Joi Ito's Web

Joi Ito's conversation with the living web.

I gave a presentation about Japan last year at the Trilateral Commission which ended up in the Wall Streeet Journal and also did a presentation with Oki Matsumoto for the GLT Annual Meeting which are both a bit more fact based than the current essay I have written...

Here are some supporting figures about the aging population and the lack of diversity and risk taking in Japan.

(1) Population
A quarter of the population will be over 65 years old, and at the same time, children 14 years or less will represent only half of the population of 65 or older – Japan will be the oldest nation in the world.

(2) Financial burden of this ageing population:
The current average annual burden on a worker (taxes, medical insurance and public pension): approx. 2.5 million yen, or about 20,000 dollars US. By 2020, this would have more than doubled, to 6.2 million, or about 50,000 dollars US.

(3) From 2024, the actual GDP growth rate might become negative as an on-going trend: by 2025, current account will be in deficits, which, combined with the already aggravated fiscal account deficit, will result in Japan having a twin-deficit problem as a permanent burden.

Entrepreneurship is not socially accepted
Percentage “yes” on item: People you know respect those starting a new business - 1999
Japan 10% US almost 100%

Lack of diversity
4% of the top universities provide 32% of the CEO's for public companies

Here is a draft of my opinion piece for Keizai Doyukai the Association of Corporate Executives. I wanted to focus on identifying the dysfunctional democracy as the core problem and to encourage public debate and a global dialog without fear of "revisionists" bashing Japan as a result.

Version 1.0 Feb. 10, 2002
A democracy built after a revolution will be required to save Japan

The root of Japan's economic and structural problems is the weakness of Japan democracy. In a democracy, there should be multiple points of authority, the ability to criticize power without fear of retribution, critical debate and a competition of ideas. This may well be inefficient when there is a consensus on the direction of the country, but democracy is essential when a nation needs to change. Post-war Japan consolidated power in the ruling party. People were educated to be obedient. Harmony was maintained by co-opting or disabling people or organizations that could threaten the system. Diversity in the media, a strong judiciary, diversity in education and political diversity were stifled for the purpose of maintaining harmony. This harmony and consensus oriented process that once protected the happiness of the citizens of Japan is now the primary barrier to change. The system is self-perpetuating and is extremely resistant to change. It hides behind the powerful and complex bureaucracy and the monolithic media that does not represent a diversity of opinions.

Because the system is not able to change itself, a revolution is required. Japan must build a modern democracy and empower the people to participate. Revolutions to install democracies do not occur through negotiation with bureaucrats or academic debate. Revolutions involve people becoming upset and forcing change. Revolutions in the 18th century involved bloody wars and uprisings. 21st century revolutions will involve a public uprising triggered by bypassing the forces which suppress information. The revolution will be a revolution in the ethics of the people. Japan has a constitution and almost all of the laws required to be a functioning democracy. What it lacks is the consolidated will of the people.

At one time Japan was viewed as a competitive threat to the United States. "Revisionists" in the United States tried to force policy changes in Japan. Many Japanese have very bad memories from this period. In addition, Japanese generally do not enjoy discussing domestic issues with the outside world, feeling that the issues are either too complicated for non-Japanese to understand or fearing external pressure on internal issues. Japan is no longer a competitive threat to the world. Japan's inability to recover from the economic crisis is a threat to the global economy. Japan would benefit greatly from exposing the domestic core problems to the Japanese public as well as the rest of the world.

The combination of increasing public debate on the Internet and a global dialog will help the Japanese people become aware of the domestic problems as well as the context and responsibility of Japan globally. A new sense of global responsibility to achieve a higher ethical standard will help the Japanese people create a modern democracy capable of solving the domestic problems and allowing Japan to participate in the global geo-political arena as a true global entity. The revolution in Japan will be an ethical revolution about people become aware that they are actually in charge.

Thanks to everyone for the feedback on my essay draft. I will try to break it up into the two specific essays for two very different targets. The first one is and op-ed for the South China Morning Post. (Not sure if it will be published yet.) I am going to try to focus on a brief history of the problems in Japan, the fact that the dysfunctional democracy is the root of the problem and some examples of how a revolution might happen. Again, comments would be greatly appreciated.

Japan Needs More Democracy

Does growth in sophisticated economies require democracy? Do advanced economies thrive with more democracy? This age-old debate is more relevant than ever today. Doubters should look to Japan for reams of evidence that growth, especially when economic change is necessary, comes easier with democracy.

Post-war Japan consolidated power in the ruling party. Perhaps this was efficient at the time, as there was consensus on the appropriate direction of the country, but it created a super-powerful bureaucracy lording over the country. People were educated to be obedient. Harmony was maintained by co-opting or disabling people or organizations that could threaten the system. Diversity in the media, a strong judiciary, diversity in education and political diversity were stifled for the purpose of maintaining harmony.

