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The Sun Also Rises?


  • billBill Emmott
  • Jesper Jesper Koll
  • HiroyukiHiroyuki Fujita
  • FrederickFrederick H. Katayama

MODERATOR FRED KATAYAMA:Welcome everyone to NHK's Global Agenda. We're coming to you from the Japan Society in New York City. I'm Fred Katayama, of Thomson Reuters. I also serve on the Boards of the Japan Society here, which is coproducing this program, and the US-Japan Council.

Now, this is a very special program. It's a new program put out by NHK World TV. Global Agenda assembles together world opinion leaders to discuss, debate issues facing Japan and the world today. Now, today's topic is how can you get Japan to come back and how should Japan rebrand itself? We're turning to a prominent panel of experts at NHK and the Japan Society who have gotten together.

Allow me to introduce the panel, starting with, flying in all the way from England, Bill Emmott. I've had the pleasure of knowing Bill, since the 1980s when we both worked in Tokyo as magazine correspondents. He's with The Economist. He was then the Tokyo Bureau Chief. He has since risen to Editor-in-Chief of that newspaper – what calls itself a newspaper – the magazine, now former Editor-in-Chief. He's also the author of several books, including “The Sun Also Sets” and “The Sun Also Rises,” and I guess echoes of a financial Hemingway there with that title. Welcome, Bill, good to see you again.

BILL EMMOTT:Thanks, Fred.

MODERATOR FRED KATAYAMA:And we also flew in from Japan Jesper Koll, Japan strategist, Japan investment strategist at a major investment bank. Jesper not only knows economics, he also knows politics because he's served on several Japanese government advisory committees. And some of you in Tokyo may also know him as the husband of the person who coined the term “womenomics,” Kathy Matsui, although some people may also know Kathy Matsui as the husband of Jesper Koll.

JESPER KOLL:Thank you.

MODERATOR FRED KATAYAMA:Equal opportunity here. Welcome Jesper, good seeing you again. I used to interview him when I was at NHK in the 1990s.

And finally, coming in from Ohio, Hiroyuki Fujita, not the pro golfer, but I'm sure he's had his share of financial holes in one. He is the founder, CEO and President of Quality Electrodynamics. Now, that's a company that produces medical imaging products and services. It's a big exporter. And he also serves as the co-chair of the Energy Sub-Committee of the Commerce Secretary's US Manufacturing Council. I think I got that right. Welcome.


MODERATOR FRED KATAYAMA:And with that, we'll start our program. Now, before we begin by taking a look at current Japan and the future, we want to first take a quick look at the past, going back to the glory days of the 1980s. You were all there in the 1980s, and Fujita-san humbled us by saying that he was a student back then in Tokyo. I'll talk about an aging society; now I'm starting to feel it.

But you were eyewitnesses to what was going on in the 1980s. What, in your mind - if you had to say one or two things - was behind Japan's success? What wowed you when you got there, Bill?

BILL EMMOTT:Well, the first thing that really that I liked about Japan when I got there was that it was less efficient than I'd been told but, nevertheless, it was more efficient than my country, Britain. So I think that that, obviously, lay hugely behind it.

But then I think you look what happened to Japan in the 1980s was that it was a pioneer that then failed to move on. But what was brilliant about Japan was that it was a pioneer of manufacturing techniques and lean manufacturing of all sorts of products, fantastic exporting prowess of a new way to do multinationals, but then it stopped moving.

MODERATOR FRED KATAYAMA:What do you think was behind its success? What would you say, if there was one thing in the 1980s that this is why it did it?

BILL EMMOTT:Well, I think it was from the ‘60s, '70s and '80s and it was the Japanese people. It was the way in which Japanese people, the human capital of Japan, became deployed through Japanese organizations to produce amazing products.


JESPER KOLL:I think that's exactly right. I mean, you've had exactly the first Baby Boom generation graduating from university, entering the labor force. Their fathers, in the 1960s and '70s had laid the groundwork, right? They had the income bubbling plan. They had very consistent government policies. They had one of the most stable policy regimes in the world, right?

And there was never any question where the country wanted to go. It wanted to catch up to global living standards. And what happened in the 1980s is that you had the next generation really taking huge amounts of risk.

I remember being a student here in America in the early 1980s when the Japanese car companies for the first time actually began to invest in the United States. And everybody thought they were crazy, right?

But they did it, greenfield factories, and they built these factories to be the most productive factories in the world by combining Japanese management techniques, Japanese inventory management, Japanese innovation with the American workforce.

MODERATOR FRED KATAYAMA:But it was the people but also the policy. You're talking about how the government laid the groundwork.

