Common ground, nimbly retrodden
Management gurus have to give the appearance of revealing new and significant truths in a convincing way, even if what they say is not that new. Professor Michael Porter of Harvard Business School has the manner of a guru as well as good publicity agents. His book, presented with a guru-like flourish via a lecture/speech in London in September, would seem from all the tables to have been well researched and based on incontrovertible evidence. But much of what he has to say is not that new.
Informed observers of the Japanese economy have been aware for many decades that Japan has had a dual economy. One sector including motor vehicles and electronic products developed a highly successful export trade based on high quality and efficient manufacturing spurred on by effective domestic competition. The service sector and manufacturing industry catering primarily for home consumption, on the other hand, were highly protected and regulated and internationally uncompetitive. These sectors pushed up Japan's cost of living and exacerbated the weaknesses of the Japanese economy.
The recent McKinsey report on Japanese competitiveness which looked at several domestic industries emphasised the extent to which these industries lagged behind those of for example the United States in terms of productivity.
Doubts about aspects of Japanese management have been spreading for some time. Jon Woronoff, for instance, has emphasised for some years (as in his book Japan's wasted workers) that the productivity of Japan's white collar workers has been low as a result of poor management practices. In return for life-time employment Japanese managers were expected to go hither and thither at the whim of their companies' personnel departments which rarely gave much if any thought to family considerations.
Many of us have long warned of the implications of the keiretsu system for Japanese competitiveness, of the need for greatly improved corporate governance and the dangers of over-investment and over-production.
These points are covered by Porter and his colleagues, and the examples and detailed analysis given in the book are useful reminders of realities in the Japanese economy. The book also makes some important points which are sometimes overlooked by other informed observers.
One of Professor Porter's strong points is his emphasis on the need for Japanese companies to develop corporate strategies and to concentrate on what they are good at. The dangers of pursuing growth at the expense of profitability are rightly stressed. He is sensible to go on urging progress in deregulating but also wise in pointing out that not all regulation is bad. Some regulations are necessary to raise standards but need to be administered effectively, not incompetently or corruptly (cf. the recent health problems caused by milk products).
Many Japanese as well as foreign observers have been arguing for a long time the need for significant changes in Japanese education and the importance of developing independent thinking. Porter notes that while Japan has been successful in producing mechanical and electronic engineers, it has a shortage of experts in software and biotechnology. He also makes telling points about the need for better university research, the importance of closer contacts between universities and business, and the value of postgraduate training. And understandably as a business school professor, he draws attention to the lack of good business schools in Japan.
In their review of Japanese government attempts to guide and control the development of Japanese industries the authors tend to overlook the way in which especially in the 1950s the Japanese faced with the destruction of most industries during the war succeeded in creating a huge engine of growth through controls on finance and licences. Unfortunately the controls were allowed to continue for too long and in may cases ended up by strangling industries which could have become internationally competitive if they had been freed from protection and over-regulation.
The book could have made a clearer distinction between MITI which was quicker to learn the value of freeing trade and the backwoodsmen who ran and still run the Ministries of Health and Welfare, Agriculture, Construction, Transportation and Posts and Telegraph. Sadly these could not apparently see where Japan's national interest lay and thought that their job was to protect their backs against criticisms from the self-interested lobbies and their political henchmen.
Professor Porter and his associates, perhaps for reasons of space and because they are economists rather than sociologists, do not examine whether Japanese society and traditions which emphasise consensus and harmony constitute a barrier to the developments they wish to see. It could be argued that the changes needed in Japan go deeper than those advocated by the authors.
The book's conclusion is right:"As Japan moves into the twenty-first century, the government must fundamentally change its approach to competition and redefine its role in the economy...What is needed is nothing short of a systemic change in which a whole array of new policies are pursued together that will be mutually reinforcing. Opening up trade will speed the restructuring of inefficient domestic sectors...A new governance system will elevate the importance of profits and encourage more distinctive strategies."
As a summary of the issues facing Japan this book is a useful addition to the extensive literature on the subject.