The Electronic Bypass and Japan

In the past, social scientists have loved to set up shop and make studies on islands. The famed anthropologist, Margaret Mead, believed that she could punch through to the deeper structure in understanding foreign cultures by studying people free from continental traffic and its influences. As it eventually turned out, some of the Samoans she studied, no matter how unadulterated their environment, were supplying her with disinformation thus eventually undoing the research and the accompanying assumptions long held to be true.

The soft sciences such as anthropology definitely have their place in the overall, gradual decoding of human culture. Still, for USA marketers interested in selling to the island country of Japan, it is mostly the “dismal science” of economics that we defer to in order to give us objective, macroeconomic information about the state of a country’s financial health. And for the last decade, this nick name for economists aptly describes the state of the Japanese economy. It is dismal – and it will not be getting well anytime soon.

At the recent Milken Institute 2000 Global Conference in Los Angeles, a panel of foreign and domestic bankers and financiers based in Japan painted a cautionary picture for any USA company hoping to do business there. In short, the Japanese are up against it. As a tier one country with the second largest economy in the world, Japan is in danger of being displaced by other emerging economies not because it lacks for basic talent or infrastructure; it is because even with everything being sped up with the advent of the microchip, Japan’s own cultural instincts are still to calibrate necessary change to a pace that Japan believes it is capable of managing. If this means to continually volunteer to give up a certain amount of international power and prestige, this appears to be acceptable to them. The gemeinschaft, or harmony of their society, must be maintained and international criticism be damned even if Japan appears not to be importing foreign goods and services on a scale commensurate to the size of its economy.

As an island culture, where so many things continental, at least initially, are alien to them, the post cold war, unfettered open system of capitalism is proving hard to digest. And even though the dynamics of international commerce are demanding new approaches, Japan is still having a hard time pushing away from the familiar table of economic chow that has fed them so well for nearly fifty years. Part of the blame for this lies with the United States government’s occupation forces under General MacArthur at the end of World War II.

With communist propagandists and provocateurs on the loose, and the long martial history of the Japanese still fresh in the Americans minds in the late 1940’s, the General was looking for a way to mitigate the possibilities of desperate people being folded into insurgency groups. He brought this about with social security legislation that promoted the cradle to grave protection which eventually matured into the lifetime employment gambit. But now that ploy has clearly boomeranged.

While a stabilizing factor at the time, the artificially bloated workforce, with its highest per capita income in the world, has for the last decade proven to be an albatross for Japanese politicians and industrialists futilely trying to keep Japan internationally competitive. Consider that a mere ten years ago, Japan was the world’s largest creditor nation. But as of this year, in an ongoing effort to stimulate its economy, it has dangerously leveraged its debt to an industrial world high of 130% percent of its gross domestic product. And these problems are being played out in its leadership:With eight prime ministers in the last 10 years, Japan, long a fan of the fashion from Milan, has also now taken on the political instability of modern-day Rome.

The obvious question is how this charade sustained itself for such a long time? The answer is simple:by the same politicians and industrialists who perpetuated the schemes until they were no longer able to tolerate the crushing mass of hidden debt. And it would have continued on indefinitely if not for the end of the cold war and the intrusion of the United States sponsored initiative for uniform accounting standards.

As this information started to be disclosed to the broader public and the international community, it is little wonder why Japanese workers have not bought more foreign goods and services:They more than anyone else have known for years that the stench coming from headquarters was not emanating from a backed up sewer system, but from the accounting sections of their own companies. This much delayed reckoning on employment, now beginning in earnest, is starting to reveal how multiple billion dollar pension shortfalls combined with multiple billion dollar corporate write-offs will lead to the further disgorging of surplus human capital.

And one of the best places within the Japanese economy that this can occur is in the importation and distribution sector. Jesper Koll, the Chief Economist of Merrill Lynch, Japan, Inc. estimated that of the 392,000 wholesalers in the country, approximately two-thirds of them are selling to other wholesalers. And this is on a land mass only marginally larger than California. Such irrational and highly distorted distribution goes a long way towards adding another layer of explanation as to why Japan’s trading partners have such a difficult time bringing competitively priced products to the perennially gypped Japanese consumer. In fact, given the reality of how products move through the system to the consumer, it is almost a miracle that as much foreign product gets sold in Japan as it is. No similar, intricate and redundant distribution gauntlet exists anywhere else in the world.

