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Japan faces cycle of change
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November 21, 1996: 6:12 a.m. ET
Government and businesses adapt to new economic rules, regulations
From Correspondent Bill Dorman
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TOKYO (CNNfn) - The end of World War II brought the beginning of a new economy for Japan.
The nation was poverty-stricken, but government and industry worked together to rebuild a manufacturing base. Over time, exports led the way to economic growth and closed markets protected Japanese companies from competition.
"Twenty, thirty years ago, when Japan was a relatively minor economy, nobody cared if Japan was exporting goods and not importing goods," Schroders Securities economist Andrew Shipley said. "But now, that picture's completely different."
By the 1980s, Japan's economy was the second largest in the world. Prices of land and buildings soared. So did the Tokyo stock exchange, with the Nikkei index approaching 40,000.
Then came the inevitable decline.
The Nikkei lost nearly half its value in a year, land prices tumbled and bank loans backed by real estate became impossible to collect. A recession that lingered for many years began.
Japan's economy is now slowly recovering, but structural problems remain. Banks are working through their bad loans, and real estate prices are still falling. For many Japanese companies, the operating rules have changed for good.
One entrepreneur, Masayoshi Son, enjoys setting his own rules. He started his own software company, Softbank Corp., and now is partners with everyone from Bill Gates to Rupert Murdoch. And he has no patience for companies operating under outdated traditions.
"They don't change that much," Son said. "And that means their growth or adaptation to the new generation is getting somewhat lagged behind the new trend."
The new trend in corporate Japan means no more lifetime employment. Instead, it signifies flexibility and speed in making adjustments. And for government, the new way is to spend public money not only on construction projects, but also on preparations for an aging population.
"The key issue for the economy overall is reallocating capital and labor among the sectors to have a more efficient economy," Salomon Brothers Asia senior economist Robert Feldman said.
An efficient economy is one with fewer regulations, but deregulation has become a political slogan with few results so far. Calls for more rapid change come from Japan's biggest business lobby, Keidanren.
"Drastic reform measures, (such as) deregulation, restructuring the government. If the government adopts those measures, the economy gets revitalized," Keidanren president Masaya Miyoshi said.
Without change, Japan risks losing competitiveness and turning its glory days into a memory in the 21st century.
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