Tuesday, March 30, 2010

Chaos After Burma's Election?

Burma's anticipated experiment with limited democracy with an election this year may lead to political instability, according to a diplomatic source familiar with the situation in that country. I had the opportunity to interview this source this week just after democracy activist Aung San Suu Ki's party the National League for Democracy decided to boycott any election as it expects the process to be "unfair" and "unjust."

The military-ruled country is expected to hold an election (of questionable credibility) this May or October. Citing the general's superstitions, some believe the election will be held on the auspicious date Oct. 10 (or 10/10/10). But given that the junta is so unpredictable, it is difficult to pin down a date.

Two scenarios are possible after an election, the source told me. One is that the military junta holds an election, it is condemned by the West as a sham, and Burma closes down, remaining a military regime but "without the uniform." The second is that the junta actually wants change in the country and we are seeing an incremental move toward change. But the country is controlled by three to five people and such a small group will be unable to keep control if some freedoms are granted to the people, according to the source.

"I don't think you can give people just a little bit of freedom," the source told me yesterday. The Burmese press is already enjoying much more freedom to report on stories on human rights in Burma. These stories are government-approved. The junta is working on worker representation, as well as freedoms of assembly and speech; so the change seems real, the source said. Meanwhile, the junta is struggling to control the Burmese Internet, and satellite TV is giving people access to news from China and India. While sim cards are prohibitively expensive in Burma, monthly cell phones have recently become available in Burma for about 20 dollars per month. That's still too expensive for most Burmese but access to information is dramatically increasing.

Political instability after elections could occur in a number of ways. One of which would be that more junior military officers begin to see their fortunes disappear as government spending on defense falls, the source said.

What is motivating the junta to seek change in Burma? One might be that the generals to not want to end up in prison so they are trying to bring about positive change before they retire. Another might be the general realization that the country needs to open in order to provide any economic development or that the junta in under pressure from China, India, or the United States. The source told me that "all of the motivations hold some truth." The source saw China as providing the best leverage with the regime since Beijing doesn't want Burma to be seen as a pariah. ASEAN is also important symbolically and for access to international trade; the ASEAN human rights body has created just enough discomfort on the junta by opening up the discussion on human rights in Burma, the source said. The junta is sick of being beat up on human rights on the world stage and international sanctions do hurt, so if you add all of these factors together, you do get the drivers, the source said.

Whatever the motivation, the source recommended that the world take this opportunity. "Who cares what the motivations are, let's put our foot in the door," the source advised.

Photo by break.things.

Friday, March 26, 2010

Why Japan Doesn't Innovate in ICTs

I moderated an excellent panel last week at Japan Society on "Obama's Internet Initiative & Social Reform in the U.S. & Japan" (listen to the audio here) with Josh Fouts (Dancing Ink Productions), Kazuya Okada (NTT Data Agilenet), Kevin Werbach (Wharton business school), and Toshihiro Yoshihara (CSIS). If I had to sum up the conclusions of the panelists, it would be that "culture matters" in the spread, use, and impact of information and communications technologies in various societies.

Werbach, who has advised the Obama Administration on IT policy, emphasized the "C" in ICT--communication. Echoing senior officials in the administration such as Anne-Marie Slaughter, Werbach said that ICTs must allow people to communicate, connect, and collaborate toward achieving national ends. ICTs should allow people to connect to people, government to connect to its constituents, and the United States to connect to the rest of the world. I recalled the mantra of the administration: convene, connect, and catalyze. This sense of the United States as a credible and trustworthy convener has been a common theme I have seen in the Obama team's thinking.

Fouts similarly argued that constructive use of ICTs must be a sincere dialogue or an exchange. He reminded the audience that in reaching out to new audiences and cultures, cultural norms don't change on social networking websites. He also eased some potential worry about the Internet and social trends: The use of technology cannot replace human contact; online outreach and human contact is not a binary choice, it is a matter of integrating the two. Fouts contributed a future idea for the group--U.S.-Japan cultural exchanges through virtual worlds.