While Japan was growing, it could afford to fund the ever-growing political machine. It could also afford not to change. However, today, Japan faces huge challenges both externally and internally. Ageing Japan now faces a competitive Asian manufacturing sector and a shift in resource allocation in the economy, towards the service sector. However the domestic services sector is inefficient and unable to compete globally since it has grown up protected by the bureaucracy and thus never had to compete. The markets are dysfunctional and unable to reallocate resources.

This harmony and consensus-bound process that once protected the happiness of the citizens of Japan is now the primary barrier to change. The system is self-perpetuating and is extremely resistant to change. It hides behind the powerful and complex bureaucracy and the monolithic media that does not give voice to a diversity of opinions. In short, Japan is stuck with a system pointed in the wrong direction without the ability to change the direction. The political system is unable to lead the nation. The lack of real democracy is the source of these problems.

Japan has a constitution and almost all of the laws required being a functioning democracy. However years of growth under a sclerotic bureaucracy has created a situation in which Japan's democracy is dysfunctional. In a democracy, there should be multiple points of authority, the ability to criticize power without fear of retribution, critical debate and a competition of ideas. Japan's "market for ideas" is far from this. Japan must build a modern democracy and empower the people to participate. The situation is so bleak that some say we may need a revolution to get there. If it does happen, the revolution does not need to overthrow the government. What it must do is consolidated will of the people to force the power elite to allow the authority to be distributed and to allow democracy to function.

There are many signs of change in Japan which convince us that there is a silent majority pushing for a true democracy.

Governor Tanaka of Nagano, an independent promising to shut down public works and crack down on corruption, was voted into office by people who were upset by the corruption and were willing to suffer short term pain in order to fight the corruption. He was ousted by the prefectural council in the first no-confidence vote executed in the history of modern Japanese politics, which did not involve a crime or a scandal. He ran again and won a landslide victory. He is now in the process of cleaning up the politics of Nagano.

The people are voting for more and more anti-corruption independent governors across Japan.

When Minister for Economic and Fiscal Policy, Heizo Takenaka, presented his aggressive plan to restructure the non-performing loans problem in October last year, the mass media criticized him, the bureaucrats were not supportive and the ruling party actively tried to stop him. And yet a poll run by Monex on its website showed that 87% of the people supported Takenaka. The support of Takenaka by this silent majority went un-reported in the mass media. The collusion between the bureaucracy and the media has been built up over decades, but the time has come for this to end. Meanwhile, we should remember that it under-represents the views of a large silent majority.

In business, the traditional backbone (backroom?) of the bureaucracy, change is also afoot. Carlos Ghosn has been able to take Nissan, a failing Japanese company, and turn it around with 99% of the original Japanese staff. Ripplewood, a foreign fund, has been able to buy Shinsei Bank (formerly the Long Term Credit Bank of Japan), ailing Japanese bank and turn it around.
Many of the problems can be solved by execution driven by ignoring the complex network of personal indebtedness (including lifetime employment) and exercising an ethics of transparency. The exciting thing about Nissan and Shinsei bank is that the people working in these companies quickly embraced the new ethics and were able to use the foreign influence as a positive catalyst.

There are many isolated examples of average citizens pushing for change and embracing a new ethics of transparency and activism, but again, they are marginalized by the mass media. As more and more of these individuals begin to express their opinions and organize themselves on the
Internet, the number and size of these incidents should increase.

The Internet, and the "blogs" in particular, provides opportunities for the passive Japanese public to wake up before the catastrophe. The Internet also is a way to enable the youth of Japan, currently silenced by the older generation and destined to get stuck with supporting them in the future, to speak up and organize before it is too late. This is critical both for themselves and also for Japan as a whole.

It is frightening to know that the collapse of brand-name corporations and the failure of the government to engage the people have largely caused many of the youth of Japan to lose faith in the system. Many have merely dropped out, but there is an increasing number of young Japanese organizing themselves with the help of tools such as mobile phones and the Internet. For the first time since the student uprisings in the 60's and 70's, which made activism "unfashionable", the youths are becoming more active. This is crucial, because if they don't they will be rebuilding Japan from the ashes of a total economic collapse several years from now.

Historically, a catastrophe or a shock of some sort has been necessary for Japan to change. A sensible plan for rebuilding Japan's democracy would be a good start, though. The Blueprint for Japan, which has been put together by a group of elected officials, business people (including ourselves) and professors, identifies some key factors for a new system. These include:
• Empowering local governments in the prefectures, and fixing the weight of representation in voting;
• allowing more political appointees to participate in the bureaucracy
• breaking up the press clubs
• increasing the size and power of the judiciary
• supporting more direct democracy and educational reforms
• increasing diversity through more immigration

Of course, this is just a start and may not be without flaws. However, we also know that change has never happened without someone taking the first step. The people of the silent majority of Japan need to wake up and realize that change starts with themselves.

Special thanks to the World Economic Forum for organizing the Blueprint for Japan 2020 and for help in editing this article. Thanks also to the contributors of my weblog and the rest of the Japan Blueprint members whose opinions this op-ed is based.

Mitch Ratcliffe comments on my essay and writes about how the US faces similar problems. He makes some great points about how corporate interests are taking over the political system.