TODAY JAPAN STANDS uncontested as the superstar of the world economy. Its factories are the world's most efficient. Its corporations provide the models for a generation of managers from around the world. And, increasingly, Japan's bankers reign as the new lords of international finance.
Yet many Japanese believe the land of the rising sun hasrisen as far as it can. They fear that unless there are radical changes in the fundamental objectives and strategies pursued by the nation's industrial and government leaders, Japan may begin a long descent.
"No country can enjoy prosperity forever," notes Hiroshi Katoh, a former official with the Ministry of International Trade and Industry (MITI) and now a leading Japanese venture capitalist. "The whole system is breaking down. We just can't go out and get the growth we used to. The feeling is that Japan is in the beginnings of a decline."
This view is not merely a reaction to the appreciation of the yen -- which, unlike the oil crises of the 1970s, was a shokku (shock) caused by forces that Japan could have influenced. Instead, today's problem is a natural and inevitable result of its selected and heretofore successful political, social and corporate systems. Japan's beggar-thy-neighbor trade policies have earned it mega-dollars, but at the price of undercutting the economic growth and wearing out the patience of its prime customers.
"The key problem is that we don't want to destroy the basis of our past glory," notes Jiro Tokuyama, aprominent Japanese economist and dean of the Nomura School of Advanced Management. "We just can't keep selling products to the rest of the world so successfully. We have to start experiencing the sort of things -- like off-shore production -- that our competitors also face. We have to change ourselves dramatically.
"The idea of Japan as Number One is ludicrous. We don't have the human assets, resources or political strength to be more than, at best, a good Number Two behind the United States."
Among executives and intellectuals from Paris to Peking, the Japanese have replaced the Germans and even the "ugly" Americans in being viewed as selfish "economic animals." The United States is not the only trading partner gearing up to, as one Japanese economist put it, "punish us for our success." France and Italy have erected massive barriers to Japanese cars and consumer electronics.
But most important is the resentment spreading in Japan's backyard: East Asia. Even such strong exporters as Hong Kong are finding it impossible to make headway in the Japanese market.
Last year, for example, Japan sold Hong Kong 12 times as much as it bought. Hong Kong's garments are renowned for quality, but they have barely penetrated Japan. Hong Kong, for that matter, is the world's largest producer of toys. Yet, "You can't get anywhere with them. They won't even buy our toys," notes T.W. Wong, deputy director general of the Federation of Hong Kong Industries, one of the most pro-free-trade groups in Asia. "Their toy companies can be dying -- living on subsidies -- but they won't let us in."
Given such resistance, South Korea and Taiwan, themselves facing tough protectionist legislation from the United States and Europe, are considering curbs on Tokyo's economic penetration. Even Malaysian Prime Minister Mahathir Mohamad, once markedly pro-Japanese, has announced that Asians are no longer willing to be "hewers of wood and drawers of water" for Japan.
Perhaps nowhere is this anti-Japanese resentment more pronounced than in China. Although China is the most promising market for Japan after the United States, Tokyo's traders have deeply alienated its billion potential customers. With control of 26 percent of China's foreign trade, the Japanese characteristically created a $9 billion trade surplus in the first nine months of 1985. This drain on China's foreign reserves led to its recent massive cutbacks in imports. But the larger problem, Chinese officials claim, is that, unlike American or European firms, Japanese companies are reluctant to share technology or scale down projects to appropriate levels. Instead, they sell completed products or set up plants with "black-box" technology. In the latter, the Chinese assemble parts made in Japan with technology that they are never allowed to master.
"The goal seems to be to keep us backward and buying," notes Zeng Xiao Ming, manager/engineer at Peking's Chang Feng Industry Corp. "There isn't a lot of thought about mutual benefit."
No longer willing to be a receptacle for ever greater shipments of Japanese goods, China and other Asian nations are planning to go on the offensive against Tokyo. Even before the yen shokku, this competition caused major bankruptcies or restructurings among flagship Japanese industries, including steel, shipbuilding and electronic components. Particularly vulnerable are scores of Japanese firms that produce such low-tech exports as cutlery and dinnerware. They must justify yen-driven 30 percent price rises against hard-charging Koreans, Taiwanese and others working in currencies that are pegged to the dollar.
As a result of competition and protectionist backlashes, growth rates in Japan have fallen to 5 percent or less annually -- comparable to the United States -- from double-digit rates. Corporate operating profits have fallen as much as 25 percent since the salad days of the early 1970s. Last year, for instance, exports boosted total sales of Japan's top corporation by 2.7 percent but profits dropped by nearly 5 percent. Now, with the recent jump in the value of the yen, profits of Japan's 400 largest companies, according to a survey by the respected newspaper Nihon Keizai Shimbun, are expected to drop an additional 30 percent.