The two Japanese panelists seemed concerned about Japan's use of ICTs. As Okada put it, the reason Japan lacks innovation in ICTs is that there is a gap between its IT infrastructure and its IT literacy or attitudes. Japan is stuck in old traditions, not taking advantage of ITC's potential. For example, few people telecommute to work and few meetings are conducted virtually. In Japan, Okada said, people have a "farming attitude" in contrast to America's "hunting" mentality. The result is that Japanese people avoid disruptive change, work hard rather than work smart, and make only incremental improvements (kaizen). Okada's remarks reminded me of my graduate school thesis on U.S.-Japan negotiations; one theory that described Japanese negotiating style related to its rice farming culture. Perhaps more disturbing for Japanese innovation, Okada noted that in Japan, there is little incentive to take risks but huge disincentives to not fail. In other words, the punishments for failure outweigh the potential gains from success. Many people point to Japan's high-tech robots as areas of innovation. But Okada said Japan is automating, not innovating.

Yoshihara was slightly more optimistic but also criticized Japan's narrow use of ICT in policymaking. He said that while the U.S. approach toward establishing a broadband policy was open and inclusive, public comments through online surveys in Japan were limited. Reflecting a concern I have heard elsewhere, Yoshihara was also concerned about recent Japanese attitudes toward the Internet: In the United States, people feel the Internet is generally a healthy exchange of ideas he said while in Japan, a growing number of people feel that the Internet is a "dangerous" place, citing the vicious attacks on people in Internet forums such as 2channel. It was noted, however, that Japanese cultural "bads" present a low-hanging fruit for positive change.

To me this panel demonstrated that the Japan Society in New York City has a vital role to play in helping push for positive change in Japan--from the outside. I hope Japanese communities in New York City, a hub of innovation, will continue to exchange ideas at this historic institution and foster a stronger U.S.-Japan relationship through creativity and innovation.

Monday, March 22, 2010

The Meaning of Google's Exit from China

Google announced today it will close its China-based search engine, redirect users to an uncensored site based in Hong Kong, and pull out its flagship business in response to cyber attacks by China-based hackers. Even though Google will shut down its local search engine, it will maintain some businesses in China. I have been thinking about the significance of this episode. I think it has implications at least for Google, China, and the international system. Here are few thoughts on each.

I have two themes to convey:

1. Openness is critical to economic development and global influence. My view here based on hundreds interviews I have conducted over the past six years in East Asia as part of an ongoing research project on the future of Asia.

2. We will increasingly see a future of convergence and negotiation in the international system as power gaps between states shrink. My view is based on an event series I have been running at Carnegie Council that started at the Nixon Center in 2007 that we call the "Rise of the Rest" after Fareed Zakaria's expression to describe what I see as biggest question in international relations of our time: What does the rise of China and other emerging countries mean for international norms and power?

1. What it means for Google and other companies

Google has opened up the range of options for companies operating in morally questionable environments.

From Google's perspective, being in China was a trade off. It was a question of doing some evil in order to do some good and make some money. They put it on a scale and decided that the amount of good it could do in China was worth it. That is no longer the case. During my trip to China last winter, everyone, including Chinese, complained about corruption, arrogance, fakery, and a lack of trust in that society. The common global business question about China (how do we get in?) has now been turned upside down (is China worth it?). Google's move has expanded the debate. Meanwhile, U.S. Chamber of Commerce's Myron Brilliant said this week that the "wolves can no longer be kept at bay:" U.S. companies will begin to push for retaliation against mercantilist industrial policies in China. It is no longer a given that you have to be in China to succeed. Companies and people can take into account ethical implications of their actions.

Google founder Sergey Brin has been the moral compass of Google. Drawing from his experience growing up in the Soviet Union, he has never been comfortable with censorship. He recently said that to him it wasn’t so much important whether the Chinese government was involved with the cyber attacks on Google. His point was that the Chinese government and the PLA have tens of millions of people in it. So even if there were a Chinese government agent behind this, it might represent "a fragment of policy." China's government is so big, you can't hang it on the government. But that is a problem: who is accountable? Are there rogues in the government? If so, can other countries safely trust this country?

