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Vision, Not Structure is Key to Recovery

By Garry Jacobs

This is a time of unprecedented opportunity for Japan. It may seem strange to speak of opportunity when the country’s political and economic experts are struggling with the challenges of structural change. However, I believe the current pessimism in the country is the result of two misconceptions.

First, there is a misconception in the original diagnosis of the country’s problem. Japan is not suffering from deficiency, but from surplus. That surplus is the result of Japan’s post-war economic miracle, which ranks as one of the most astounding achievements of the 20th Century. A creative, disciplined, insular people set new global standards for economic efficiency, resulting in the most rapid accumulation of wealth the world had ever witnessed.

Surpluses are potent forces. If not fully absorbed for growth of existing activities or for development of new and higher levels of activity, they get channeled into destructive speculation. They cause bubbles and bubbles always burst, sooner or later. The Bubble economy of the late 1980s was a natural result of an export-led economic strategy that reached and overshot its goal of catching up with the West, then no longer had a clear direction to pursue. The existing economic model could not absorb the country’s huge savings, so they were channeled into speculative investments. Japan’s surplus was a monetary success, not the success of a sustainable model for economic development. The problem is not to create something where there is a deficit, but to utilize the surplus productively, which is much easier.

Second, there is a misconception about the remedy for the country’s present ills. The primary error is the conclusion that structural changes are the key to Japan’s recovery. Structural changes were and still are needed in Japan as they are in the USA. But structure alone is not the answer. The primary need is to mobilize and release the energies of the population with an inspiring vision of its future. Changes in structure cannot accomplish that. On the contrary, public works and rising unemployment have generated widespread insecurity and doubt about the future, rather than rising confidence and certainty.

The very rapid and dramatic recovery of other East Asian countries from the financial crisis in 1997 illustrates the true nature of Japan’s challenge. After the collapse of their currencies, huge loan defaults and negative growth rates, the world’s leading economists pronounced that severe structural problems were the cause of the collapse and that only radical surgery and a five to ten year recovery period could set them back on the path of healthy growth. Yet, in less than two years, South Korea has again achieved near double-digit growth. Structural change is still in its infancy, but experts are now afraid its economy may be overheating. Someone should tell the Koreans that what they are doing is impossible!

Contrast this with recent Japanese experience. Japan has taken international advice to heart. It launched a massive restructuring of its financial and economic system, including even the highly sensitive issue of employment security. Yet a decade after this transition began, economic growth, consumption and confidence are still languishing. Surely, Japan has done more than all the other East Asian countries combined. Compared with 1988, the country is now far more open, flexible and efficient. If structure was the problem, why haven’t these changes generated results?

The difference between Japan and South Korea is not structure. It is vision and release of social energy. Korea is still playing catch-up, so its direction is clear and the energy of its people is fully released, regardless of structural obstacles. The solution for Japan lies not in structure, but in society. Money and finance are only subsets of economy. Economy is only a subset of society – of the people. Japanese society has enormous unutilized potential in the form of human energy, productive skills, technology, organizational capacity and money. These resources need a mission and a channel for productive employment.

The whole world needs a new vision, not just Japan. In the 1980s, the Japanese model looked invincible. Today, the US model looks that way. Both appearances are illusory. The current shotgun model of high-tech entrepreneurial growth is high risk and inherently unstable. It generates short-term riches, not long term economic security.

One very effective way to the release the country’s social energy is to focus on employment. A job in a market economy is like a vote in democracy. Guaranteed employment is the essential basis for economic security. It must be regarded as a fundamental human right. Just now the US model looks appealing because it is running at full-employment. American jobs were not created by corporate downsizing. They were created by an awakening of American society to new commercial and entrepreneurial opportunities. This is only one possible approach. The Dutch have demonstrated that building consensus and fostering cooperation between business, labor and government can achieve full employment. Japan can evolve another approach more in line with its own cultural values.

The world needs a new economic model that combines dynamism and flexibility with stability and social welfare. Japan is ideally positioned by its past accomplishments, present strengths and cultural heritage to evolve that model and give it to the world. But it cannot be done by blind imitation of someone else’s temporary successes. Japan has prospered in the past in spite of its insularity by reaching out to trade with the rest of the world. It achieved high economic status but not commensurate political weight. The country now has the opportunity to pioneer an economic model that will energize its own development, spread to other countries and elevate Japan to a position of global economic and political leadership.

Even the optimists today envision a slow, gradual economic recovery for Japan. It need not happen that way. A strategy that releases social energy while enhancing social security can achieve a turnaround here as rapid and dramatic as Korea’s recent comeback-and far more stable and sustainable.

* Garry Jacobs is a management author, partner in Mira International, a USA business consulting firm, and Executive Director of the International Center for Peace & Development, a non-profit research institute.