Norman Barry ([email protected]) is a professor of social and political theory at the University of Buckingham, UK, the country’s only private university.
Although it was an up-and-down 2006 for the Japanese economy, there have been signs of an emergence from its long recession. Unlike previous recoveries that proved short-lived, this one shows every indication of being permanent. There are obvious markers of renewed success and some more subtle signals that are possibly more significant.
First, the headlines. The Nikkei closed at above 17,000 at year end. It had reached that figure in April, only to fall back, but now all informed observers are confident that the rise can be maintained in 2007. Furthermore, the giant car producer Toyota has overtaken General Motors as the world’s biggest automaker. And of course its profits are much healthier than its American rival, long the world’s leader. Production, mainly automobiles and high-tech products, was up in November, the second month running, and consumption increased. The Bank of Japan raised interest rates slightly in February.
But the more elusive pointers to Japan’s renewal relate to the changes that are taking place in Japanese business practice: The economy is being Americanized. This is a process that was pioneered by the recently resigned prime minister Junichiro Koizumi with his privatization of the Japanese post office, which will free up to $6 trillion in assets for investment in the private sector. And in the private sector itself there are signs that that much-neglected figure in Japanese business, the shareholder, is becoming the focus of attention. Long the victims of poor returns and exclusion from management of the companies they nominally own, shareholders have for decades been the helpless victims of managerial incompetence and irresponsible arrogance. And it was this protection of management from normal market pressures that did so much to fuel the country’s recession. But things are changing: Dividends are up, and the long-cosseted bosses are feeling the pressure of resurgent stockholders.
Oddly enough, evidence of the change can be gleaned from two business scandals that have rocked the normally staid world of Japanese commerce. First, there was the much-publicized Takafumi Horie case. He was a radical financier who upset conservatives with outrageous takeovers via his Livedoor Corp. Of course, his very success provoked the authorities anxious to preserve the respectable Japanese way of making money by making things, like cars, refrigerators, and washing machines. His trial for fraud and “window dressing”—inflating the profits of corporate raiders to make them attractive suitors in a bid—began in September and ended in late February. The result was guilty, and Horie was sentenced to two and a half years in jail. He protested his innocence to the end and is now appealing.
A not-dissimilar case, that of Yoshiaki Murakami, has been much less publicized in the West but is perhaps even more significant. A former civil servant, Murakami was head of M&A Consulting, worth $3.6 billion, which was explicitly designed to press for stockholders’ interests. Both revered as a shareholder champion and reviled as an asset stripper, he constantly pressured managers, demanding better performances that were to be reflected by higher dividends. Under constant surveillance by the authorities, he finally confessed to insider dealing, ironically in connection with the bid for Nippon Broadcasting that Horie’s Livedoor had made. While confessing, he claims he was guilty only of a technicality: He simply heard about the bid and bought stock on his instinct without being in a relationship of trust with either company.
The Horie and Murakami cases certainly herald a new era of business in Japan. This can be seen in the rapidly expanding mergers-and-acquisitions market in which the American financial giant Citigroup has been recently active after it was hit by some setbacks in the early years of this century. In 2006 Citigroup completed deals with a total value of $38.2 billion in Japan. It is bringing American banking practices to the country and is increasing the competition with rival local banks. Of course, the Japanese mergers-and-acquisitions market is much smaller than in America. In 2006 merger deals in Japan were worth $127.6 billion, while in America there were 10,200 with a value of $16 trillion. Still, the Japanese car industry was once much smaller that America’s, and now look at Toyota.
All this new business activity must be good news for Japan. It will lead to a more efficient allocation of capital and render the country’s economy more flexible and better able to cope with the opportunities of globalization. The Japanese are learning that there is more to making money than making things.