Brin has said in a recent public speech "We from the outside provided notification when the local laws prevented us from showing information, and the local competitors followed suit in that respect. So I feel like our entry made a big difference. But things started going downhill, especially after the Olympics. And there's been a lot more blocking going on since then. Also our other sites, YouTube and whatnot, have been blocked. And so the situation really took a turn for the worse."

Brin and co-founder Larry Page have touted Google's ability to spread democracy through access to information. "At its best, Google is data-driven with an ethical trump card," says Larry Brilliant, who headed Google's philanthropy. Brin gives credit to Northrop Grumman, whose data were stolen about the F-35 fighter, for coming forward and helping with Google's investigation. He encouraged more companies to come forward.

My point is Google's mission and culture go beyond profits.

No one knows precisely how extensive the cyber attacks were but the FBI, Pentagon, and just about every single serious China watcher has been talking about China's cyber attacks for a long time. The nature of US-China relations and vulnerabilities is changing; it makes previous flare ups, for example over Hainan island, look quaint. The gravity has grown over the past year and culminated in December when more than 20 companies were attacked. It is very serious. Human rights organizations have used Gmail to communicate with people in China. If Gmail were compromised it would literally put people's lives in jeopardy.

2. What it means for China

This story shows a bad turn for China in terms of moral leadership in the world and economic development at home.

Can the Chinese government censor information and foster growth? Fareed Zakaria calls that the trillion-dollar question. So far China has been successful at embracing markets while maintaining a controlled political system. I share his view that that this system cannot last. China is still in the early stages of modernization. But it is it's difficult to imagine China being "a truly innovative country at the cutting edge of the information age, of global economics, if it has all these constraints on information, all this political control on human-to-human contact, which is what the next wave of the information age is all about."

Can China be a world leader that is admired, imitated and that shapes the global system and global values? Again I agree with Zakaria's doubts that "an insular, inward-looking China that maintains tight political control over information and human contact will end up being the country that becomes the model for the world."

In essence, China's stability right now depends on an ultimately self-defeating strategy. Both for its own advancement and for its soft power and influence in the world, China will eventually need to open up, which will create a new set of risks. Ma Yuanye, a 55-year-old biologist in Kunming in southwest China, was quoted by Washington Post as saying, "Without Google, our academic research will be seriously affected. If Google is blocked, we will see nothing but darkness."

According to the interviews I conducted last winter in China, one freedom is seen as the most crucial to economic development. That's freedom of speech. It is the only way Chinese society, companies, government, etc. can tackle its rampant corruption problem, which will impede the advancement of China. It is essential for the efficient use of capital, scientific development, effective market functions, fair trade, sound diplomatic relations, and intellectual property protection. Without freedoms or the provision of public goods, the China brand will remain weak.

Some may argue that information censorship keeps political unrest under control. To the contrary, without representational democracy, Chinese society is searching for some kind of valve to release its pressure and frustrations—over corruption, jobs, deadly product and building safety problems, pollution, and land rights. Right now without freedom of speech, the balloon is being squeezed into Wild West internet forums in which people spread rumors and gossip. The country would benefit from a professionalized media sector with incentives to break stories freely. We are seeing the emergence of citizen, online justice: So called human-flesh hunting, cyber-posses exacting justice on their own.

Comparing China today to Soviet-era Eastern Europe, Rebecca MacKinnon put it, "China's censored environment makes it easier for the Chinese government to lie to its people, steal from them, turn a blind eye when they are poisoned with tainted foodstuffs, and cover up their children's deaths due to substandard building codes."

