Sunday, February 5, 2012

The Ties that Bind Japan

I was recently interviewed in the press about the recent Olympus scandal in Japan.

The Olympus episode illustrates competing moral virtues in Japan. In this case, it was the virtue of loyalty winning out over the virtue of honesty. I am increasingly coming to believe that one of the core problems in Japan is that while the elite may thoroughly understand the country's problems, it isn't necessarily in their short-term interest to push for change.

Real change will come from a change in thinking, which means education. People had put their hopes in seeing societal change come about from the election of the DPJ in 2009 or from the response to the earthquake in 2011. People also put hopes in corporate change coming from the response to business scandals like Livedoor and then Olympus. But it didn't happen. Now analysts are wondering whether a debt crisis (that some expect to hit Japan by 2018) might do the trick. I doubt it. Change will come about over a long term shift in the country's values.

When I recently visited Japan many people were talking about kizuna (social bonds), which was voted "the kanji of the year" for 2011. Sure Japan demonstrated the virtues of its strong community ties (or bonds) in its response to the earthquake and tsunami. But in a way, the bonds that tie Japan together are also part of the problem. They are binding Japan to the status quo or inertia. People are aware of this issue and are skeptical of powerful people taking advantage those bonds and the peoples' trust. For example, companies are using kizuna in their TV commercials and there is a new political party called kizuna. As one person told me, kizuna is fine as long as the social relations are on equal footing. Without equity, it's exploitation.

Now foreign investors are more likely to question the accounting books at Japanese companies. They are also more suspicious about Japanese corporate strategies for mergers and acquisitions. When the question of Tokyo becoming Asia's financial center comes up, people usually look around the room nervously like someone just told a bad joke.

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