Lessons from Japan

Edith Terry (Editor, Opinion Pages, South China Morning Post)

(This article originally appeared in the September 1, 2003 issue of South China Morning Post in Hong Kong and is reproduced here with permission from the publisher)

Across the crowded ballroom, Japanese management guru Kenichi Ohmae is about to mesmerise 500 businessmen and women in Hong Kong's glittering Marriott Hotel. Sitting next to me is the representative of the world's most generous government lending agency, with outstanding loan assets of US$245 billion.

I confide in him that I have written a book on the Japanese economic model, of which his agency, the Japan Bank for International Co-operation, was once an ardent proponent. "Really?" said the banker with polite surprise. "That must have been some time ago," he said.

It is an easy bet that not one person in the room has come to listen to Ohmae speak on the "art" of Japanese business, the topic of his first bestseller 20 years ago, The Mind of the Strategist. Ohmae's last three books have been about China and the nine Chinese regions, including Hong Kong, Singapore, and Taiwan, that fall within the circumference of China's dynamic new economic civilisation.

According to Ohmae, China "is the single most important country taking advantage of these changes, perhaps instinctively, better than any other countries. China is adopting a corporate model of running the country, with economic growth as the objective".

Ohmae's new global order is one in which cities and their hinterlands have replaced the old nation states in the competition for investment, talent and resources. Japan has learned that it will survive only by "internalising" China as customer and partner, he says, and Hong Kong must do the same, shedding any attitude of superiority due to its open market or supposed democratic values. Hong Kong can ill afford to boast of its free port status, because China is just as free a port and, on the democracy front, Chinese civilisation shares a single ideology: capitalism. "When did Hong Kong get religion?" he asks. Over the past decade, it has been hard to imagine Japan serving as a model for anything or anybody, with its ossified politics, banks swimming in debt and self-destructing blue chip companies. And yet, Japan still does have lessons for its neighbours - even if they are negative ones.

With all due respect to Ohmae's faith in capitalism, the clearest of these lessons is the risk of placing corporate and economic growth ahead of all other national objectives. Japan has been the world's second largest economy since the late 1970s, yet continues to maintain the policy apparatus appropriate to a developing country, walling off foreign competition and subsidising unhealthy domestic companies. Once growth collapsed, Japan had no clue how to revive its economy beyond cutting costs and maximising efficiency. That elusive factor of creativity went missing in the Japanese miracle.

A second lesson from Japan is the folly of central planning. Despite its legacy of democracy and a free market system imposed by the United States after the end of the second world war, Japan achieved its income-doubling miracle of the 1960s by subordinating all of its institutions to a top-down bureaucracy. Bureaucrats are good at following blueprints but notoriously weak at inventing new paradigms. While China has shed much of its central planning apparatus in its economic reforms, like Japan, its government is run by shadowy consensus rather than by leaders accountable to the public.

As China revs its economic engine, it should be first to recognise its weaknesses and last to proclaim success. And as for Hong Kong, it should be less concerned with recapturing its past economic model, based on the treasure chest of property and abundance of cheap labour, than with remembering its old knack of adaptability.