This reveals some profound weaknesses in the much-praised Japanese industrial system. In the past, Japanese firms, unlike their American and European counterparts, have been reluctant to buy components from, or place plants in, countries where they sell their products. Large Japanese firms still average only 4 percent of their total production overseas, compared to 15 to 20 percent for their American and European rivals.
Yet Japanese firms are being forced, for both political and economic reasons, to follow the off-shore patterns of their competitors. And as they do, job growth will slow. Most drastically affected will be non-giant companies, which constitute 99 percent of all Japanese companies and employ 85 percent of all private-sector employes. Many supply components to fill the export orders of the major companies. They face far more difficulties than do the major companies moving their factories to Ohio or Singapore.
Japan's technology-oriented "venture businesses" are also in trouble. It was hoped they would provide the innovation necessary to overcome the inevitable shokkus. Yet highly regarded technology start-ups such as Nihon Electric and Japan Soft and Hard Corp. failed last year and another, Sellac and Sord, was told to Toshiba.
"Most of the companies we invested in in the high-tech field are near bankruptcy," notes venture capitalist Hiroshi Katoh. "Like most Japanese firms, they were built 30 to 40 percent on exports and can't stand the yen changes."
What really disturbs thoughtful Japanese today is not so much the pressure from overseas, but the effect that their system's rigidities are having on the essentialYamato Damashii -- "Japanese spirit." This "Japanese spirit" is a powerful concept. It is the Japanese belief that, with the correct spirit, Japan can prevail against all odds. This was what was supposed to win World War II for Japan against its larger opponents' manufacturing capacities. This is why the question of the waning of Yamato Damashii is so potent to Japanese. It adds political impact to the decline many Japanese note in their nation's originality in the arts and literature. Some fear that this malaise soon will seep into the economic sphere, particularly among the young.
"It's frightening to watch young people work these days," said a 40-year-old middle-manager at Hitachi's massive factory in Kanagawa. "There is no initiative, no ambition, no hope. People are at work, but seeming only to show up. I fear we can no longer depend on the Japanese spirit. And without the Japanese spirit, where will we be?"
Actually, the pressures of demographics and slow growth are coming together to harm three generations, each differently. For the oldest, the road to success in Japan is increasingly so clogged as to be impassable.
Japan is the world's most rapidly aging society; there are too many sarariman (salaried employes) between the ages of 40 and 50 bucking for too few promotions. In comparison to an American executive -- who easily can switch jobs, start his own company or continue ascending the corporate ladder as late as age 60 -- the Japanese executive's career, in Hobbes' phrase, seems "nasty, brutish and short." With retirement set at age 55 and early promotions slowed by the grinding of the seniority system, the Japanese executive has, at best, only 15 years to gain power and position.
"The 45-year-old executive tends to be feel very threatened," notes Makiyo Mizobuchi, executive director of Recruit, a Japanese employment agency. "They are the ones without experience with such new things as office automation, internationalization and information processing, yet they must compete with younger people who do. They know that time is running out. And by the age of 40, they know it's all over. They are stuck on a trail of suffering."
In perhaps the most pathetic cases, older workers simply are put out to pasture, given functionless jobs until they are forced out at retirement age. These madogiwazoku, or window-side managers, said to number well over 2 million in 1980, can be seen in many Japanese corporate offices, reading newspapers at their empty desks, stoically whiling away the hours.
And, although it's rarely discussed openly with foreigners, a growing number of older executives just lose themselves in drink. Nor do the supposedly paternalistic Japanese companies do much to help, notes Yukio Yamamoto, a staff member of the Tokyo office of Alcoholics Anonymous. In fact, Yamamoto complains, some well-intentioned supervisors exacerbate managers' alcoholism by offering to discuss their problems the traditional Japanese way: at long, after-work-hours drinking bouts.
Nor are things much more promising for Japan's baby-boom generation. Constituting roughly 30 percent of Japan's 120 million people, a large proportion of these baby boomers trained for and expected high-level jobs. Between 1960 and 1970, for example, the number of college students in Japan grew by more than 50 percent. But educational attainments, once considered a sure ticket to success, no longer guarantee steady promotion. According to the "2000 Report" issued by Japan's respected Social Development Research Institute, in 1983 two-thirds of all college graduates had achieved the rank of bucho -- division manager -- by the age of 54. By 2000, only 17 percent of such people will achieve that rank.
This is one challenge that the great Japanese trading conglomerates -- the zaibatsu -- are finding far more difficult to solve than producing VCRs. Already, there has been a growing exodus of young Japanese executives and engineers to the competition -- often to Japanese subsidiaries of American corporations.
