Capitalism in Japan

Because no nation has come half so far so fast, Japan is envied by capitalists elsewhere and looked upon as an example to emulate. Thirty years ago, its war-shattered economy was little more than one-third the size of Britain's. Today the Japanese G.N.P. exceeds the combined total of Britain and France, and the gap is certain to widen in the years ahead.

The Japanese variant of capitalism cannot be readily or precisely copied, except perhaps by a few Asian countries, because it is rooted in a homogeneous, hierarchical society with a not so distant feudal past. Changes are slowly taking place, but disciplined workers still display an almost mystical loyalty to their companies, and paternalistic employers reciprocate by guaranteeing job security. Leaders of business, banking and government are members of a unitary elite, and they have a snug relationship.

But Japan's system of capitalism does provide a lesson for the U.S. in one crucial respect. The nation's power elite, which shapes and guides the course of the economy as a whole, practices a democratic ideal that individualistic Americans claim as their own but often seem to ignore: the spirit of compromise and consensus. This has enabled the group-oriented Japanese to apportion wealth and nurture growth in one of the world's most cramped and populous countries.

Though Japan's domestic markets are highly competitive, Japanese businessmen and government officials do not see one another as adversaries but as collaborators on behalf of the economy. They worked together, for example, in meeting the automobile pollution problem early in the 1970s. Reports TIME Tokyo Bureau Chief Edwin Reingold, who previously was stationed in Detroit: "Unlike the U.S. Congress and successive Administrations, the Japanese did not pick nice-sounding numbers out of the smog and set standards that nobody knew how to meet. Instead, they handled the emissions problem scientifically, taking cost-benefit ratios into account in order to leave the companies with enough capital to develop new products. The emissions standards and timetable were set in cooperation with the auto industry.

When a postponement was required, the government granted it without public debate. As a result, the Japanese auto industry is fully two years ahead of Detroit in auto emissions control."

Japan must import 99.7% of its oil, as well as almost all the coal, iron ore and other raw materials needed to keep its production lines humming. To soften the blow of rising commodities prices, the triumvirate of banking, business and government has pursued a subtly effective policy of slowing the growth of resource-intensive industries such as steel and petrochemicals, and channeling more of the nation's capital into "knowledge-intensive" industries such as microelectronics and computers. That is one reason why, throughout most of the energy-dazed 1970s, Japan has held inflation relatively low and employment high, a record that is the envy of more bountifully endowed nations.

When the government decides to "encourage" an industry, as it did with steel in the 1950s, autos in the 1960s and television and computers in the 1970s, a mighty machine goes into action. The state-owned Japan Development Bank makes low-interest loans to manufacturers and suppliers in the field. Private bankers know that the government expects them, too, to give easy credits. Companies working on a new technology can get a 50% government subsidy, provided they turn over the basic patents to the Ministry of International Trade and Industry. MITI then offers the technology, for a small royalty, to any Japanese manufacturer.

Rather than yielding to the pleas of special interest groups to prop up badly managed and uncompetitive firms, the government usually tries to purge the economy of them as quickly and smoothly as possible. When Japan's shipbuilding industry, which accounts for fully 50% of the world's capacity, ran aground in the 1974 recession, the government began urging the yards to diversify into other lines of business such as industrial machinery, antipollution equipment and desalination plants, and encouraged banks to make available the necessary financing. Orders for ships have picked up again, and the slimmed-down industry is benefiting.

Procedures for getting the public to support broad shifts in policy are built right into the political system. Though responsibility for overall economic policy rests with the Premier and his Cabinet, all government departments and agencies have policy study groups that range from a handful to 200 or more businessmen, scientists, lawyers, journalists, farmers and others. Usually, the outside advisers approve departmental actions, but sometimes policy initiatives are scrapped. Example: to help close a fiscal 1980 budget deficit, the Finance Ministry last autumn recommended a corporate tax increase. It was shelved when businessmen on the ministry's Tax System Deliberation Council convincingly argued that the move would stifle growth.

From the lowliest bureaucrat to executives in the boardroom, tens of thousands of Japanese eventually get involved, directly or indirectly, in the formulation of policy, either through the study groups or perhaps the nation's ubiquitous, highly effective industrial associations. Their job is to lobby the interests of member corporations before the government, a task eased by a bit of Japanese back-scratching known as amakudari--literally, descent from heaven. It refers to the practice whereby retiring top bureaucrats are quickly hired as top executives of the companies they once regulated. Yusuke Kashiwagi, a former Finance Ministry official, is now president of the Bank of Tokyo; Eimei Yamashita, a former trade official, is a managing director of Mitsui & Co.; there are many more.

Consensus building sometimes takes years, but when urgent action is needed the government resorts to "administrative guidance." That is a sort of friendly persuasion by which the government officially "recommends" certain action, leaving the follow-through to industry itself. In 1978, for example, the Carter Administration strongly pressured Japan to cut its U.S.-bound color-television shipments. To prevent companies from engaging in a disruptive price war by rushing for shares of the smaller U.S. market, the Japanese government ordered the industry to reduce color-TV shipments to the U.S. by 50%. The administrative guidance was enforced by the industry's trade association, which parceled out the resulting market shares to member firms on an equitable basis.

A firm seldom ignores administrative guidance because other companies would consider that firm a pariah, and the government can easily tie up an offender's business in red tape. The whole system is made smoother because Japanese business and government chiefs understand one another: the flick of an eyebrow, the yes that is not really a yes, the small nuance of conversation that can never be written down. Comprehension comes because these leaders usually have the same roots of culture and class. Often, they have gone to the same elite schools and universities. Says Norishige Hasegawa, chairman of Sumitomo Chemical Co., as he points to his school necktie: "The old-school-tie system is not unique to Japan, but we do not have as many different schools as Western countries do."

Japan's approach to capitalism is by no means free of problems. Even wealthy Japan has limited capital resources. To stimulate investment in export industries, the nation has held taxes low and scrimped on domestic spending. Housing and such basic necessities as roads and urban sewer systems remain inadequate. Demands for improved public services are bound to intensify, and that could lead to higher taxes, slower industrial growth, and the danger of growing disputes over how the country is to spend its riches.

At least part of Japan's robust glow comes not so much from genuine growth as from enormous and potentially inflationary deficit spending, which last year totaled 40% of the government's budget. The deficits were designed to lift domestic demand for Japanese products as the slowing world economy and increasing protectionist sentiments abroad began to cut into exports. In 1980 real growth is expected to slide from a current annual rate of 6.3% to 4.8%, and inflation to rise from 4.5% to at least 6.4%.

These trends are troublesome but not critical. It is anticipated that unemployment this year will climb only fractionally, to not much more than 2% of the labor force. Though Westerners might well find the consensus system stifling, opinion polls show that most Japanese are satisfied with their lot. Altogether, Japan continues to do much better than most of the rest of the world, capitalist or not.

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