One USA tax-payer funded process that could go a long way towards bringing efficiency to the distribution system in Japan is the internet. And it could not come at a better time as the demographic numbers for continuing to be a manufacturing leviathan in their own country are decidedly stacked against them. Not only do they have one of the lowest birthrates in the world, along with a labor force that will remain flat for the next 10 years, but they remain faced with how to make up this productivity shortfall. Couple this with Japan’s negative economic romp of bankruptcies channeling unemployment channeling a clean 10% drop in retail sales since the end of the cold war and you have another one of those rare historical Japan/USA intersections where superior technology asserts itself because diplomacy and other acts of persuasion had only nominal effect.

With the annual USA trade deficit with Japan headed for another 70 billion dollars, the internet and other USA generated direct marketing schemes offer a positive way for technology to rearrange the outdated mercantilism Japan has been operating under. Information technology spending in Japan has been unchanged for the last four years, but with 55 million cell phone users, Japan, and by extension USA marketers, have a unique opportunity to turn those cell phone/mobile internet connections into the stuff of commercial transactions. With 4 million of these types of dual subscribers already in place, Japan could conceivably be helping USA exporters route around portions of not only the entrenched and outdated distribution networks, but those conservative retailers that think it their birthright to gouge the Japanese consumers.

While the World Trade Organization will continue to hammer away at formal and informal trade barriers in Japan, if the long suffering Japanese consumers refuse to confront their leaders about the way their society imports, distributes and sells things, then perhaps the multiple electronic bypasses of the internet and Direct Response Television can positively alter the ongoing, deteriorating economic landscape that Japan finds itself in. There is precedent for this stratagem:In WW II, as General MacArthur marched towards across SE Asia towards Japan, his command decided it was counter productive to slug it out island by island against an entrenched adversary. Instead, using new advanced technology, new tactics and hunches, he bypassed and thus isolated those pieces of real estate that were not worth the cost, time and frustration of his troops. Likewise, USA marketers, savvy of how to implement electronic bypasses in Japan, can avoid the counterproductive store by store, city by city approach against an entrenched and dying distribution and retail sector. If properly done, not only will it further increase sales of USA goods and services, but it should further unravel and make more rational the brick and mortar sector of their economy.

The Japanese economy is aged. It’s cells are not dividing in a normal manner. And with its dense population and relatively small amount of arable land, Japan refuses to swap possible social instability for the revitalizing economic growth hormone of skilled immigrants. Moreover, in Japan’s authoritarian culture, where information hesitantly passes vertically from the top down, it is not the most ideal of settings for renegade entrepreneurs to be nurtured in. Nonetheless, it will be up to their disciplined and educated youth to help conjure up the new industries that will hopefully bring them out of the worst economic slump they have experienced since the end of WW II. The fact that Japanese currently is the second most commonly used language on the internet, with an estimated 26 million internet users in the country in the middle of 2000, offers one of the few of bright foreshadowings of the possibilities ahead.

But to focus on Japan at the exclusion of other more vibrant Asian countries is a big mistake. With abundant needs for economic and political reform, and little sense of urgency by Japan’s leadership, USA marketers that do not hedge their bets by selling into other Asian countries will lose out on the historic market opening events brought to the world’s citizens by the WTO. Too many of the memes transmitted between people within island societies carry little weight in the midst of the dramatic, worldwide technological and political shifts that have taken place in the decade just past. Thus, the great hope for Japan is that the internet will not only liberalize their own domestic commercial sector, but it will also allow in a horizontal flow of memes from the world’s continents to more fully supplement the way they perceive, and the speed with which they react to, the changes occurring in the world outside of their islands.

Still, to be conservative, think twenty years out before the Japanese economy more closely resembles the USA marketplace. So Spartan remains the underlying collective Japanese ethos, that the western consumer gratification model that says unzipping your wallet and spending somehow approximates fulfillment is ambiguous to them. It is worth noting that some Japanese officials, in the deliberations on the new post WW II constitution, objected that the Jeffersonian “pursuit of happiness” clause was immoral. And although this and other new articles made it into the constitution, the Japanese people’s isolation and their generations long privations from feudalism, plagues, a resuscitated theocracy, fascism, civil and international wars psychologically hangs over them. The potential of the internet to foster more open markets, idealism and enlightenment are dandy, but the reality is that cultural habits linger. And linger still.