Take the case of engineer Hisato Gotoh. A 15-year veteran of Tokyo-based Oki Denki, one of Japan's largest electronics firms, Gotoh fell into a conflict with superiors over the need to develop new software and marketing plans for the rapidly expanding custom-chip market. Accustomed to such large-scale commodity businesses as standard memory chips, Oki's corporate bureaucracy could not adjust to the sophisticated technological and marketing challenges of the fast-moving and more highly customer-specific arena.
So the blunt 38-year-old Gotoh quit, and signed on with the Japanese affiliate of Silicon Valley chipmaker LSI Logic.
"They'll have to kill off everyone over 50 and make all the guys in their 40s kacho, section chiefs ) bucho, even vice-presidents," says Gotoh of his old employer. "I just fear it may be too late for them to change."
Few Japanese companies can be expected to adopt Gotoh's suggestion. Still locked into the mentality of mass-production and export-led growth, Japanese firms are likely to continue squelching creativity in favor of the maintenance of traditional hierachies. Until these basic attitudes are changed -- and Japanese allow themselves to be more than economic animals -- they will, in the words of one executive, "never become whole or creative again."
Perhaps most disturbing for the long run is the system's effect on its young. Many top Japanese managers worry about the new generation of college graduates -- widely known as shirake sedai, "the reactionless generation." They are accused of lacking both the loyalty ethos of the over-40 generation and the creative drive of the baby boomers.
This passivity has its origins in the perceived near-impossibility of advancement in today's Japan. In 1970, 47 percent of Japanese between 20 and 24 believed life would get better, according to a government survey. Ten years later, only 33 percent felt that way. Over the same period, the percentage believing things would get worse jumped from 3 to 13 percent.
"I stay late because I have to, but there is no point to it," comments 27-year-old Takashi Nakayama, a junior sales executive at a large Japanese consumer products firm. "I see people struggling and getting nowhere. There's more to life than promotion, becoming kacho and all that."
America, too, has faced such problems of alienation among its young people. But our nation in recent years has been renewed by immigration. America also has a vital entrepreneurial sector that provides less structure and more opportunity for young and ambitious executives. And America, with to its enormous natural resources and domestic market, simply does not have to achieve the same high level of human productivity necessary in a resource-poor, crowded nation such as Japan.
Even without the "Japanese spirit," Japan's decline may not be readily perceivable in the immediate future. Due to Japan's stupendous achievements, and the continuing short-sightedness of American and European executives, Japan will reap technological and productivity advantages for years to come.
But Japanese concern about their country's ability to adjust to the future can already be seen in the decision of firms from Sanyo to Mitsubishi to pull up stakes and locate new facilities in America and East Asia, while American firms from IBM to Compaq to Zenith have bolstered the U.S.-based manufacturing power.
"Everything in Tokyo is overpriced," noted a former top official of a Japanese trading firm. "There are no more opportunities. There's no place to go but out of Japan."
Indeed, while Japanese overseas investment has soared, domestic investment in plant and equipment in 1986 is expected to grow a paltry 1 percent and decline markedly in electronics and chemicals. By contrast, Korea's investment is expected to increase by 42.5 percent. This comes at a time that, by some measurements, Japan's industrial plant is now older than that of the United States. One government report even predicted that off-shore production could cost Japan 560,000 jobs by the turn of the century. And in this "era of limits," for example, there are indications that Japan may abandon grandiose efforts to dominate the world's aerospace industry.
Thus, to many Japanese, the future looks more modest than that projected for them by their U.S. admirers. West Germany is a good model, believes Hiroshi Takeuchi of the Long-Term Credit Bank. It is a leading industrial power whose wealth is based on precision products such as luxury cars and machine tools. But no one expects it to dominate the world's technology or challenge the United States for industrial supremacy.
But perhaps more relevant is Great Britain, which in the first half of this century lived off its vast overseas holdings. Japan in the immediate future can also profit handsomely from its investment abroad -- projected to be $400 billion by 1990. But if its economy is increasingly dominated by financial services, that could subvert the very basis of Japan's industrial success.
"Return on investment is the name of the game," explained one young Japanese financier, shortly before leaving Tokyo for London to continue his training. "All this loyalty stuff is basically garbage."
Of course, not every Japanese has abandoned the national spirit. Yet unless there are fundamental changes in the nation's economic structure, Japan will be hard pressed to avoid the mistakes that have led to the decline of other great nations.
Joel Kotkin covers Asia and the Pacific Basin for Inc. magazine. Yoriko Kishimoto, a native of Japan, is the managing partner of Japan Pacific Associates, a California business consulting firm. They are co-authors of the forthcoming "Pacific Rim Strategy."