Reimagining Japan: The Quest for a Future that Works

September 8, 2011

Gerald Curtis
, Burgess Professor of Political Science, Columbia University; Director, Japan Society
Christopher Graves, Global CEO, Ogilvy Public Relations Worldwide
David E. Sanger, Chief Washington Correspondent, The New York Times

Rik Kirkland
, Senior Managing Editor, McKinsey & Company

On September 8, 2011, three distinguished experts from the worlds of academia, business and journalism joined moderator Rik Kirkland of McKinsey & Company to discuss the themes of McKinsey's new essay collection, Reimagining Japan. The panelists were Gerald Curtis, a professor of political science at Columbia University, Christopher Graves, Global CEO of Ogilvy Public Relations Worldwide and David E. Sanger, a reporter at The New York Times. Each contributed a chapter to the book, which includes the reflections of more than 80 global leaders and experts on what comes next for Japan.

Mr. Kirkland asked David Sanger:

McKinsey's CEO, Dom Barton, has said that to reimagine Japan's future, the first thing that we must do is to stop drifting. Is this something you see happening under the new prime minister, Mr. Noda?

"There are some interesting turning points" for Japan, although "I'm not sure the new prime minister is going to be able to break the cycle," Mr. Sanger replied.

The dignity, hard work and teamwork with which the Japanese people responded to the triple crisis of 3/11 represent "the best of Japanese culture, which is ill served by the worst in Japanese politics." What were seen in the 1980s as strengths—Japan's high savings rate, its protected markets and control of immigration—"now look like great political weaknesses," and must be re-examined and debated.

What's the boldest thing we're likely to see coming out of the Noda administration?

What shouldn't happen is simply "a knee-jerk sense that you have to end all nuclear power right away and replace it with renewables," though that's a laudable goal for the long term, Mr. Sanger said.

"If you took this area of Japan that has been so devastated and turned it into a very vibrant, university-centered and entrepreneurial-centered region that would bring life and people and young people back to this part of Japan... that would be the greatest memorial to this tragedy."

Turning to Gerald Curtis, Mr. Kirkland asked:

In the course of your visits to Tohoku since the quake, have you sensed that enough is happening there? What would you like to see taking place?

Tohoku can be compared with Maine—it's an important part of the fishing industry, but only a small slice of the country's economy, Professor Curtis said. Tohoku needs to be made a special economic zone, with tax incentives for Japanese and foreign businesses to invest in the region, and local officials given the power to relax regulations as needed.

"Unfortunately I am not optimistic at all," he added. In the Diet, no one has emerged of whom people say, "'Wow, this is a real leader. This is somebody that I expect will be a major force.' They may be there, but we don't see them yet." Local officials, the governor of Miyagi Prefecture, the mayor of Minamisanriku, "these are people that know what's going on, on the ground. The best thing that the national government can do is give them the money, give them the power, give them authority, let them do something new."

Mr. Kirkland's next question went to Christopher Graves:

You were objecting to the government's recent effort to brand the country Cool Japan. What's the context for your critique, and what would you recommend instead?

To explore how Japanese manga and anime are doing outside of Japan is "not a bad impulse," but when such cultural elements are embraced in other countries, they don't necessarily remain attached to their country of origin, Mr. Graves said. "Korea and China are making their own version of anime and manga and doing quite well by that indigenously." It was much too optimistic for METI to project that Japan's own producers could develop a new $200 billion export market.

"There is really an innate drive the behavioral economists have looked at, which is for human beings to want to, as they get older, master something. And Japan is about devotion in mastery," he said. A handful of foreign students are already studying manga and anime in Japan. Creative tourism programs, albeit brief, could expose travelers to these arts. American baby boomers love to travel, and with $2 trillion in savings, they have the means to do so. They can be invited to "'come to Japan for your inner mastery—your inner endless development,' rather than just this sort of surface-level gimmickry of Cool Japan."

If you were to wave a magic wand and tackle a laundry list of possible policy changes and issues, what would be your top two?

Immigration and education, Mr. Sanger answered. To revive Tohoku "and build a revival of Japan around it," Japan must either draw young people to come back from the cities—a task that's "incredibly hard"—or get immigrants to come to the region.

These immigrants must be innovators, "a young group of people who are willing to experiment, and a capital base out there that is willing to take some risks," he said.

Professor Curtis agreed, and said he'd add something seemingly minor but significant, namely a system of universal ID numbers, which up to now Japan has considered an unacceptable invasion of privacy. Universal IDs cut down on tax evasion. They could help make sure that people who were near Fukushima on 3/11 get regular health follow-ups even if they've moved away. India is a good example of what can be done, having just adopted a fingerprint and iris scan system for its own huge population.

Ending "the one-size-fits-all approach of the Japanese bureaucracy" would also be a priority, he said. Beppu, a scenic tourist destination on the island of Kyushu, should be an excellent site for a whole spectrum of assisted-living facilities to aid Japan's aging population. But this can't happen, because the Health and Welfare Ministry, in an effort to treat each region equally, limits the number of beds for the elderly that any one town can have.

