A few days ago the New York Times contacted me and asked me to write an Op Ed about Prime Minister Abe. I pondered a bit about it, but wiser minds advised me to do it. I wrote: In Japan, Stagnation Wins Again which is running in today's paper.

Thanks to Toby of the New York Times for thinking of me for this, to Jun for getting me started, to Toshi for helping make sure it makes sense in a Japanese context and to Gen and Mimi for the final review.

Also, good news for CC. The new contract that the New York Time gives us joint ownership and allows me to share the article under a CC license 30 days after they run it.

UPDATE: Here's a link to a version of the skit on YouTube with English subtitles for "Sonnano Kankeinei" referred to in the article. It's sort of crappy quality. Interestingly, the subtitles translate it to "So Fuckin' Waht?" I suppose that's the spirit, but I'm not sure what part of "Sonnano Kankeinei" mean's "fuckin'". ;-P

UPDATE 2: Here's video of a small child doing "Sonnano Kankeinei". I THINK this is a Spanish guy doing it. And a sports mascot doing it on TV.

UPDATE 3: Looks like they removed all of his videos from YouTube. Doh. Here's a link that still works.

Copyright Joichi Ito and the New York Times:

September 18, 2007
Op-Ed Contributor
In Japan, Stagnation Wins Again
By JOICHI ITO

Inbamura, Japan

SHINZO ABE, who stepped down as prime minister last week, is what we call in Japan an "obocchan." An obocchan is a type of well-to-do, slightly spoiled child of a powerful family. Mr. Abe may have been an obocchan but, wanting to be liked by everyone, he made efforts to address the concerns of the working class. Yet despite his efforts, most Japanese felt that he was unaware of working-class issues, and that -- more than any political scandals the press has been crowing about -- may have been his undoing.

More broadly, while most people liked Mr. Abe and believed him to be smart, the Japanese news media often called him "Kuuki ga Yomenai" or, for short, "K. Y." "Kuuki" means "air" and "yomenai" means "cannot read." Not being able to read the air means that you don't know that your guest wants another cup of tea or that you should be serving cold tea because it is a hot day. Reading the air is an essential trait for a Japanese politician.

This shortcoming put Mr. Abe at a severe disadvantage compared with his predecessor, Junichiro Koizumi. Mr. Koizumi is famous not only for being the master of reading the air but also for his unmatched ability to ignore the advice of the political elite. I would call this the "sonnano kankeinei" style. The catchphrase of a popular Japanese comedian whose routine has spread widely on YouTube, sonnano kankeinei is a crude way of saying, "So what? I don't care." It would be an uncommon attitude for a politician even in America, and in Japan was simply unprecedented.

It was a tough act to follow, and Mr. Abe tried to read the air but ended up following too much advice and yielding to the various centers of power and special interests to which his Liberal Democratic Party has owed its 50-year near monopoly. The result, unsurprisingly, was wishy-washy, ineffective policy.

For instance, he had the right idea in trying to shake up the government's stagnant bureaucracy. But instead of taking on a single group of bureaucrats in a winnable battle -- as Mr. Koizumi did when he pushed through a bill privatizing the postal system in 2005 -- Mr. Abe tried to change the broader fundamental laws governing federal agencies. The bureaucrats and their supporters in the Parliament turned on him, and he was stuck in a fight he couldn't win. Very K. Y.

The biggest example of his weakness, however, came when the government lost the pension records of 50 million workers. In most countries, this would have caused a riot, if not a revolution. Although concerns over possible missing records spread among the public late last year, Mr. Abe did not act until the spring.

Many in the public felt he delayed because the government bureaucrats and business executives closest to him probably didn't know anyone who was affected by the mismanagement of the records. Possibly, but again I think his failure stemmed not from his insulation but from his crippling Kuuki ga Yomenai.

These sorts of misjudgments, combined with the string of scandals resulted in the resignation of several cabinet members and the suicide of another, were what most pundits feel caused the Liberal Democrats' disastrous showing at the polls in July. To some extent that is true. But another huge factor that went to alienating voters was concerns over what the government and news media like to call Japan's current economic "recovery."

The problem is that most Japanese know that the so-called recovery is fueled by exports to China, particularly construction materials and energy. The steel, cement and coal companies are prospering. Chinese money is filling the coffers of the industries that have fueled the political system since World War II and were a big part of the bubble collapse that has left the economy stagnant for more than a decade.

Chinese demand is pumping up the value of the large raw materials and construction companies, trading firms with positions in commodities like coal, and businesses that sell overseas. But most domestic companies are seeing only an increase in their raw material costs without a significant increase in demand or margins locally.

Most of this money is viewed as sloshing around in the markets and the bank accounts of the elite, with very little trickling down to small companies or the average salaryman. One of my favorite indicators of the word on the street is the Tokyo taxi drivers, and when I bring up the subject, every one asks me something along the lines of, "Why do they keep saying that our economy has recovered?"

The other problem with this "recovery" is that it reinforces the old stereotype that Japan's strength lies in construction and exports. While this was a good strategy for the postwar recovery, it now slows down reform and diverts valuable human and public resources from the stunted service and high-tech industries that Japan needs for long-term growth.

