Xenophobia Will Get Japan Nowhere in Today's Global Age

But despite need for foreign direct investment to help shore up sagging economy, nation clings to defensive, inward-looking policies

Masahiko ISHIZUKA (Councilor for the Foreign Press Center Japan and a Lecturer at Waseda University)

When China embarked on a "reform and opening" drive 30 years ago under the command of Deng Xiaoping, Japanese watched it with a certain degree of doubt and condescension. It was as if they were thinking: "Well, they've finally realized their backwardness. Let's see how they change."

The truth is, Japanese are still inclined to see China with some degree of disdain, mixed with the concern that despite - or rather because of - its seemingly runaway economic growth, the country is chaotic and could descend into greater turmoil in the future.

But while it certainly has a long way to go in its democratic reform and may still be a "closed society" as opposed to a truly open one, Japan should take a lesson from the phenomenal changes China has accomplished - regardless of how disorderly or troubled the process may have been.

A senior diplomat of a major Western country who has served in both China and Japan said he marveled at the fast pace of reform in China, even in its remote localities, whereas he was dismayed by what he described as the snail's pace of action in Japan. It is not even inconceivable that China might someday catch up with Japan in terms of democratic progress, albeit in the distant future.

It is not just about domestic reform. Even more impressive is the way in which China has opened up to the outside world. The country's rapid economic development is often characterized as having been achieved by an aggressive acceptance of foreign capital and investment - a sharp contrast to Japan, which has been so guarded against foreign investment and so jealously protective of some of its domestic industrial interests.

All tied up

What is worrying is that Japan remains insular, at various levels, even as it falls behind in this age of rapid globalization. Signs abound that xenophobia is creating a latter-day sakoku mentality - national isolation - to the great concern of those Japanese who are aware of such a mentality's significant dangers.

After decades of shutting out inward foreign direct investment, the presence of foreign business in Japan is shamefully low compared to other major industrialized countries.

Only in recent years, with increasing signs of the country's economic decline, has the Japanese government become anxious to encourage FDI in the belief that it needs the help of foreign capital to shore up the economy.

But despite the recognition of this as a necessity for the country as a whole, a telling development is that, one after another, major Japanese corporations are erecting legal barriers against possible takeover attempts by foreigners. Bureaucrats' initiatives and outdated judiciary decisions are only helping them along.

A pending government decision to introduce a law that protects airport terminal operators from control by foreign ownership is but one example. The proposal has been criticized by the media, and even some cabinet members, as being counter to the policy of promoting FDI - reiterated by Prime Minister Yasuo Fukuda as recently as January in his World Economic Forum speech in Davos.

Meanwhile, the tax system, stock market rules and a whole host of other regulations are cited as unfriendly to foreign capital and investment. A shortage of talented individuals with good knowledge of English and who are qualified for international business - particularly in the financial sector - is also a disadvantage, the result of past failures to develop just such human resources.

It is increasingly noted that the steep decline of Japanese stock prices is being caused not just by the U.S. subprime mortgage crisis, but also by foreign investor's desertion of Japan due to their bleak view of this country's growth potential and its tendency toward closing off.

Japan, some say, was too busy grappling with the postbubble economic crisis that lasted for more than a decade in the 1990s and was left in the wake of globalization's swift advance. But if that is the case, it simply must work harder to catch up. The harsh reality is that it has stalled, or is even backpedaling, when it comes to opening its arms to the world.

There is a creeping sense of isolation here - feelings of being left behind and missing out. Such sentiments are easy for Japanese to fall back on, and it is a self-fulfilling process: the more they feel this way, the more it becomes true, pushing themselves to "social withdrawal" on a global scale.

Still sounds good

It was in 1986 that then Prime Minister Yasuhiro Nakasone received the renowned Mayekawa report, which in a nutshell proposed a shift of economic policy to expansion of domestic demand, more imports and deregulation, away from heavy dependence on exports. The report, written by a panel of 17 prominent businessmen, policy-makers and economists chaired by Haruo Mayekawa - former governor of the Bank of Japan - was accorded historic significance for its emphasis on home demand and deregulation.

Two decades on, the report is still regarded as important simply because its two key proposals - domestic demand enhancement and deregulation - have yet to be fully achieved. Another similar report is being considered today.

The fact that the Mayekawa report stands out in the recent history of Japan's economic policy-making illustrates just how deeply ingrained this country's inclination toward defensiveness really is. The Mayekawa report was practically intended to be Japan's answer to Deng's "reform and opening" agenda, but stronger political leadership was obviously needed in order to realize its full implementation.

Tony Blair, reflecting on the lessons of his decade as British prime minister, said in the June 2, 2007 edition of The Economist: "'Open v closed' is as important today in politics as 'letf v right.' Nations do best when they are prepared to be open to the world." Domestic reform must be backed by the philosophy that a nation's survival and well-being depend on whether it can open itself up to the rest of the world.

For Japan - which constantly recalls its traumatic defining moments, from the Black Ships in the 19th century to defeat in World War II - fighting the diehard tendency to turn inward seems to be a perpetual challenge.

(Originally appeared in the February 25, 2008 issue of The Nikkei Weekly, reproduced here with permission.)