Not so dissimilar to what I have been saying. Anthony
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Look who's back in the passing lane
Sanford M. Jacoby International Herald Tribune
FRIDAY, MARCH 17, 2006
LOS ANGELES, California The American auto industry is reeling from the news that General Motors and Ford are sharply scaling back domestic production. Both companies totter on the brink of financial ruin.
Japanese automakers, meanwhile, are steadily gaining market share, with Toyota
poised to overtake GM as the world's largest auto company.
Most Americans have not realized that Japan is back. Its recovery started in
2002 after a period of anemic growth lasting a dozen years.
The prolonged economic stagnation had less to do with inherent flaws in the
Japanese system than with inept governmental responses to the 1989 stock-market
crash and subsequent banking crisis.
During those years, Japanese companies continually improved their products and
secured new markets, first in China and more recently in India.
None of these facts stopped American pundits and politicians from lecturing the
Japanese on their shortcomings. The Americans touted the virtues of the U.S.
economic model that emerged in the 1980s, which had several features at
variance with Japanese practice.
One was a limited economic role for government, as reflected by deregulation of
America's energy, financial and transportation markets.
Another was a high level of entrepreneurship, with Silicon Valley touted as the
exemplar of a risk-taking business culture vital for innovation.
A third feature was the emphasis U.S. companies placed on "shareholder value":
basing business decisions on financial criteria, staffing boards with independent
directors, and reallocating resources to shareholders and senior executives.
Japan responded to American criticism, albeit reluctantly. Its economy was
modestly deregulated, there was an uptick in new venture formation and
companies began giving lip service to shareholder value.
But there also was resistance. Japanese executives insisted that their
corporations were not inferior to America's, only different: better at
manufacturing, less adept in services.
Others argued that Japan simply achieved similar results by different means.
Take innovation, for example. Instead of relying on venture capital to fund new
firms, Japanese corporations reinvest their profits in research labs and
corporate spinoffs.
According to the OECD, Japan in 2005 had the highest R&D intensity (as a
percent of GDP) of all advanced industrial nations. Japan's inventive productivity
would easily exceed that of the United States or the European Union if the
comparison was based on the number of inventions per capita.
As for corporate governance, Japanese executives see Enron, WorldCom et al. as
proof that the American approach is overrated. The Japanese view shareholders
not as the corporation's owners but as one of several stakeholders - including
employees, customers, suppliers, and creditors - whose interests they must
balance to ensure a company's long-term vitality.
When American investors demanded six years ago that Toyota raise its dividends,
Toyota stood firm and plowed the money back into hybrids and other technology.
Japan is not a workers' paradise. There have been downsizing and pay cuts. But
even during the recession, large companies bent over backwards to avoid layoffs
and spent heavily on employee training, a sharp contrast to the more draconian
measures adopted by American companies.
Japanese employers like Canon and Toyota credit their approach for yielding
high product quality and good customer relations. Even though American
companies have tried to emulate Japanese quality methods, they find it
difficult to persuade impatient shareholders that training and job security
have long-term benefits.
One of the main beneficiaries of Japan's stakeholder system is its relatively
cohesive social fabric. Yes, there are homeless people in Japan, but one does
not find half-destroyed cities like Cleveland, Detroit or Philadelphia.
Although its income distribution is not as egalitarian as Scandinavia's, Japan
has far less inequality than the United States. A recent paper by the
economists Chiaki Moriguchi and Emmanuel Saez finds a tripling of the share
going to the top one percent of the U.S. income distribution since the 1980s, a
huge income transfer that occurred at the time when executive compensation
began to skyrocket.
In Japan, the top income share has remained steady since the early 1950s.
None of this is to say that Japan is number one. It is, however, a warning to
those who think that there is one best way to organize an economy in the global
era, and that the United States is it.
Sanford M. Jacoby, a professor at the University of California, Los Angeles, is author of
"The Embedded Corporation: Corporate Governance and Employment Relations in Japan
and the United States."
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Copyright © 2006 The International Herald Tribune | www.iht.com
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Anthony P. D'Costa, Professor
Comparative International Development
Abe Fellow (2005-06)
University of Washington
1900 Commerce Street
Tacoma, WA 98402, USA
Phone: (253) 692-4462
Fax : (253) 692-5718
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