The West Pacific Rim.

University Degree Business and Administrative studies

Kevin Rhone

The West Pacific Rim

Some commentators have argued that Japan's Rise to economic supremacy between the 1950's and the 1980's and its economic problems since 1990 can be attributed to Japanese cultural characteristics. Discuss the extent to which you agree with this view.

In 1945 Japan was totally ruined but became the 2nd largest economy over a 50 year period. Japan's rise from the devastation of military defeat to the second-largest economy in the world has been exceptional. Under occupational forces, the Japanese Constitution was rewritten, industry was restructured, labour unions encouraged, land reform accomplished, and the nation as a whole demilitarised. Economic aid was given from the United States, this allowed Japanese industry to begin to recover from the devastation of war. By the late 1960's the Japanese economy was more than self-sustaining, and between the 1960's and the early 1990's, Japan experienced an era of unprecedented economic prosperity. All this changed in the 1990's due to an economic crisis. The purpose of this study will be to address if any of the occurrences described above can be attributed to Japanese cultural characteristics.

The initial focus of this essay will be the discussion of various definitions of the term 'cultural characteristics'. Once a comprehensive understanding of what this term refers to it will be possible to discuss what is meant by the argument that Japan's Rise to economic supremacy between the 1950's and the 1980's and its economic problems since 1990 can be attributed to Japanese cultural characteristics. The term 'cultural characteristics' is a very difficult term to define, because it can be interpreted in so many different ways. For this essay 'cultural characteristics' will be interpreted as; a typical feature or quality that is connected with the culture of a particular society or group, its customs, beliefs, etc: i.e.; the cultural differences between two communities, in ways such as, economic, social and cultural factors. This essay will define 'cultural characteristics' as the social values that are specific to Japan, i.e. what makes Japanese society different from others.

The study will answer the question by discussing firstly the cultural characteristics that attributed in the rise of the Japanese economy between the 1950's and the 1980's. Next it will look at Japan's economic problems since the 1990's, and the factors that have influenced this rapid decline, discussing whether the cultural characteristics of Japanese society have also played a part in this process. The third section will look at the outside factors that have influenced the rise and the fall of the Japanese economy, discussing them in relation to the overall assumption.

Collinwood (1999) states that Japanese success in business, education, and other fields has been the result of, amongst other things, traditional social values of paternalism, defence, harmony and hard work, advance planning, persistence, and the significant factor of outside financial help. Social values are at the core of the Japanese society and for this reason play a major role in how these cultural characteristics help to benefit the economy. The culture of Japan has been argued by Collinwood (1999) as contributing towards its success. One such domestic agenda were the long term, investment strategies that were adopted by financial institutions. This falls under what Collinwood describes as the social value of advance planning. Japan’s success in many respects could be put down to the overall pattern of the organization of the modern Japanese economy (Preston, 2000:123). Large firms were served by a mass of smaller firms and all were subject to the guidance of the bureaucracy. It became an elite society that was ordered and disciplined, and held the power over all areas of the commercial and industrial sectors, with the general population not directly involved in such matters. These standards were all established in the post war period. The system was very successful, but not politically responsive.

This elite network was known as the 'Iron Triangle.' This was the working together of key institutions, and trade unions, showing the social value of harmony. Another reason for economic success was the government spent relatively little of its tax revenues on social welfare programmes and on military defence, preferring instead to invest in private industry. This capital was often spent on State supported research and development. There has traditionally been government support for research and development as it is seen that it can benefit society as a whole, showing the Japanese Governments drive and determination to develop its own companies to compete on the global market. The result of this today is that Japan has some of the most technological advanced companies in the world.

There has also been co-operation between the trade unions and businesses. In Japanese society trade unions tend to look only after individuals, rather than the overall business strategy.

"Management in the very early post-war period developed harmonious labour relations and began to concentrate on rebuilding Japan." (Ozawa 2002:471)

They will not force companies to pay higher wages or provide better working conditions and will not strike, thus bringing the Japanese economy major advantages in its labour force output, compared to other industrialised nations. This is because a part of the culture of Japanese society is that confrontation is to be avoided. As a result these elites in the Iron Triangle played a major role in the rise of Japan’s economic supremacy between 1950 and the 1980's.

