This was the general consensus of panelists at a symposium held Feb. 17 at the Japanese-German Center Berlin. The symposium was called The Japanese Economy and the Renewal of Japanese Management, and it was sponsored by the center and the Keizai Koho Center (Japan Institute for Social and Economic Affairs).
Panelists included Dr. Ludwig Bonacker, former president and CEO of Boehringer Mannheim, Tokyo; Keikichi Honda, chairman of Sun Microsystems in Japan; Naoaki Okabe, deputy chief editorial writer for the Nihon Keizai Shimbun; and Franz Waldenberger of Ludwig Maximilians-University Munich. The panel was moderated by Christian Ramthun, a correspondent for Wirtschaftswoche.The panelists spoke on a number of issues related in general to the Japanese economy and Japanese management, and specific emphasis was placed on the banking system and macroeconomic changes over the past decade."Four years ago, the banking and financial crises were still on the horizon. Then in 1997 the Asian financial crisis hit, and this had severe repercussions for Japan," said Okabe of the Nihon Keizai Shimbun."One of these repercussions was the collapse of Yamaichi Securities. This destroyed the myth that large financial institutions could never go bankrupt and led to major changes in the financial world. Banks are now merging and consolidating, and the financial crisis has turned into a financial revolution," Okabe said.Bigger does not always mean better for Okabe, as he noted that the consolidation of banks would make them more competitive internationally. "Right now, there are many main banks competing internationally. Other countries such as Switzerland and the U.S. only have a handful of banks that are truly global players," he said. Bonacker began his presentation by noting that the group hit hardest by Japan's decade-long slump has been small and medium-size firms, which are now facing a credit crunch. This, in turn, has led to other problems. "During the 1990s, the consumption tax was raised, and people began digging into their personal savings. Combined with the credit crunch, businesses went bankrupt, and then they were followed by the banks," Bonacker said. The 1990s also saw outside pressure on Japan, primarily from the U.S., to reform and deregulate. "Products entered the Japanese market after intense lobbying by the U.S., which can put the kind of political pressure on Japan that Europe cannot," Bonacker said. Over the past couple of years, restructuring of the Japanese economy has been accelerated by America in another way -- through the purchase of Japanese firms. Bonacker noted that this phenomenon has led to a shift in priorities, as companies bought out by American firms have to readjust their management styles. "This is because American firms place a much greater emphasis on shareholder value," said Bonacker.Corporate restructuring and the purchase of Japanese firms by foreign companies has led to some fundamental changes in Japanese management practices. But it would be a mistake to think that Japan's management practices are changing drastically, said Sun Microsystems' Honda."Japanese-style corporate management, which emphasizes human rather than material resources, is not going to disappear," said Honda. He pointed to a 1993 survey showing that safeguarding employees' jobs and livelihood were the most important objectives for most Japanese business executives.In addition, unlike the situation in the U.S. or Europe, many Japanese banks, insurance companies and other firms are cross-shareholders. Thus, they have a stake in various companies, and building consensus is a slow process, Honda said.He went on to identify several traits that Japan and Germany share. On the plus side, he said, both countries have a strong work ethic and a well-trained labor force, as well as a strong sense of nationality. These traits have been useful in overcoming several common handicaps, most notably a lack of natural resources.But despite the advantages, Honda sees some major problems ahead for Japan that must be addressed. "First, people must be retrained to be more flexible. For those older than 45, it's rather late, but the younger workers must be taught," Honda said."In addition, firms have to adopt accounting rules more in line with international accounting standards. And of course, investment in information technologies must be increased," he said.The Japanese government has made various promises about implementing a large number of reforms to help get the economy back on track. Waldenberger of Ludwig Maximilians-University noted, however, that there is growing skepticism both in Japan and elsewhere about how seriously politicians really want reform. "There is a question in the minds of many Japan observers about whether the government will really carry through with its plans to reform the economy," he said.Okabe was even more direct: "The ruling coalition has a cold attitude toward reform through deregulation." A couple of panelists also commented on the growing problem of public debt. Japan's total government debt is 1.3 times GDP. Much of this is in the form of local and national government bonds, and there is growing pressure on the national government, from such diverse sources as Tokyo Gov. Shintaro Ishihara and the Moody's financial ratings agency, to address the problem.While recognizing the seriousness of the debt problem, Okabe said it is also possible to make too much of it. "The U.S. ran up huge budget deficits during the Reagan era, but this year it expects a budget surplus. Renewed economic growth will help solve this problem," he said. Bonacker noted that excessive government investment in public works projects of dubious value was a problem that Germany almost ran afoul of. "Several years ago, some politicians called for massive investment in public works projects to revive the national economy, but they were resisted. Such projects provide no added value to the economy as a whole," he said. All the panelists agreed that creating new companies -- smaller and more flexible firms that can respond to the changing global environment -- is one of the keys to revitalizing the economy as a whole. In his presentation, Honda noted that the practice of "norenwake," where a trusted employee sets up his own business with the employer's help in the same line of business, became more common in the 1990s. "Between 1985 and 1990, only about 16 percent of newly established firms had been created through norenwake. But between 1991 and 1997, this figure rose to just over 20 percent," Honda said. "This suggests that private firms are playing more of an active role in creating startup businesses," he said. Bonacker, for his part, remains confident that Japan will continue to be a strong economic power in the years to come. "It must not be forgotten that Japan's GDP is still 60 percent of America's. It also accounts for nearly 70 percent of Asia's total GDP. Japanese companies will go through some tough changes in the years ahead, but they are likely to emerge stronger," he said. Keizai Koho Center officials said that the Berlin symposium was among the first of its kind, following a similar event held in London. Approximately 80 people, including Japan scholars from Germany, top business executives and members of the diplomatic corps, were in attendance at the Berlin symposium.