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How Kenichi Ohmae Would Fix Japan

This article is more than 10 years old.

For some 30 years, Ohmae Kenichi (known abroad in the Westernized surname-given name inversion) has been among the most important—and most authoritative—thinkers and commentators on Japanese business and political economy.

Ohmae, now 70, is best known for having led McKinsey’s Japanese and Asian management consulting business from 1972 to 1995 (before that, graduating from Waseda University, and earning a Ph.D. in nuclear engineering from MIT). In 1995, he ran unsuccessfully for mayor of Tokyo. Since then, he has pursued a number of academic ventures while writing books and serving on Japanese government advisory panels.

In 2011, Ohmae led a panel that produced for the government a report entitled “What Should We Learn from the Severe Accident at the Fukushima Dai-Ichi Nuclear Power Plant.” (His view is that there can be no blanket decision to restart the shutdown plants. Each plant must be cleared for restart individually through strict verification of ‘failsafe’ systems, requiring both redundancy and alternative sources for cooling the reactors upon any accident, malfunction, or disaster.  He also thinks for largely technical reasons the whole nuclear sector must be nationalized.)

Ohmae’s latest book (in Japanese) is entitled Japan’s Key Points (nihon no ronten) but bears a strange English subtitle Global Perspective and Strategic Thinking. In it, he distills thinking on the many problems bedeviling Japan, narrowing these to 20, and—like a good consultant—offering a strategy for addressing each.  Below is a synopsis of several of Ohmae’s “key points.”

1. The failure of Keynesian macroeconomics. The most profound lesson from Japan’s “lost two decades” is the bankruptcy of Keynesian macroeconomic initiatives.  In the 20 years after the 1989 bursting of Japan’s economic “bubble,” the Japanese government has disgorged some JPY 300 trillion ($3.1 trillion) in public works spending and monetary stimulus (zero interest rate quantitative easing). The result:  nothing except massive waste and stratospheric debt.

The Keynesian model focusing on “aggregate demand” in a closed system cannot work in the current “borderless” world. “Abenomics” is largely more of the same failed macro policies and will also not work.

Rather than macro approaches, Ohmae prescribes “micro” approaches—like deregulation—that create opportunities for entrepreneurship and are palpable to consumers, especially persons with accumulated wealth.  In Japan, most financial wealth is held by the elderly and is mainly in bank deposits.  To these savers, zero interest rates are dispiriting and suppress, rather than increase, spending, especially on recreation and other enjoyments that could become major growth industries.  Effective policies would focus on inculcating in these seniors a sense of optimism and a desire to enjoy life.

2.  Over-centralized bureaucratic control by Tokyo ministries has sapped local initiative.  Support for Osaka mayor Hashimoto’s “Regional State” Model. The malaise and decline in Japan, particularly evident outside the three or four metropolises, prevailing for much of the past two decades can be attributed to the over-centralization of administrative and financial power in Tokyo’s central government ministries, and the disempowerment of local governments and communities.

The disempowerment is as much psychological and practical. Local politicians and governments seem to have lost even the desire to formulate local development initiatives. Their entire approach is appealing to Tokyo for money with which to implement centrally mandates policies and programs.

Ohmae contrasts this situation with China, where local develop initiatives and city-city, province-province competition have been the main driver of development over the past 30 years.  Japan needs to emulate Deng Xiaoping’s “one country, two (or many) systems” approach.

Ohmae endorses the model for local autonomy and creation of “regional states” promoted by Osaka mayor Hashimoto Toru. To revive Japan, localities need to acquire and exercise much greater local autonomy and compete with each other (as in China) to attract and nurture competitive new businesses.

3.  Japan’s youth have become “herbivores.” What has happened to ambition among Japan’s youth? Ohmae cites research in which high school and college students are asked their hopes and goals. Compared with American, Chinese and, especially, Korean students, Japanese students seem only to want to join a big company, and then to remain until retirement in a position without great responsibility. Ohmae blames the “noncompetitive” ethos prevailing in Japan’s schools and urges reform.

4. Revive Japan’s cartelized and “zombified” agriculture through deregulation.  Here Ohmae’s views are in line with those of other free market advocates (see my previous post on the views of Canon Institute for Global Studies’ Yamashita Kazuhiro.

5. Control hospitalization and other costs of old age health care. In FY 2009 Japan’s national health care spending topped JPY 36 trillion, a YoY rise of 3.4%. This for a country where total central tax revenues are some JPY 40 trillion. The most rapid rise has been in costs for persons over 70 years old. Against FY 1997, costs for persons under 65 increased by JPY 700 billion.  For 70-74 year olds, the increase was JPY 3.2 trillion. For those 75 and older it was JPY 4.5 trillion.

Japan must begin enforcing discipline on medical costs, especially for the very old. Ohmae cites measures taken in Denmark and Sweden that effectively restrict hospital inpatient treatment and direct people buy OTC drugs, without requiring a doctor’s prescription.

6. The Dysfunctional (U.S.-Written) Japanese Constitution.  Ohmae cringes when reading the unnatural and unJapanese language in the U.S.-written Japanese “peace constitution.” He finds the document replete with contradictions and flaws. He would seek a total redrafting of the Constitution or, failing that, major revision. But as a practical matter “reinterpretation”--as in the case of armed forces and Article 9--has been the only course.

He considers Article 96--requiring two-thirds of both Diet houses and a majority popular vote to amend the constitution--“the vilest parting gift of the U.S. occupation forces.” Given Japan’s political and election structure Article 96 make amendment next to impossible. He notes that in the postwar period the similarly defeated Germany has revised its constitution 57 times, France 27 times, Canada 18 times, Italy 15 times, China and Korea each nine times, and the U.S. six times. Only Japan has been unable to make even one amendment.

7. Grant government workers the right to strike, but only in exchange for the right to fire them to downsize government.

8. Japan’s feckless diplomacy and groveling diplomats. Ohmae laments the fecklessness of Japan’s diplomacy and groveling subservience to the United States of Ministry of Foreign Affairs (gaimusho) diplomats. As with local government officials, gaimusho officials seem to have lost even the desire to craft an independent Japanese foreign policy, rather than to act like America’s “mistress,” dutifully following the U.S. lead. He points to a pernicious “specialization” in the ministry, where diplomats are either America-hands or China-hands. No one at any level seems to feel responsible or inclined--or to be capable enough--to formulate policies to advance Japan’s broad long term national interests.

Ohmae reserves criticism of the 2009-2012 DPJ government’s foreign policy missteps. He judges that the DPJ was handed a “Pandora’s box” of diplomatic traps and mistakes (like the agreement on Futenma Marine base relocation) accumulated under the long rule of the U.S.-dominated LDP.

I lost count of the “Eureka moments” I experienced reading this outstanding book. Would that it had an English edition, but it is obviously aimed at Ohmae’s fellow Japanese citizens. It deserves--and I expect will receive--wide readership in Japan.