Japan Inc. Must Clean House, for All Our Sake

by Paul Cipywnyk

This column ran in the Sept. 1, 1991, Asahi Evening News.

The ways of doing business that keep the Japanese economic juggernaut rolling are bringing increasing criticism from the international community. The world's most successful economy operates on standards deemed unethical by its trading partners.

A recent Japan Economic Foundation report found that 85 percent of 500 polled U.S. politicians and business and academic leaders believe that Japan practices unfair trade. Add to this the stock compensation scandal, the shady business-yakuza connections, the Komatsu industrial espionage case and the assorted major bank frauds, and it is easy to forecast troubled times ahead for Japan's economic relations with the rest of the world. The international economy is so closely interconnected that "local" problems instantly reverberate around the world.

"Revisionist Japan bashers" are gaining a wider audience. The stock compensation scandal in particular highlights the incestuous relationships among large Japanese corporations and their back-scratching ties with the government. Corporate Japan does play by different rules, and the Japanese government is in cahoots.

It will not be possible to claim dispensation because of Japan's "unique culture" for much longer. Protestations that a Securities and Exchange Commission (SEC) to monitor Japanese brokerages isn't suited to Japanese business culture don't hold much water. Economics should be a culture-free field, and everyone should play by the same rules.

The days when Japan needed to protect its industries are long gone. Japan has to reform its ways of doing business, or other countries will start retaliating. Everyone will end up losing if such a tit-for-tat trade war breaks out.

Japan needs to temper its "old boys" ways of doing business. Obvious areas that need change include loosening the "keiretsu" interlocking companies system, setting limits on the "amakudari" ties between business and government where senior bureaucrats are guaranteed instant employment with the companies they once oversaw, and the establishment of an SEC with real teeth independent of the Ministry of Finance.

Obvious and necessary reforms, but progress is sure to come at a snail's pace. One only has to look at the reaction to the compensation scandal to see why. It was like a kabuki play with lots of color and sound, but no realism.

Every actor played out his role. There were the usual token resignations in the business world. Politicians and bureaucrats issued "sincere apologies" and vowed to investigate and discuss and perhaps introduce legislation -- which will likely be watered down to the point of uselessness by the time it comes to a vote. Editorial writes ranted and railed. The public was outraged, and lapped it all up. That's entertainment. And that's all it was -- entertainment.

A few head rolled, but in Japan, leaders not only seem to defy laws of business but laws of physics as well -- most heads appeared to roll uphill, from chairmanships and presidencies to senior advisorships.

The bottom line is, why would Japan want reform? Who would tinker with a system that, at least for Japanese business and government, works so well? The Japanese public isn't going to storm the Diet, or the corporate head offices, either. With unemployment at 2 percent, with negligible inflation, and with the majority of workers getting 5 percent raises every years like clockwork, who's going to complain too much?

The only fly in the ointment is the fact that what's good for Japan isn't necessarily good for other countries. "Gaiatsu" (external pressure) will rear its head yet again and force change. The only hope is that Japan will realize that it has to share the world economic pie and institute reforms before it becomes the business pariah of the world.