Mr. Graves urged the expansion of Japan's workforce to include more women and more immigrants, not so much from China but from India, Latin America and the Middle East, where the demographic is young. He would also boost tourism, including medical tourism, which has become important in Thailand, as well as ecotourism and creative tourism.

"Probably the only way for any of these things to happen is for Japan to have a real crisis" such as a collapse of the bond market, Professor Curtis commented. Though Japan has been in the doldrums for 20-odd years, "the unemployment rate is half of what it is in the United States. The living standards are high. There is growing income disparity, but nothing compared to the obscene income disparities that we see in our country. You saw in Tohoku that people take care of each other. Local communities are strong. So, if you are Japanese, yeah, you wish things were better, but is it really so bad? For a lot of people it's not so bad, and it may be that the only way it gets better is if it gets so bad."

"That's where political leaders come in. They have to explain that we cannot let that happen. Nobody wants to do that. Whether you can accomplish it is another issue."


Q&A with the audience followed:

For Mr. Sanger: how would you evaluate the new cabinet's capability?

Cabinet members in Japan, like most in the U.S., "very, very rarely cut a new and separate path by themselves," Mr. Sanger said. The real question isn't how an individual minister is going to perform, but what the country is going to do about fundamental issues like protected markets and immigration policy.

And for Professor Curtis: What do you think about the differences between this government and the prior governments?

When the LDP led the government, "there was a structure in the party to process policy," and "an understanding between the politicians and the bureaucrats that they would work together and they would respect each other's needs and expertise," Professor Curtis said. The DPJ has sworn off relying on bureaucrats, but it lacks the resources to make good on its pledge. Japanese universities don't offer courses like the one Mr. Sanger is teaching this year at Harvard, which delves into case studies in making policy.

"You have two Japanese foreign ministry bureaucrats who would sign up for it," Mr. Kirkland commented.

Professor Curtis agreed. "And that's not a joke; it is a good sign. I think this is going to happen." It's a new party, and none of the new cabinet members have experience. "They're getting it now.... You cannot in the modern world, in a modern, complex economy and society like Japan, make policy without having the support structure to do so.... And finding the right man for the job, it's not the answer."

Immigration would help, but doesn't something have to be done to get the Japanese people themselves more comfortable with taking risks?

Mr. Sanger said, "My favorite story from Japan's revival after the 1940s and '50s was Honda-san, who was told of course that your company can only make motorcycles, and he basically ignored METI.... If the capital markets were liberalized enough that foreign capital was coming in and backing some of these Japanese ventures, then the decisions would be made not only at the local level, but at an individual level. The government wouldn't be responsible for it. A government ministry is never going to take risks."

How do we see the bottom? What would it take for leaders and the public to sense that urgency?

One way is leadership, which means having a leader who "levels with the public about how serious the problems are, and how much of an opportunity there is to turn things around," Professor Curtis said.

"This was Koizumi's great strength. Koizumi's attitude was, 'I don't particularly want to sit in this office for very long if I can't get something done that I want to do. Someone else can keep this seat warm, and if you don't like it, choose somebody else to be the president of the LDP.'"

"The second way is a major fiscal crisis—when Japanese bonds are further downgraded" and unemployment rises sharply. "That is what you want not to see. But I don't see much else."

Would increasing tourism really help the economy significantly? Even in France, which is the capital of world tourism, tourism is only about 6 percent of GDP.

Mr. Graves said he'd focus on baby boomers in China and the U.S. "If you looked at countries like Thailand or Mexico and the huge proportion of the economies that is tourism driven, and really crafted a very China-friendly/America-friendly approach to this, particularly with [China's] appreciation for mastery.... Then you look at the coming hundreds of millions of outbound affluent tourists coming out of China over the next 20, 30 years, that's no small beer."

"So if I could double the 6 percent to 12 percent, for example," with an economy of Japan's size, "that's a big deal."

We've talked about the how and the what, but we haven't really asked ourselves the why. Why does it matter that Japan reimagine itself?

"I think the biggest fear Japan has is that it may not matter as much to the rest of the world," Mr. Sanger said. "Today Portugal is that delightful tourism location that you've been talking about, but it has no pretenses to be either a great industrial or political power, or even an exporting power." The message of Reimagining Japan is that "if Japan stays on its current course, it's the Portugal of the Pacific.... It has the talents to do far more than that."

"How to have an equitable society, how to have a health care system that basically works, how to organize your social lives so that you have low crime, a lot of cooperation among people... cleanliness, honesty—these are all really valuable lessons that we saw in the response to the Tohoku crisis," Professor Curtis reflected. Japan has great strategic importance in Asia as a counterweight to China. And Japan's decline would produce a "very nasty, more right-winged response. Japan is not the Portugal of Asia. Japan is the first modern, and after the war, the first democratic country in Asia. It's not going to take its decline casually."

—Katherine Hyde
Topics:  Business, Policy

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