One of the biggest questions of our time will be how we make the inevitable compromises in global business and international affairs. I see a convergence of ideas and moral values. The Chinese are taking some of what is good from the West and rejecting other things. The West might be able to take some things that are good in China. We have to assess the merit and ethics of all decisions and stick to what we believe is right because what is right is also a practical matter. In the long run, I feel China will come to that conclusion as well. It is a business concern, too. Another release valve in Chinese society can be people's relationship and connection with companies. Visits to China have suggested to me that building an ethical, trusted brand in the Chinese market would be a huge opportunity. Worldwide, people admire China, but it is shallow compared to the admiration they feel for the United States and its institutions, rule of law, openness, etc.

I would like to propose something provocative. It's not a precise analogy but without free speech, will China suffer the stagnation of the USSR? Bad information, drying up of cheap labor, and decreasing marginal productivity gains led to USSR economic stagnation in the 1980s. Can China's market make right choices without a free press? We already see non-performing loans, a potential property bubble, and labor shortages and wage rises. Similarities in China and USSR include: Drying up surplus labor, centrally planned/managed economies, farming to urban industrialization, lack of innovation, and poor information. Side effects of censorship include wasted resources (as Natan Sharansky has argued), limited market power (inefficient capital use, corruption, etc), squeezed discourse into "human flesh hunters," and rumor. Without free press and open society, limitations abound.

3. What it means for the international system?

Some have described today's world as multi-polar or comprising a West and a Rest or two "worlds." I prefer Zakaria's "the rise of the rest." Given that global manufacturing is centered in China, the country will have more opportunities to build up its technology control capacity. It is also using industrial policy to encourage home-grown technology, pushing out opportunities for foreign companies. One question in my mind is whether we will see an increasing gap between two "worlds" with competing norms—between emerging markets or and rich countries or between state capitalist countries and free market democracies.

China scholar Harry Harding sees the world as an embryonic global community with two metaphorical political parties. One led by the United States as the elitist reform party that promotes democracy and self determination. The other led by China as the populist conservative party that promotes stability, harmony, and order in domestic systems. One wants democracy at the national level and hegemony at the international level while the other wants democracy at the international level and hegemony at the national level.

I see the Google story illustrating what I see as the likeliest resolution of these tensions in international affairs between these two worlds: a convergence of norms, governance, and practices. After two months of negotiations, Google will maintain some business in China, and other American companies such as Bing and Twitter will seek to gain market share in China. Similarly, we will see convergence and negotiation rather than dictates on issues like climate change, UNSC, Iran's nuclear program, corporate governance, and World Bank and IMF governance. This week, the Japanese government conceded to give technological data to Chinese government purchases of Japanese high tech products in a compromise. Cooperation will come from this process and an acknowledgment of shared interests. Looking at China's refusal to budge on censorship, what's certain is China won't be lectured to or bossed around--sometimes to its own detriment.

As for the United States, its strength over competitors remains its openness. Thomas Friedman on Saturday wrote about the 2010 Intel Science Talent Search, which honors the top math and science high school students in America. Most finalists hailed from immigrant families, largely from Asia. Alice Wei Zhao of a Wisconsin high school, who served as a spokeswoman of the finalists told the audience: “Don’t sweat about the problems our generation will have to deal with. Believe me, our future is in good hands.” (As long as we remain open.)

Wednesday, March 10, 2010

"Rise of the Rest III" (2010)

Earlier this month, we held at the Carnegie Council the third iteration of our ongoing series on the "rise of the rest" or the emergence of non-Western powers in international affairs. Our March 9, 2010 panel titled "Rise of the Rest III" was a follow up to a similarly themed event we held at Carnegie Council in 2008 and one that I participated in at the Nixon Center in Washington DC in 2007. Here is a summary from the original 2007 panel called "The World Without the West." Here is my summary and my speech from 2007.

Nicholas Gvosdev kicked off the panel this month by reviewing some of the points made at the last two panels.

A point I made in 2007 was that the BRICs (Brazil, Russia, India, and China) countries are not similar, nor are they a coherent alliance. But why the BRICs has been working as a group is that these countries are coordinating their actions and using theirs relationships as force multipliers, Gvosdev said. It allows the members to credibly speak for half the planet. Gvosdev pointed to embryonic groupings that can go around the United States if U.S. leadership is unsatisfactory.