This is a preview of the whole essay

The Keiretsu network is made up of large firms such as Sony, Toyota, and Nissan working together with both banks and each other. This all related to the Japanese social values of harmony. Potentially this has distinct benefits, bosses from different companies and banks often socialise with each other and meet together frequently to exchange information. In Japanese society this is seen as normal. This however may only be a small step from corruption and may lead to practices such as hidden agreements and/or prices fixed to create a monopoly. One of the other major effects of this network was it was a far easier for industry to borrow money from banks. This co-operation meant that it was more likely in Japan that companies obtained loan capital, giving Japanese companies a finical advantage compared to other competing nations.

Japanese business selected an export-orientated strategy that placed building market share over immediate profit. This could be seen as a way in which Japan wanted to reach out across the world. This, in conjunction with protectionism, made it very easy for Japanese firms to export, but difficult and finically not feasible to import. The benefits of this were that the Japanese balance of trade had a large surplus. An example of this is how Japan made it very difficult for the import of foreign cars, therefore benefiting Japanese companies in the home market of Japan. Also high levels of foreign investment, expansion both at home and overseas led to an annual economic growth rate in the late 1950's of approximately 8%. (Buckley, 1995:48)

There was also a successful mass education system in Japan. The government as well as private individuals invested enormous amounts of money and energy into education, on the assumption that, in a resource-poor country, the mental energies of the people would need to be exploited to their fullest. The aim of this was to provide an educational system that enforced the Japanese traditional social values, creating respect for authority and elders while also creating a standardized workforce equipped for the needs of the production line.

Collinwood (1999) described previously how traditional social values in Japanese society created a superb workforce. Goodman (1999) agrees with the above and explains in further detail how Japan exhibited consensus, harmony, effective relationships, hierarchy and groupism that were very different from the ideas of individualism, class conflict and putative egalitarianism of the west. He goes on to comment that these Japanese 'cultural values' were felt to be clearly identifiable and traditionalist in the style of the Japanese company, most specifically in the relationship between management and workers, and therefore gave the Japanese economy a competitive advantage over the Western industrialised nations.

Collinwood (1999) also explains this relationship commenting that, managers stressed employee team work and group spirit, and implemented policies such as 'life time employment' and quality control circles, all of which contributed to group morale. This was best shown by what Goodman (1999) calls 'the three Jewels' of the Japanese employment system, life- time employment, seniority promotion and company unionism. This was known as a 'social contract' between firms and employees, i.e. you work hard for the firm and the firm will look after you. All the above mentioned contributed to Japan’s economic miracle. These consequences of the system resulted in fewer days being taken as vacation even when eligible and openness amongst workers towards the introduction of new technologies, without the fear of losing their jobs. This meant high-quality products at a low price; and the fastest growing economy in the world.

"What has evolved from the early post-war chaos is the unique Japanese style of management and industrial relations." (Ozawa 2002:489)

Companies benefited from the Japanese ethic of working hard, but also through a Japanese culture traditionally based on savings, Collinwood (1999) describes how the pay cheques were carefully managed to include a substantial savings component - generally between 15 and 25 per cent. One reason for people saving was because there is no welfare state, so they needed to save for emergencies. The added benefit of this cultural characteristic to the Japanese economy was that this guaranteed that there were always enough cash reserves for banks to offer Japanese company expansion loans at low interest.

Collinwood (1999) also states how relatively stable the family structure was. There were few divorces and substantial family support for young people, many of whom remained at home until marriage at about age 27. This produced employees who were reliable and psychologically stable. Goodman (1999) believes culture in the Japanese workplace is used as a theoretical ideology, manipulated by elites to mystify their workers, and therefore maintain allegiance and loyalty in order to boost profits. This ideology has become a tool of management, with the aim of introducing a new set of preferred cultural characteristics to help improve organisation's operations.

