Business: JAPAN’S STRUGGLE TO COPE WITH PLENTY

It would not be surprising if the 21st Century turned out to be the Japanese Century.

—Herman Kahn

ECONOMICALLY, that prophecy might be coming true ahead of time.

The impact of Japan’s industrial machine, the fastest growing and now the second largest in the non-Communist world, is felt in every corner of the earth. In Europe, businessmen simultaneously worry about competition from Japanese goods and depend on Japanese-built supertankers to move Mideast oil to them despite the 26-month closing of the Suez Canal. In tiny mountain towns of Western Canada, long-unemployed miners are going back to work to dig the coal needed to fill a new $600 million order from Japanese steel mills. Ideologically impartial, Japanese industrialists trade with Peking and Taiwan, cut timber in Siberia and make 70% of the baseball gloves sold in the U.S. Japanese experts are training rice farmers in India, and fishermen in Ceylon, building drydocks in Singapore and generally doing more than U.S. foreign-aid officials to develop the economies of many Asian nations.

This explosive growth and new power, however, have brought Japan’s economy to a difficult stage of decision. As TIME’S Tokyo Bureau Chief Ed Reingold reports, more and more Japanese leaders realize that their economy has to make the jarring transition from super-precocious adolescence to maturity. At home, Japanese consumers complain that they have been left behind in the scramble for export markets, and they are clamoring for more of the rewards of industrial expansion. Abroad, many of Japan’s best trading partners are becoming increasingly impatient with the way that its businessmen flood the world with exports while keeping their own economy insulated from foreign goods and capital. These new problems confuse and disturb the Japanese. Kiichi Miyazawa, a leading economist, sums up the mood: “For years, our people learned to cope with poverty. We do not yet know how to cope with plentifulness.”

Open the Door. This week Japanese leaders will move toward a confrontation on one of their major problems—trade relations with the U.S. Members of the Japanese and U.S. Cabinets will gather in Tokyo for one of their periodic meetings. The U.S. will be represented by the State Department’s William Rogers, Commerce’s Maurice Stans and Agriculture’s Clifford Hardin, as well as Paul McCracken, the President’s chief economic adviser. They will urge their Japanese counterparts to start removing import quotas on 120 products, and move faster in approving requests from U.S. companies that want to set up joint ventures in Japan to build cars, electronic components and other high-technology products. Relations between the U.S. and Japan are becoming steadily closer—and closeness creates friction.

If Japan does not liberalize its economy, the U.S. and other nations may well intensify an already strong backlash against Japanese exports. The U.S. restricts imports of Japanese steel and threatens to set quotas on textiles (TIME, July 4). Thailand recently banned imports of Japanese used cars and tires until Tokyo agrees to buy more Thai rubber and corn.

A Place for Everyone. Protectionism is deeply rooted in the Japanese way of doing business. In Japanese industry, every person and every business has a place, which is guarded by elaborate rituals. Businesses reach decisions by an exquisitely deliberate process of consensus seeking. In most companies, reports TIME Correspondent Frank Iwama, this process is symbolized by the long row of printed boxes running down the side of policy papers. Every executive involved must put his “chop” (mark) in a box, signifying his agreement, before any decision can be moved along. The next step is to present the decision to one of the “day clubs” of supposed competitors that meet regularly to shape policy for groups of companies. Consensus reached in one of these clubs must then be presented to the government, which supplies an average of 80% of the capital on which Japanese firms operate. It is also legal for industry associations to make the kind of decisions that U.S. competitors could never get away with. For example, they can determine how much each company in an industry should cut production during a recession.

This cozy system is capable of enormous dynamism. Once a decision has been reached, everyone who participated works single-mindedly to carry it out. But foreign companies are kept out of Japan largely because they might not abide by decisions of the day clubs, and those that are allowed in are prevented from becoming too pushy.

The Effluent Society. The consensus system also operates to perpetuate some startling inefficiencies that tend to keep consumers from sharing fully in Japan’s industrial growth. Businessmen abroad complain about the low prices of Japanese exports, but prices inside Japan have been rising at close to the fastest rate in the industrialized world —5.3% last year. The 102 million Japanese now own more appliances per capita than any people except Americans but have practically no room for them. Housing space in metropolitan areas averages 40 ft. per person, no more than before World War II. To millions of people jammed into the overcrowded cities, Japan’s industrial might has brought not affluence but effluence. Photos taken from Apollo 9 showed thicker smog over the Tokyo Bay area than over Los Angeles, and beaches are badly polluted. The government is moving to relieve some of these ills, but has had little success coping with high prices, which are caused partly by the consensus system. In Japan, no manufacturer sells directly to a retailer. Tradition decrees that every product pass down a long line of wholesalers, mostly very small, each of whom takes a cut that adds to the price.

Jobs for Life. Consumers are left out of the consensus, and they are becoming restless. Workers strike for giant wage increases—an average 15% this year—that aggravate inflation. Labor unrest is an ominous sign of discontent, for workers have also had their guaranteed place in the semifeudal industrial system. When a youngster fresh out of high school signs on with a company, both parties understand that he will stay on until retirement.

Japanese companies are loaded with unneeded employees who can never be fired—and this leads to relatively low productivity. On the average, the Japanese worker produces only 50% as much as the West German and 25% as much as the U.S. worker. Japan’s gross national product, at $142 billion last year, edged ahead of West Germany’s largely because Japan has twice as many workers as West Germany. But this advantage may soon be weakened because Japan faces a severe labor shortage.

No More Time. Japan’s leaders smile and agree that, yes, change and more competition are necessary. Toshihiko Yoshino, research director of the Bank of Japan, concedes that opening Japan to foreign businessmen would help considerably to ease inflation. But he and other leaders plead for more time to strengthen companies against aggressive foreign rivals—and time to squeeze the necessary decisions out of the consensus system. Japan’s exasperated trading partners are no longer in any mood to grant that time. For instance, Japanese companies do not invest much in research, but instead rely largely on buying foreign technology. U.S. companies, in particular, no longer want only to sell technology. They want in on the Japanese market—now.

The rest of the world has a large stake in the outcome of Japan’s struggle for change. A free-trading Japan, expanding its programs to develop other Asian economies, could do much to narrow the gap between the world’s rich and poor countries. If Japan’s businessmen can find ways to open their economy to foreign influence and domestic reform, while preserving their system’s virtues of harmony and discipline, then the 21st century—and perhaps even the closing years of the 20th century—may indeed be Japan’s.