The southern democracies, like Brazil and India, act as "independents" in international affairs. They will work with the United States when they see it in their interest and will work with other southern democracies, for example through the IBSA (India, Brazil, South Africa) Dialogue Forum when they don't. IBSA is coordinating on trade issues but is also making forays into military joint activities as well, Gvosdev said.

Craig Charney started by making the point that there is an international consensus among peoples that they want some sort of elected and accountable political leadership. "Democracy" broadly means "free expression" worldwide, and people want to choose their own leaders, according to Charney's extensive polling. It is "minimalist" support for democracy and not very deep. It is not a demand for "free and fair elections," but the desire to choose own's leader is a "very powerful trend at present," Charney said.

Charney also identified "connectedness," along with collective responsibility and national power, as another powerful trend and reality in international affairs today. "We are seeing the emergence of imagined communities," which is reinforcing national sentiment through electronic media, Charney said. He noted that 70 percent of humanity now lives in a family with a telephone, creating billions of communications possibilities and accelerating collective consciousness, collective action, and social movements.

As for China, Charney made a fascinating point that seems to resonate with my own research in Asia: Worldwide people admire China for its economic growth, but the admiration for the United States goes much deeper to include America's legal system, its movies, its popular culture, its educational system, its openness, etc. Recently, I have tried to make a somewhat playful point to some of my friends that until China creates modern equivalents to rock 'n' roll and Hollywood, I will be unconcerned about Chinese influence. Give me a Chinese Michael Jackson and "Avatar," I will be worried about a decline in U.S. influence.

Parag Khanna identified a widespread crisis of global governance--in power, norms, and institutions. The emerging powers or "the rest" do not yet have the appropriate voice in global goverance commensurate with their political and economic weight. In power relations, for example, there is no credible proposal on the table to expand the UN Security Council or reform the board of the IMF. For norms, the rules, for example over democracy or intellectual property or humanitarian intervention, are in question. As for institutions, the proposals have been unimaginative. "Meta global governance" has been uninspired, Khanna said.

"What is global governance?" Khanna asked. It is the sum of: multilateral bodies (like the UN), regional mechanisms (like the African Union), inter-regional functional activities (like bilateral climate change cooperation), and the huge array of public-private partnerships (like the activities of the Gates Foundation), Khanna answered. Global governance therefore has no center, Khanna said. So to capture the totality of globalization, "you have to think of global governance as radically decentralized," he said.

Stephen Young asserted that the epistemology of modern civilization is fundamentally nihilistic, and therefore there are no norms or values, only power. But power fragments unless you have a dominant power. So the world is guided by Hobbesian dynamics--"kill or be killed, eat or be eaten," Young said. You therefore need to find norms and values common to many traditions. He rejected the idea that America actually ever had hegemony in the international system but underscored the importance of the "rise of the rest" in a world that is fundamentally about power.

Nevertheless, the central and continuing importance of "the West" in international affairs actually makes "the rise of the rest" the "second rise of the West," Young said. He also asked whether what we might see if a "convergence of societies," as I have argued elsewhere, for example in relation to Google's exit from China. Young concluded that greed has been a perennial problem in the global economy and we have not much evolved since the Dutch tulip bubble of the 1600s. Young's group, the Caux Round Table, sees the need to promote corporate responsibility, use core (universal) values in corporate governance, and to find the right pricing in the economy even if it takes state intervention.

I asked the panel what I asked Harry Harding in 2008: In this new world of emerging powers is cooperation possible? (Harding's response is above.) This time, each panelist had slightly differing views. Young said cooperation is possible but it will be case specific and we therefore need to engage by acknowledging the identities of potential partners. Gvosdev said cooperation will require a real give-and-take, especially between the United States and China. We have to honestly ask ourselves, what kind of world do we want, said Gvosdev. The United States asks for more burden sharing from China but when China becomes more assertive Americans get suspicious. Like Young and many in the Obama administration, Charney said cooperation will depend on establishing a dialogue on shared interests. Khanna finished by saying we will see a world that is "to each his own. You will see more and more of what Charles Kupchan of Georgetown calls the autonomy rule—engaging with other countries in such a way that one can't push too far beyond the extent to which one is really respecting their own autonomy and self-directed evolution. I think we'll see more of that."