Collinwood (1999) argues that Japan's rise to economic supremacy between the 1950's and the 1980's can be attributed to Japanese cultural characteristics, by stating Japan would never have achieved economic success, without its people possessing certain social psychological characteristics. He believes many of which can be traced to the various religions and ethical philosophies that have suffused Japan's 2000 year history. Shintoism, Buddhism, Confucianism, Christianity, and other philosophies of living have all shaped the modern Japanese mind. Therefore this study would argue that everything apart from outside factors are related to cultural characteristics, and that these characteristics have therefore attributed significantly to the rise to economic supremacy between 1950 and the 1980's, through giving the Japanese workforce, and therefore the Japanese economy a major advantage in a ford'ist manufacturing world.

The study will now move on to the second section looking to see if these 'cultural characteristic' factors have influenced, or are responsible in any way, for the rapid decline in Japan’s economy since the 1990’s. Collinwood (1999) previously argued Japanese success in business, education, and other fields has been the result of, among other things, traditional social values of paternalism, defence, harmony and hard work, advance planning, persistence, and significant outside factors. This section of the essay will look at whether the same factors that gave the Japanese such a competitive advantage in the past are now to blame for the problems the Japanese economy has faced since the 1990's.

Japan's success in many respects could be put down to the overall pattern of the organization of the modern Japanese economy (Preston, 2000:123). The system was very successful, but not politically responsive. As a consequence the Japanese economy advanced and the social and economic order began to break down. As the power of the urban artisans and merchants increased, the system could not produce a strategic response to any future changes in the world market, this left the Japanese economy in the hands of a few elite autocrats and vulnerable to outside influences.

Some of the reasons for these problems lie in the fact that Japanese society is too strongly regulated. Politicians, businesspersons, bureaucrats are all closely linked right to the very top. The Doken Kkokka centres on The Iron triangle of politicians and bureaucrats, financial institutions and construction industry. McCormack (2002) states this mode of operation is opaque, unaccountable, and therefore hard to reform. Essentially, it enables the country's powerful bureaucrats to channel the population's life savings into a wide range of debt-encrusted public bodies, including those in charge of highways, bridge building, dams and development initiatives. McCormack (2002) for instance describes how many of the same bureaucrats look forward to enjoying lucrative post-retirement sinecures. For the local politicians, the Doken Kokka means promising new public work projects (viable or not) in their constituency, in return for funds and votes.

It is generally agreed that the system is deeply flawed and in need of reform, yet most politicians, many bureaucrats, thousands of companies and millions of people depend upon it, to some degree, leaving the Japanese economy in the hands of a few elite. McCormack (2002) states the above is because of Japanese societies respect for authority, he goes onto states this collusive alliance at the systems core has corrupted both politics and society, and left the Japanese economy vulnerable to outside influences. There is now a need for fundamental change, because the Iron Triangle and the Keiretsu network are both important cultural characteristics in the Japanese society, but the economic benefits and advantages these brought are ill equipped to face the newly developing, global open market.

Goodman (1999) argues that it is partly the management in Japan that has created this problem, through trying to sustain the tradition created through the 'three Jewels' of the employment system. This is because during the 1990's, while Japan endured its longest recession since the 1930's, the management went to extraordinary lengths not to lay off any of its core workers. This would have destroyed the illusion of the three jewels of the very employment system, which had benefited the corporations so well in the past. Japan may have survived the recession, but according to Goodman (1999) the ideology which management invented in order to keep loyal workers and workers loyal, almost proved to be its undoing, because it caused dramatic negative impacts on the Japanese economy, for example creating a highly uncompetitive work force.

