A visit to Japan generally begins in Tokyo, but the starting point for understanding Japan is Hiroshima and the monument to the victims of the dropping of the atom bomb, which give expression to an exceptional way of dealing with national disasters.
A fundamental principle of Japanese culture is taking responsibility and not blaming others, even if they are enemies and foreigners. So even at a site that memorializes a disaster for their people, the Japanese have not been drawn into settling accounts, but rather turn to soul searching and self-improvement.
The choice of this mode of response arises from another basic principle of their culture: the aspiration to perfection. This aspiration eventually had an economic price.
According to widespread economic myth, at the end of the 1980s, the Japanese erred in their response to the bursting of their credit and real estate bubble. The Japanese banks did not write off the bad debts they had accumulated, and the central bank did not carry out "quantitative easing".
Conventional wisdom has it that this is the reason that from that point the Japanese economy hardly grew, in what has become known as "the lost decade". What did the Japanese do in this period? They invested in large infrastructure initiatives railways, bridges, and so on in order to stimulate the local economy. As a result of these investments, Japan currently carries a high national debt in relation to gross domestic product.
The US adopted the reverse policy in response to its credit and real estate crisis in 2008. As though learning from the alleged mistakes of the Japanese, the US wrote off debts from the banks' balance sheets ("the poisoned assets"), and strengthened those balance sheets through quantitative easing.
Lo and behold, six years on from the crisis, the US economy suffers from the same problems characterized as "Japan's lost decade", except that, unlike Japan, it remains with crumbling infrastructures. This is because all the money was diverted to stimulating the economy via the financial sector, and not via direct, real investment.
So, for example, anyone who wants to travel today by train from Manhattan to a tea party in Boston will take five hours to do so, whereas a similar journey from Hiroshima to Kyoto in Japan will take just over an hour and a half.
Japan's lost decade was not really lost. An economy does not grow at a uniform rate. An economy leapfrogs. It makes a big jump once in every few years as a result of a revolutionary technological invention or a business breakthrough, and after that follow years in which the economy digests and consolidates the jump, till the next time.
Japan's big jump after World War 2 lasted several decades. It arose from adoption of the quality concept of William Deming, an engineer who developed management theories, and from the work of three entrepreneurs who created outstanding companies. The three, who got Japan's economy moving and offered an example to other companies in the country, are: Akio Morita, founder of Sony; Taiichi Ohno, who introduced the production method at Toyota; and Soichiro Honda, who founded the company that bears his name. The innovativeness in business of the three of them drove Japan's economy forward and made it prosper until the end of the 1980s.
But then, when the West caught up with the Japanese quality and efficiency revolution, the Japanese continued to polish those areas in which they were outstanding. The polishing, originating in the abovementioned Japanese aspiration to perfection, bore diminishing marginal returns, and prevented the country from taking the next leap.
The common perception is that the Japanese are perturbed by the prosperity of South Korea and the success stories of Hyundai and Samsung. The truth is that their eyes are turned westward: Apple, and the consumer revolution that its products have generated, are the wake-up call for the Japanese business world.
The lesson has been learned. It is that even in the name of the aspiration to perfection you can't keep investing just in improving functions in specific departments ad infinitum. So today, the big Japanese concerns are looking for the push forwards through technological and business innovation.
This is the basis for Japan's next leap forward, which is not far off. Israel could have a central role in this leap, and both countries would gain from this. For example: cooperation by Israeli start-up companies in all areas of science and technology, from medical devices to development of hardware and software that could be incorporated in advanced consumer electronics products.
The Japanese nation state
The Japanese aspiration to harmony is what has prevented them from solving their economic problems by importing cheap labor, although it is plentifully available in their region. Instead of relying on cheap foreign workers, the Japanese preferred to focus on developing components with high added value. The result is that, for example, of every i-Phone that Apple has produced in the past, 34% of the work went to Japanese companies and only just over 3% to assembly and production companies in China.
The Japanese have integrated into their world baseball, Starbucks, and other characteristic elements of US consumer culture. They are even prepared to adopt initiatives and management theories from other countries. By contrast, they utterly reject the notion of cultural pluralism that dominates and is considered politically correct in Western countries that absorb cheap immigrant labor.
Israeli Prime Minister Benjamin Netanyahu, now visiting Japan, is likely to discover similarities between the Israeli consensus and the Japanese consensus, in the desire for a nation state and preservation of its ethnic character. Perhaps he will also learn from Japan how a country can prosper without becoming dependent on foreign workers, while giving decent remuneration to the local labor force that fills basic manual jobs.
The author holds a PhD in Economics, is the author of the book TOC Thinking, and is a partner at international consulting firm Goldratt Consulting, which is also active in Japan.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2014
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