To view the transcript and the video in its entirety of the event, click here. A special thanks to our corporate sponsors Booz, HP, and Merck for making this event possible. We look forward to the next iteration of this ongoing series. Like any successful Hollywood movie, another sequel is expected--"Rise of the Rest IV," perhaps next time in 3D.

Monday, March 8, 2010

Is Japan Giving Up?

Reposted from Huffington Post:

Just as the success of Toyota Motor was a symbol of Japan's confidence on the world stage in the 1980s, the automobile company's recent troubles are symptomatic of a nation withdrawing from the world, as I noted this week in a Newsweek article. Avoidance was the Japanese public's initial reaction to Toyota's recent acceleration problems, which resulted in 34 deaths and nearly 10 million recalled cars worldwide. The reaction is typical of a modern Japanese culture wrought with victimization and self-doubt over questions of national identity.

In all likelihood Toyota's slump in sales will recover and the whole episode will fade in the public's memory, blending with many other product recalls in recent history. "Management will correct the problem. Toyota Motors sales will bounce back; most consumers will soon forget this latest news cycle and remember why they bought the Camry, the Corolla, and the Prius," said Paul Scalise of Temple University in Japan. But Toyota's problems are an essential part of understanding Japan's zeitgeist today. The car company's troubles have compounded Japan's already sour mood. Interviews I have conducted in Japan over the past several years increasingly cause me to wonder: Is Japan giving up?

Toyota not only had a special place in Japan in terms of the country's identity of quality craftsmanship, it will have a short-term impact on Japan's reputation and economic reverberations in its manufacturing sector. Even more, the company's problems partly originated from characteristics that are seen as uniquely Japanese. Culture can change, but the story has further damaged Japan's spirit, which is vulnerable from decades of economic doldrums and China's rise.

Some of the blame for Toyota's woes has been placed on the Japanese value of consensus-building, face-saving, and keeping outliers to a minimum. "The nail that sticks out, gets hammered down," it is often said in Japan. The public relations response was also plagued by Japanese cultural characteristics, such as open communication hampered by formality and a general avoidance of conflict. Toyota's problems may have simply come from the company's over-expansion, increasingly global operations, and cost-cutting, but the cultural explanations are felt in the Japanese discourse. "Japanese companies are generally reluctant to speak in public, both on positive as well as negative issues. This imposes a real cost on their ability to interact with foreign investors, businesses and customers," noted Keith Rabin, an Asia-focused business consultant, echoing a sentiment that appeared in recent Japanese newspaper editorials.

All of this comes against a depressed national mood of in Japan as China is expected to overtake Japan as the world's number two economy this year--a symbolic phenomenon with primarily psychological consequences. At New York University, a Japanese student approached me a few weeks ago after a class I teach to tell me the critical lesson on Japan the other students should remember: "Japan must give up and admit that it is number two in East Asia." What is the origin of this defeatism?

Patrick Cronin, of the Center for a New American Security, recently published an article in Foreign Policy, identifying a link between Toyota's troubles and Japan's global profile. He also sees Toyota's problems serving as a symbol for Japan's malaise. "Toyota's debacle comes at exactly the wrong time for Japan. For the past 20 years, Japan has been in decline: declining population, receding competitiveness, slipping power in Asia. Social strain abounds. Throughout this period, Toyota was seemingly the exception, steadily growing, finally overtaking GM to hold the chalice of number one," Cronin told me. "It was a symbol of the one thing Japan did the best: make things. Now, the dream lies shattered."