As Collinwood (1999) stated before, although Japan has achieved major success in business, some Japanese enterprises often fall short. In many industries Japanese workers are less efficient than workers in other countries. An example of this is in Japan’s national railway system. It was once found to have 277,000 more employees on its payroll than it needed. Investigators revealed that the system had been so poorly managed for so many years that it had accumulated a public debt of $257 billion. (Collinwood, 1999:189)

"The IMF has predicted a contraction of GDP by 0.9 per cent in the year to March 2002, followed by a further drop of 1.3 per cent the year after- the most sustained downturn the country has faced since the 1950's." McCormack (2002)

As discussed earlier the education system in Japan since WWII brought about advantages through its traditional social values and cultural characteristics, but now the education system is disadvantaging the economy. Education is geared towards the social values of Japanese society, i.e. respect for authority, harmony, avoiding conflict etc, in order to create a standardized workforce for means of production. By putting people in this mould, the system created people with rounded personalities that had neither special talents nor faults. It was seen as better not to have any self expression or creativity. This is one of the major concerns about Japanese society. It is argued, is it flexible and creative enough for the 21st century? The view is that society is too differential and paternalist and conformist to allow the type of creativity necessary in the new sectors of the economy. In the 21st century individual creativity is of particular importance in areas such as film, television, fashion, music, design and many more.

All these sectors involve the ability to come up with new ideas. New ideas come from people who break the rules and can discover ideas that are completely original and innovative. It is argued that Japan is not good at this; the Japanese are too rigid and authoritarian, not willing to break the rules, and wanting to conform. An example of how people breaking the rules can benefit the economy is in the computer software industry. Computer hackers have played a very significant part in computer development. It is agreed that advanced economies need scientific and computer innovation to keep the economy competitive and therefore supreme. Change in the education system is dramatically needed to equip the new generations of Japan with all round abilities they will need to make the Japanese economy more individually creative , This is essential to keep them at the frontline of those industries that are bringing other developed nations such as the U.S such success.

Goodman (1999) states the problem with the Japanese economy resulted from it not being able to adapt to meet the demands of a post-ford'ist world, where companies have to be flexible and be able to adapt to economic shifts. In the Japanese economy overstaffing and high wage costs resulted in high costs and low profitability. Overstaffing occurred due to the reluctance of employers to sack people. Now the result has been that full life- time employment has disappeared within less than a generation, and the number of jobless has been rising rapidly. The Japanese people have many of the wrong skills to meet the demand for the post ford'ist age, so therefore Japanese cultural characteristics are attributing to the country economic problems through the economy becoming uncompetitive.

It is important not to assume that the rise and the fall of the Japanese economy are simply because of its cultural characteristics. These are interlinked with outside factors such as global forces that have affected the situation in Japan. The next section will look at the factors outside cultural characteristics that have influenced the rise and the fall of the Japanese economy. Defeat in the Second World War left Japan an initially demoralized and bankrupt state with immense domestic problems. McArthur the supreme commander for the allied powers (SCAP) determined the character of much of the occupation’s actions, receiving detailed orders from Washington on the policy making programme. McArthur hoped that the occupation reforms might provide a firm foundation for a more democratic and liberal Japan. Buckley (1995:104) states;

"That the two most important reforms after the new constitution that had been drafted concerned agriculture and education."

This was because through the SCAP intended to remove what he saw as the root cause of much pre-war bitterness and political extremism. Economic democracy was promoted, and economic reform introduced through a host of legislative reforms. Unionisation followed in most industries. This period laid the foundations for Japan's cultural identity. Buckley (1995) describes this period of occupation as a remarkable period of cultural contrasts, changing policies and considerable accomplishment.

"Millions of U.S dollars helped keep the Japanese economy afloat." Buckley (1995:48).

But it wasn't just the cultural characteristics of Japan that accounted for its success. Preston (2000) describes in broad terms, the Japanese miracle was a product of state-regime commitment, as well as the fortuitous circumstances of the post World War II 'long boom' and the tolerance of export success within the U.S market because of Cold War alliances, allowing Japan easy access to the largest economy in the world.

"This policy allowed Japan an opportunity to harvest benefits from America's liberal trade regime." (Ozawa 2002:475)

This period of time was the benchmark for all the future developments towards the success of the Japanese economy to begin, because it made best use of the cultural characteristics of the Japanese, through the promoting of the social values described by Collinwood. Japan’s energies since the occupation were then channelled into developing a firm economic structure. Collinwood (1999) states that in Japan economic growth was three times as much as in other industrialized nations, enjoying remarkable growth up until the 1990's.

