Japan Inc. Was One Big Happy Family,
But Now It Has Become Dysfunctional 
By MICHAEL WILLIAMS and PETER LANDERS
Staff Reporters of 
THE WALL STREET JOURNAL
April 27, 2000

TOKYO -- It's time to say sayonara to Japan Inc. Not the country, but the cliche.

For at least three decades, the phrase "Japan Inc." has suggested the common Western perception, shared by many Japanese, that Japan is like one big, well-run company, where bureaucrats, businessmen, politicians and workers cooperate to expand the economy, and foreigners need not apply.

The 1990s pretty much demolished the notion. Bureaucrats helped run Japan's banks into the ground, and the famed lifetime-employment system started to erode. Today, foreigners are taking big stakes in humbled giants such as Nissan Motor Co.

Small wonder, then, that Japan experts are junking the nickname.

Trading Terms

"Japan Inc. no longer accurately describes Japan," says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank. The former U.S. trade negotiator made his reputation in 1988 with his book "Trading Places," which advocated a strong U.S. industrial policy to counteract Japan's might in cars and electronics. Would he now like to trade metaphors?

"Japan Wreck? Japan Confused? There's a lot of confusion over there," Mr. Prestowitz says. Waseda University historian Hideo Kobayashi agrees the term is "dead." He would switch to "New Japan Inc.," for a country racing to catch up to the U.S. in the Internet world. A tech magazine here editorializes that the Web will oust "the rotting carcass of the old Japan Inc." Hence the publication's cheeky title: "J@pan Inc."

Canning Japan Inc. pleases the man who popularized the term, Wisconsin-born consultant James Abegglen. Mr. Abegglen, now 74, fought his way into Japan in World War II: As a Marine, he was wounded in action on Guam and was posted to Hiroshima with a survey team just after the city was devastated by a U.S. atomic bomb in August 1945. In the mid-1960s, as a consultant helping U.S. companies crack the Japanese market, he gave a speech in Washington in which he used the phrase "Japan Incorporated."

Though often credited with coining the term, Mr. Abegglen had seen it in a Japanese newspaper, he says. Prof. Kobayashi says it actually goes back at least to 1936, when a Fortune magazine article said: "The industrial hierarchy of Japan is so compact that you can almost think of its works as the products of a single beautifully integrated and highly diversified corporation." Fortune added, "For a generation ... it has been Japan Incorporated against the world."

Catching On

Once Mr. Abegglen had put it back into play, Japan Inc. was soon everywhere, as U.S. journalists used it to explain the comeback of a country so recently defeated in war. But Mr. Abegglen was appalled at the way the metaphor was picked up by people who saw Japan as a menace. Japan Inc., he says, morphed in the 1970s and '80s into "the notion that somewhere in [Tokyo's bureaucracy] there's a guy with a long beard and a big computer, and if we could find him and shoot him, we'd solve the problem." Mr. Abegglen thinks the bureaucracy was never as powerful as it was cracked up to be, "but it was so important that we [Americans] personify Japan in some fashion and make it seem this monolithic conspiracy," he says.

Not so fast, says Chalmers Johnson, emeritus professor of political science at the University of California at San Diego, who believes Japan Inc. "is still a perfectly usable term" for the world's No. 2 economy. Japan remains an old-style export machine, which racked up a $120 billion trade surplus last year, not a domestic demand-led economy, he notes. That overreliance on exports is why the '90s decade was a disaster for Japan, he argues.

Seeds in the 19th Century

Mr. Johnson was one of the first scholars to look closely at Japan Inc.'s origins. The core idea goes back to the late 1800s, when the state launched industries such as shipbuilding, then sold enterprises cheap to businessmen. In the 1930s and 1940s, Japan's bureaucrats took up industrial planning to boost output for the war years. They then lucked out again, during the postwar U.S. occupation, as America sought to set up Japan as a bulwark against the Soviets.

By the 1960s, the Japan Inc. system was in place: an economy dominated by keiretsu, groups of companies financed by big banks, guided by officials at the Finance Ministry and the Ministry of International Trade and Industry, and stabilized by such perquisites for workers as jobs for life. Although all those arrangements still exist, they have been weakened. But what's really disappearing is the cohesiveness, the wa, or harmony, that warmed Japanese hearts, kept out imports and infuriated foreigners.

The biggest and best-connected keiretsu, Mitsubishi, is a mess. The Mitsubishi car company is handing over the keys to DaimlerChrysler AG, which has taken a 33.4% stake. The company that built the Zero fighter in World War II, Mitsubishi Heavy Industries Ltd., lost nearly $1.4 billion last year and is now seeking an alliance with Boeing Co. or Airbus Industrie.

Heavy Load

Mitsubishi Heavy is even having trouble selling its ships to Nippon Yusen KK, the Mitsubishi group's shipping firm. Nippon Yusen recently said that, to save money, it is buying five container ships from South Korea. Says Minoru Makihara, chairman of the Mitsubishi trading company: "Japan Inc. is a dead word."

The state-backed Development Bank of Japan, which in Japan Inc.'s heyday channeled capital to steel mills and oil refineries, has found new enterprises to finance -- such as the American coffee chain Starbucks, which has opened 119 shops in Japan, including one right across the street from the bank.

There's still a little Inc. left in Japan. In February, the big Fuyo keiretsu blocked a hostile-takeover bid for a tiny Fuyo company, then voted down dissident shareholders at the company's annual meeting in March. Notably, though, the troublemaker who launched the bid is a former MITI man, Yoshiaki Murakami. The 16-year MITI veteran, who ended the shareholders' meeting by shouting "Objection!" at management, says the "magma" of shareholder-driven capitalism will "engulf Japan" in the next year or two.

All this is music to the ears of Mr. Abegglen. In fact, the ex-Marine thinks so much of Japan that he became a Japanese citizen three years ago. Mr. Abegglen, who is married to a Japanese woman, says that, to his surprise, resigning from America Inc. was even harder than becoming Japanese. "Renouncing U.S. citizenship is extremely difficult and painful," he complains. "And it cost me about $15,000 in accountants' and lawyers' fees just to do the paperwork."

Write to Michael Williams at michael.williams@wsj.com and Peter Landers at peter.landers@wsj.com

Copyright (c) 2000 Dow Jones & Company, Inc.

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