrust of former Prime Minister Kevin Rudd, who engaged more with Asia. So Australians began to think of Asia as somewhere to do business instead of “just a place to fly over” on the way to Europe and perhaps the U.S.

Gillard said Australia is also recognizing that “… the global economic and strategic weight is shifting eastward, toward our region, driven by the rapid modernization of Asian nations, by economic dynamism, and by population growth.”

I suggest that if Japan, its people and government do not revitalize their society, it will rapidly become, at least for Australians, “just a place to fly over” to get to China.

Frank-Jurgen Richter is chairman and founder of Horasis, a global visions community. Horasis hosts annual meetings for the CEOs of the world’s foremost corporations.