Had brunch with Yu Serizawa of the World Economic Forum and Oki Matsumoto of Monex and talked about the Blueprint for Japan 2020 and the panel in Davos. Oki drew a pretty interesting picture based on the discussions we've been having and I doodled it on my Mac. There are a lot of missing components, but the story goes like this.

We have efficiency problems because the markets that traditionally allocation resources efficiently are dysfunctional. One of the reasons that they are dysfunctional are because of the dysfunctional democracy which causes the inefficient insider circles which act in their self-interest without check. The dysfunctional democracy is driven by the lack of diversity. The public are educated to be risk adverse and obedient, the media are huge and controlled and speak with almost a single voice and the judiciary do not have an ethics of independence and are part of the "group". This cycle perpetuates the central harmony and concentration of power. Even if once piece of the cycle changes momentarily, the cycles co-opts or ejects diversity and everything continues along the same path. We need some sort of external influence which is more resistant to this cycle which can break the loop. Also, I think the idea is that things like "values" and "spirit" of the people are probably more important than specific rules and laws. It's probably a combination of social changes, pressure from the outside and some leaders (the governors?) that might be able to break this cycle and cause change and a more democratic ethic. One thing to focus on is that we have a legal (albeit not enforced) framework for a democracy and it's probably the ethics of each of the organs and individuals which makes it dysfunctional rather than the structure. Thus, it's probably a deeper issue...

14 Comments

An important key question for the Blueprint for Japan 2020 is how to challenge, motivate, inspire, and enpower younger and future generations in Japan.

Joi:

I'm am looking forward to hearing on the ways change could be introduced into the system to make it more functional.

You sure have a different reality to deal with than is the case here in Canada.

regards

Robert

BTW, the "copyright" mark on the picture is there because we are planning on rendering and publishing something based on this chart and I don't want it to get into the media half-cocked. ;-)

"We need some sort of external influence which is more resistant to this cycle which can break the loop."

Actually, it seems that Japan has been affected by external societies, cultures, and governments more than any other Asian nation. I suppose the key question might be where, in Japanese society, has that influence sunk into and how deep? For the most part, external influences seem to affect trends and conspicuous consumption in Japan. In many ways, Japan eagerly assimilates foreign ideas and that helps to establish Japan as the most sophisticated country in Asia. Yet that inlfluence is limited. It seems that somehow, the Japanese collectively draw a line in the sand with regard to how pervasively they are influenced by the rest of the world. Whatever it is that could break the cycle you write about might have some relation to where Japanese set this limit and why.

Japanese have a well-deserved sense of pride in themselves, their culture, and the homogenous nature of the country's ethnic makeup. I think it would be a mistake to try to introduce any change that would threaten this pride and that foreigners should not be so quick to judge it. Whatever the "magic bullet(s)" is, I think it's important that Japanese have the sense that positive change and triumph comes from within.

"One of the reasons that they are dysfunctional are because of the dysfunctional democracy which causes the inefficient insider circles which act in their self-interest without check."

Perhaps better education of how the government works would be preferable to sweeping reform. Would Japanese be interested in hearing about "government ecology" if you will? Would they be interested in keeping tabs on how the system works best? If so, self-interested acts could be synonimized with "diversity". And you know how long diversity lasts.

I'm not sure, but I guess my theme is that perhaps there are ways you can "trick" the country into changing for the better by changing the definition of what is uniform.

thanks,
mb

Interesting picture. I am looking forward to hear your future ideas on this.

About diversity: According to Jesper Kroll the income gap is growing fast since 1998. Nikkei Biz says that the unemployment rate for Japanese between 15-24 yrs is now about 10%, 25-34 yrs about 7%. I think this trend will lead to more variety in what the Japanese expect from their media, politicians, retailers, etc.

Posted the following on my blog:
I have already shared this thought with Joi -- the need for Japan to embrace failure. In a talk by MIT's Lester Thurow he pointed out Japan's institutionalized culture does not allow for failure:

A strong cultural emphasis placed on success without toleration for failure
Backward bankruptcy laws. Even if someone goes bankrupt they are still expected to pay their debts. Allows creditors to pursue debts for two generations.
Japan's aversion to failure is in stark contrast to the Silicon Valley, where lore used to have it that we reward failure. Allowing failure enables a culture of risk taking. Risk taking spawns innovation, which creates products that command premium pricing. When a credit market does not allow default, it negatively impacts market prices. This is perhaps a major factor in Japan's deflationary trap.