JESPER KOLL:Oh, absolutely, Japan, the most stable policy regime in the Western world that we had. I mean, the LDP ruled the country with an iron grip and the combination of the LDP coordinating with the bureaucrats, coordinating with big business and small business, right, that was really a very, very powerful combination.

MODERATOR FRED KATAYAMA:Now, Fujita, you were a student back then.



MODERATOR FRED KATAYAMA:But from what you've experienced – you experienced the fruits, I guess, of Japan's bubble economy.


MODERATOR FRED KATAYAMA:What did you think at that time?

HIROYUKI FUJITA:You know, as you said, at that time I was a student, a college student, and I had the opportunity to come to the United States as an exchange student to UCSD. But what I heard at that time was that because of what you mentioned, everything looked bright and everything looked very promising.

So to me, it was just a very exciting moment, without understanding what was happening at that time because I was just a student, you know, yeah.

MODERATOR FRED KATAYAMA:But you must have thoughts now that you're a CEO, when you look back on it, what do you think led Japan to the – what was close to the top or Japan thought was number one, as Japan is number one?

HIROYUKI FUJITA:I think now I can appreciate what may have been happening at that time. That was, I think, staying focused on the things. I mean, what I mean by that is Japan had to develop the country from scratch, and then everybody wanted to make things better.

So you talk about the car industry and other things like Walkman and whatever, there were very futuristic business leaders such as Sony, Mr. Morita, and then you talk about other entrepreneurs who basically set the tone for the country to follow.

And at that time, I mean, they were just staying focused on being the best of what they can be and then trying to bring all the resources together.

What I mean by that is you have a unified consistent educational system, unlike the United States and, therefore, setting expectations and then working together will be a strength of the country at that time, so when the goals are set, it becomes an execution mode and then everybody focused to execute, to make what –

MODERATOR FRED KATAYAMA:And visionaries and entrepreneurs.


BILL EMMOTT:Well, I think that all of these positives were absolutely there, but it wasn't as positive as we thought, just as after the so-called “lost decade” began things weren't as negative as we thought.

But let's focus on the '80s. Really, I think what happened was they had a very stable policy regime, as Jesper absolutely rightly said, that in some ways was too stable. It stopped moving on, partly because the roadmap ran out, but also I think a certain amount of arrogance, and then the bubble.

I mean, and the bubble said both you have to deal with the yen—en-daka and all that—but also gosh, you can make money through financing, borrow his business. And maybe you don't need to make products, after all.

MODERATOR FRED KATAYAMA:You can borrow, borrow based on the land holdings you had and put that – in the stock market.

BILL EMMOTT:So then the economy seemed to be running on steroids, really. This was a wonderful set of athletes but running faster than they really could really, is the way I saw it. These were steroids enhancing brilliant athletes.

MODERATOR FRED KATAYAMA:So the way you see it, Bill, then is that you mentioned the word "arrogance." Is that what started the downfall, arrogance and you say people who thought they had their – everything was fine until their plan ran out?

BILL EMMOTT: Well, I think it was a certain amount of arrogance but also a willful blindness, as it were, that the change that was necessary, there sort of, was evolution of companies and evolution of the economy that was necessary, because things were going so well and because the money in the bubble was so abundant, there was a sense you didn't have to change.

Well, we've seen that elsewhere. It's not a [LAUGHS] solely Japanese sin. But that was that, I think, the story of the latter half of the 1980

MODERATOR FRED KATAYAMA:Jesper, talking about leaders, you were working with a lot of politicians at that time, the late 1980s, just as that bubble was getting nearer its peak. Do you share Bill's view?

JESPER KOLL:I mean, I think there are a lot of factors that come together, right? There's no question, you know, I arrived in Japan in June, 1985, right, and at the time, you know, the yen was at 260. A couple of months later we had the Plaza Accord. Within a couple of weeks, this thing goes to 160. Now, any normal economy dies.

JESPER KOLL:What the Japanese did then, they went on a massive stimulative program, right, by cutting interest rates, by doing fiscal spending, by deregulating the banking system, so that credit became more and more abundant, and we developed the credit bubble at the time as a buffer against the domestic recession from the strong yen currency, right?

So what is interesting, in my perspective, right, is to actually look ahead. And I just want to cast something that's very, very controversial. I put it to you that Japan is the only country in living history where the ruling elite actually proactively burst the bubble economy because you remember in 1989 there was a new governor elected to be the head of the central bank, Governor Mieno, and his first speech said, "Good afternoon. Thank you very much for appointing me to this important position."

Second sentence, "Bad things are happening in my country. A graduate from the best university, working for the best company can no longer dream of ever being able to afford living in an apartment within a two-hour commute. This is bad. This is bad for society. This is a bubble. I will burst it."