Japan's economy eventually suffered from the economic crisis that hit the country in 1989-90, when the "bubble economy" of high land prices and a high stock market, prices collapsed. The confidence that had arisen from Japan’s post war wealth was replaced by growing despair. McCormack (2002) explains the complex of problems the country faced as having both a global dimension in relation to the world economy, and a local one, which could be attributed to cultural characteristics. Collinwood (1999) had already made earlier reference to these opinions, stating;

"Although economic issues are important to an understanding of the Pacific Rim, political and cultural changes are also crucial." Collinwood (1999:13)

Instead of trying to deal with the reasons behind the real causes, the Japanese Government essentially did what they'd always done before, pour in cash for public works. The idea was to prime the economic pump and get people spending again. In a frenzy the cash was shared out to every part of the country, whether or not the cash was needed. This resulted in large over borrowing that led to large debts. Debt is the consequence of Japan’s failing economy. McCormack (2002) states that the total sum owed by business in trouble or actually bankrupted is set at 80-100 trillion yen ($600-750 billion). The debt has arisen from Government‘s and private over borrowing. This isn't a problem in itself but it is if you get the other problems the Japanese economy is facing, this can lead most importantly to a very unsustainable economy. Debt itself is an indirect occurrence of, in part, cultural characteristics. This is because of the cultural characteristics of Japanese society, as previously described, as it also contributed towards an uncompetitive economy.

"Japan is now confronting a deeper public-debt than any other nation in modern history." McCormack (2002:45)

Arguably the most important outside factor influencing the Japanese economy in recent decades is globalisation. One very general definition of globalisation, which covers most of the areas previously mentioned, comes from the Dictionary of Human Geography. It states that globalisation;

"... it is argued, has so transformed the structure and scale of human relationships that social, cultural, political, and economic processes now operate at a global scale with a consequent reduction in the significance of other geographic scales (national, local etc)". (Johnston, 2000:315)

This definition draws clear links to the idea that globalisation has resulted in international changes in the way the world economic markets work. One aspect of globalisation is the reduction in power governments have over there own economy. After the Second World War the Japanese governments intervention in the economy proved successful, but in today's globalisng world the efforts of the government seem to be disadvantaging the economy even more through large debts. As stated previously the Japanese system which is linked to cultural characteristics could not produce a strategic response to any future changes in the world market, resulting in the Japanese economy becoming extremely vulnerable to external influences. In summarising the above because the Japanese economy has not adapted to meet the demand of a newly globalising world economy it has become uncompetitive in the wake of increasing foreign competition.

After the discussion of the evidence given above the author must conclude that Japan's rise to economic supremacy between the 1950's and the 1980's, and its economic problems since 1990, can be both attributed to Japanese cultural characteristics. But that this is closely interlinked with external factors, e.g. global forces such as globalisation. The arguments made in the essay show that as the unique cultural characteristics of Japanese society developed, it gained it an advantage in a ford'ist world economic market, resulting in Japans rise to economic supremacy. However these same characteristics that once gave the economy a strategic advantage became a liability. They are now disadvantaging the Japanese economy, through making it uncompetitive in meeting the demands of a newly post ford'ist globalising, world market.

The problem in Japan is that the traditional old male elites are too dominant and too powerful. Many commentators believe Japan had become too self confident, therefore becoming to complacent with its situation. This resulted in the wrong action being taken to deal with the problems it faced. Therefore the problems have just been made worse. Other commentators argue that you cannot have a xenophobic attitude in the newly developing globalised society. Traditionally the Japanese have been dependent, complacent and ambiguous. When problems arose they just postponed dealing with them. Japan can't afford to do this any more. To save Japan, the national attributes have to help to change the health of the country’s economy and the closed political system must open up. The collapse of the bubble has convinced all that there is now an urgent need for major change. Most importantly the problems concerning the core of some of the cultural characteristics have to be addressed, particularly the essential ingredients of innovation and free thinking.

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