"Unless Toyota can repair the damage, however, the Japanese people are left looking at the future through a glass darkly," Cronin continued. "What the Toyota crisis demonstrates is a tight connection between economics and security, and that both are in turn sensitive to the national psyche. If the Japanese continue to doubt their technological prowess in the face of a rising China, especially given Japan's demographic disadvantages, how will they ponder their future geostrategic role and circumstances in the Asia-Pacific region? Soft power loss equals a loss of hard power, and Japan's influence vis-a-vis rising China has been devalued by this blight to a sterling reputation."

A morbid manifestation of this darkness is in the country's suicide rate. It has topped 30,000 per year for 12 years; this means about 100 people per day or one person every 15 minutes will kill him or herself in Japan. Despite government efforts to stop suicide, by funding hotlines for example, the rate has recently increased and is expected to rise. The rate is double that of the United States and second only to Russia among the rich G8. On the other side of the equation, the country's birthrate is the lowest in the world and significantly below replacement, owing partly to a disinterest in sexual intercourse as well as gender inequality. A study conducted by Japan's Family Planning Association found that one-third of couples surveyed have effectively "given up on sex" due to fatigue or boredom with the act, and researchers were surprised that the trend is actually expected to get worse. A 2006 study by the University of Chicago found that Japanese report the lowest sexual satisfaction among the 29 nations polled. According to an Asia-Pacific Sexual Health and Overall Wellness survey last year, Japan ranked lowest in satisfaction of the 13 Asian countries surveyed.

As a consequence of low birth and migration rates, the country's population is predicted to fall from 127 million to 95 million by 2050, creating unparalleled demographic pressures. At 229 percent, Japan's debt-to-GDP ratio is the highest in the developed world as is its level of public debt. It is unclear how Japan, given its poor fiscal health and expected worsening debt burden, is going to provide for a rapidly aging population and a growing proportion of poor.

The country's apathetic attitude is epitomized by a new generation of arasa and arafo (those in their 30s and 40s) and sugomori (nesting) people who prefer to stay at home, seek bargains online, and soshoku-kei danshi (grass eating-men) who avoid going out, taking risks, or trying to find a career for themselves. Even Japan's Olympic hope Miki Ando played it safe and downgraded her triple-triple jump combination in the figure skating competition in Vancouver. More dramatic is the presence of the hikikomori or shut-ins who have given up on social life and number about 3.6 million, according to the Minister of Internal Affairs and Communications Kazuhiro Haraguchi, citing a Japanese nonprofit. This figure is far larger than the previous estimate of 1 million by renowned Japanese psychologist Tamaki Saito. In Shutting out the Sun, author Michael Zielenziger points to hikikomori as well as high rates of suicide, low marriage and birth rates, and low levels of sexual relations among adults to argue that Japanese who have begun to think outside the rigid conformity of Japanese society have made a rational choice to stay home and avoid social life.

While many fund managers are pessimistic about the Japanese economy for the long-term, some are bullish on certain Japanese equities, calling them undervalued. Paradoxically, the companies that are forecast to do well have given up on the Japanese domestic market and have expanded abroad. Successful Japanese companies will either target foreign markets in the United States, China, and Europe or will act as a "gateway" to business in a booming Asia.

A promising strategy for Japan as a whole would be to act as a bridge between the West and East, but that assumes Japan's political relations with the West are harmonious. Unfortunately, the ruling Democratic Party of Japan has decided to complicate its relationship with the United States by reexamining the location of a military base in Okinawa. Meanwhile relations with Australia have moved into rocky waters over Japan's whale hunting; over which Australia has threatened to take Japan to the International Court of Justice.

It would be absurd to give up on a country purely on the basis of its national mood. In fact, Japanese manufacturing output has risen, GDP is picking up, exports have grown their fastest in 30 years, and the trends I have described will all be familiar to any Japan watcher. Moreover, Toyota's sales surged 48 percent last month in Japan. But I have never seen the mood bleaker. Let's hope that this new low provides a rock bottom from which Japanese optimism can rebound.

Photo by Gustty.