It's no coincidence that before he entered politics, Mr. Abe was an executive at Kobe Steel. And his successor will be more of the same: the two contenders for his job both have backgrounds in raw materials. Taro Aso's family company is one of the largest mining and cement concerns in Japan, and Yusuo Fukuda's business experience is in oil.

This reflects a fundamental problem with Japanese politics. In a policy supported in part by the American fear of the threat of communism, the conservative Liberal Democrats stamped out all liberal resistance by either destroying the careers of members of the opposition or co-opting them. This resulted in a single-party system, with disputes negotiated and settled within the Liberal Democratic Party though a complicated process of factions and committees.

Many Japanese called this a "democracy in democracy." Perhaps, but this democracy in democracy was only visible to those in power and is managed mostly through a system of pork-barrel politics.

In July, the people had had enough and voted against the ruling party, but the result could be even worse. In deposing Mr. Abe, who despite being part of an old political family was still something of an outsider, they will see a return of the Liberal Democrats' old guard.

Nor is the opposition any better. The leader of the Democratic Party of Japan is Ichiro Ozawa, a student of Kakuei Tanaka, the prime minister who in the 1970s fashioned a public-funds-for-votes system and "rebuilt" Japan by paving the countryside with concrete.

Perhaps there is a silver lining: the weakness of the Liberal Democrats may give us the first sustained period of two-party politics since 1955. If so, the real question is whether it will allow any fresh blood in the political system.

Unfortunately, Japanese politics is a time-consuming and thankless task. Young entrepreneurial types shun public service. Mr. Koizumi made a serious effort to get people from outside the old party to run, but most of those young politicians have already dropped out. (I've rejected entreaties by both parties to run for office and have no regrets; according to my friends in junior positions in the Liberal Democratic Party, their first years have been spent in minor working groups, never being allowed to speak up at or attend any meetings of importance.)

The heart of the problem is that true multiparty politics should have started in Japan decades ago. Soon the members of our own postwar baby boom will be retiring. The looming crisis of a bankrupt Japan, a overburdened pension system and a corporate ecology of pumped-up old-economy companies will be upon us.

The man on the street knows this, but in a country that boasts of never having had a successful revolt of the people, or even a popular uprising resulting in significant reforms, it's unlikely that such awareness will be enough to punch through the K. Y. elite and make things change.

Maybe it's time for a revolution.

Joichi Ito is the chief executive of a venture capital firm and chairman of Creative Commons, a nonprofit group that develops flexible copyright arrangements.

6 Comments

Great article. A lot better analysis of Abe than the outsider perspective of what gone wrong with Japan :-)

Congrats!
I didn't expect you to get addicted to the "“Sonnano Kankeinei". ;-)

I enjoyed reading your editorial. I've been thinking about how (in my opinion) the U.S. is increasingly going to find itself on the wrong side of the the innovation gap; we're just not as entrepeneurial as we used to be. Japan has always had a different system of innovation, but I wonder if it still couldn't use the same sort of kick in the pants to get both countries back on track. Politics is K.Y. in both countries I think.

I enjoyed your NYT editorial so much that I tracked down your blog to tell you so (although I assume that the last line of it is either wishful thinking or sarcasm).

Maybe it's time for a revolution, indeed. The dependence on primary materials for export, as a way to transfer Chinese wealth to Japan, is no different than the natural resource export "boom" in Saudi Arabia, Liberia, and now Chad, amoung other states, including some states in South America. (Note the influence of the Chinese in these regions.) History shows that these types of gains do not transfer to the "real" economy (with the possible exception of Abu Dhabi).

The danger is that Japan will see a version of the Russian Oligarch experience, furthet concentrating wealth, and controlling funds that should be used for broad productivity gains, especially in the service sector. If you live by commodities, you will die by commodities. Widespread reform is needed, but the Liberal Democrats old guard won't take the needed steps. So who steps in? Can opposition parties mount a sustainable effort for reform? Or is it too late to funnel resources to more flexible value-added outputs in information technology and the services sector?

What happens when the RMB appreciates against the Yen, as it may do as the dollar continues to weaken. What space will the Japanese central bank have then to be able to adjust monetary policy? A weakened Yen against the RNB would surely mean rate hikes.

Meanwhile, what of Japanese consumer consumption vs. historically high savings rates? Would the Japanese consumer flood the domestic market with Yen? What would that mean?

Perhaps the Japanese consumer should vote with their savings the old fashioned way - not by causing an asset bubble in housing and shares, but by growing the market by using consumer goods, cars, household items, vacations.

Could the taxi drivers and the man on the street divert savings into consumption, thereby taking the wind out of the steel and oil juggernauts?

This could one of the Liberal Democrats greatest fears,and it could lead to more rational growth. Domestic Japanese consumption could be the savior of Japanese stagflation. The Kuuki ga Yomenai may be more than an inability to "read the air; " it my be a bloddy-minded strategy to hold wealth "for the good of the country." The KYs are going down - the taxi drivers need a political voice to help pick up the pieces.

“Sonnano Kankeinei” is now Japanese famous words among Japanese teenager.I think this phrase means "it is not important!".

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