And within a couple of months they raised interest rates to 8%, burst the bubble. So it's very interesting to me that there was this bubble development that happened, in my opinion, as a counter push, as a safety measure against the Plaza Accord, and then the Japanese authorities actually had the vision and were able to take the pain medicine, right, of wanting to burst the bubble because the new generation of Japanese could no longer afford living the Japanese dream.

MODERATOR FRED KATAYAMA:And perhaps a little bit more painful than they thought.

JESPER KOLL:Well, 20 years in Japan, I mean, how bad was it? It's very interesting. We can talk about the "lost decade" until we're blue. I'm an economist. On a per capita real income basis, Japan is just as good as the United States and has been over the last 10, 15, 20 and 25 years.

MODERATOR FRED KATAYAMA:Well, now that you're a CEO and no longer a student, back in those 1980 days, I'm not trying to talk about aging here but with hindsight, what do you think was the problem? What led to the downfall? Why did the wheels fall off the bus?

HIROYUKI FUJITA:I think, as you already mentioned, I always bring this topic as a question to share and then talk about what we can do together. That is educational system, because in Japan, I mean, they had the wonderful – you know, consistent, homogeneous educational system where if you are a good student at the high school and if your score is good, you are going to go to a medical school, I mean, although you haven't had exposure to medical world by yourself at that age.
So there is those, let's say, predetermined kind of notions and a path that previous generations had prepared. And then people start – you know, people stop asking questions, is this a right path for me to, you know, pursue, right?

So everybody just goes on the rail that other people have set. If you have been trained to just do what you are told to do well, that way, you don't think outside the box. And when things are going fine; it's fine.
But when we are challenged, we need other aspects to look at the problem and analyze the problem to see what we can do together, yes?

So in my opinion, I mean, many things come down to the educational system, homogeneous educational system.

MODERATOR FRED KATAYAMA:I interviewed with the president of McDonald's in Japan, Den Fujita, back in those days, and he said, Japanese workers are great. All you have to do is give them a manual, they follow exactly the way you're supposed to do it. But if it goes off the manual, they don't know what to do. And I think that's what you're talking about, in terms of the education.



BILL EMMOTT:Well, in a way, that's what happens in politics too. I mean, if you look at the "lost decade," so called, the key thing was the wrong policy response. That was part of the wrong policy response, in other words, the failure of the political system to clean up the banks, to seize the problem that was developing in the banking system, in my opinion, when the real estate burst happened.

Now, Europe is repeating this mistake daily. But it's not doing enough of what Japan did, which is to use fiscal policy to support the economy. But so Japan got half the thing right.

JESPER KOLL:Careful, I'm German.

BILL EMMOTT:Yes, you're German, I know.
I'll just move a little further away.


MODERATOR FRED KATAYAMA: I'm already far away, I'm fine. You're my buffer.

BILL EMMOTT:But I mean, it was – the failure to clean up the banking system, I think, for many years was a crucial part of the problem for Japan. Had that been cleaned up as quickly as were the American response or the Swedish response in the early 1990s, then I think a lot of the strength in Japan would have produced a faster recovery of some of the problems that Fujita-san is saying would have been perhaps less of a problem.

JESPER KOLL:This is very interesting, and I completely agree. I mean, and one of the lessons that Ben Bernanke learned from the Japanese is that you've got to act fast and you've got to act mega-decisively. And the Japanese don't do that. They sort of tiptoed into this.

BILL EMMOTT:I think act fast is definitely one lesson. I think the other lesson which perhaps is a very abstract lesson, but countries have to keep on evolving, have to keep on moving as the world changes, as technology changes, as their demographies change, as was obviously happening strongly in Japan in that case.

And all our countries should ask themselves, are we allowing that evolution to pass or not, are we too rigid or are we following where the world is going enough to stay strong?

And I think that Japan has sort of occasionally jumped forward and occasionally stood back, occasionally got it right but very often not evolved as fast as the world outside was doing.

JESPER KOLL:And I would say too that there's one compounding factor, which is that they burst the bubble consciously, they were too late and too hesitant – too little, too late was the phrase that Takenaka Heizō always used, right, in the policy response.

But Bill, at the same time, what you did have is while the Japanese bubble was collapsing, while Japan was in a balance sheet recession, while Japan was in asset deflation, we also got something that we never had before, which is we had the rise of China.

BILL EMMOTT:Yes, true.

JESPER KOLL:So that actually compounded the pressures –


JESPER KOLL:- on particularly the industrial sector. And, of course, it wasn't just the rise of China, which is, obviously, the big elephant, right, but for Japan more immediately it was the rise of Korea –


JESPER KOLL:- as a credible competitor in one of Japan's most powerful industries, which was the consumer electronics industry, and the Koreans just out-clevered and out-mastered and out-invested them, right? And, as a result of that now, our children don't know what a Sony is.