Re: mike's comment above, it does seem that externally-induced change has yet to sink in deep in Japan. Here's something I came across this morning while reading chapter 7 of The Virtual Community in the subway. It's ten years old but seems to remain relevant.

"Japanese culture doesn't change and since it's so comfortable with the fact that it doesn't change and it's so secure with the absolute core of Japanese culture, it's very comfortable changing on the surface," Ito explained. I had asked him about the impending collision of values and technology that seemed likely as the Net grows in Japan.

The cultural immune system reacts at a much higher level in America. Americans stay away from dangerous things. Whereas the Japanese immune system is so well adapted to change, they can talk about hypernetworking or about cyberspace or robotics. They don't think that it's really going to bother them. When punk rock came into Japan and you could bump into a punk kid who wore a "fuck off and die" button on his shirt, that looks pretty rebellious, there was still a significant difference. You bump into him on the street, he's going to say "excuse me, I'm sorry." And that doesn't change, you see.

Wow Seb. What a blast from the past! ;-) Amazing how I'm saying almost the same thing and nothing has changed...

Joi- correct me if I'm wrong but this whole LDP-FSA-Aozora-Cerberus debacle is a great example of how things don't change in Japanese banking. I think if the FSA gets it's way, it'll be a long time before any other foreign investors try to do anything about Japanese banking, not to mention the ripple effects in other Japanese industries which are ripe for global competition. I think it's a great example to use when trying to explain your Blueprint 2020 map, especially because it is so current. Imagine being Cerberus; the Japanese government is actively trying to nix your deal. What's the incentive to try to make Aozora solvent & profitable? It's amazing that there are ANY foreign investors in the first place, no?

Ken Belson's opening 2 sentences are powerful: "In Japan's notoriously opaque business world, few areas are murkier than banking. The tangled web of keiretsu partnerships, heavy government influence and sheer resistance to change make it one of the most impenetrable industries for newcomers, especially foreigners, to enter."

more at my blog

Joi: if you find yourself saying almost the same things after all this time, might that mean that you too are resistant to change? ;)

Just kidding... now let's try to kill that runaway italic thing: ... Here... does it work?

While the Japanese doodle away, turn in circles/cycles, contemplate and non-reform, they are getting already covered by the shadow of the rising giant, the major force, *the others* in Asia... CHINA.

This may become more "external influence" than anyone will have dared to guess. How this fairly obvious development isn't injecting any sense of urgency here remains a mystery to me.

Dirk

Are you talking about my doodling? ;-) I totally agree that China is a huge looming threat to Japan. Agriculture is one reason and Taiwan/Korea/China can do to the Japanese what the Japanese did to GM and IBM. The thing is that the leaders know this. Idei-san knows this. It's the people on the street who don't feel the pain yet. Savings rates are high and LV sales are still HUGE. People feel fine (sort of) still. And since I think I've identified the fact that the biggest problem in Japan is the dysfunctional democracy we need people to wake up, not just the heads of the companies...

I have come to this discussion late, following a track on emergent democracy. Hopefully it is not too late.

The notion of finding the correct set of interactions at the individual level to effect change at a macroeconomic level is very daunting. Further, once selected, how are these interactions to be instigated (how are the individuals to be "awakened")?

It seems that the notion here is that one *effect* to be caused is "risk-seeking" (in aid of increasing diversity, with the aim of increasing efficiency). It seems, then, that the *interaction* to be instigated is "risk-support".

I presume -- perhaps very incorrectly -- that in Japan the small-groups (families, friend-crews) from which an individual might gather risk-support do not, now, provide that support adequately.

Is it possible to form a new small-group, the purpose of which is to support risks taken by the members?

I would imagine this to be at the 12-person/strongly-linked level. The interaction-statement would be something in the nature of: "For these eleven people, I will provide risk- support. For {person 1} I will provide {the explicit support}. For {person 2}..." ,etcetera.

Larger risks than can be supported at the strongly-linked level would have to follow the weak links out, I suppose.

Just a notion. Thanks for listening.

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