For decades the Financial Times has hardly had a good word to say about the Japanese economy. It is a special irony therefore that the paper’s longtime British owner, the Pearson group, has now agreed to sell it to the Tokyo-based Nihon Keizai Shimbun (Nikkei) group.
How come it is Nikkei that is buying the FT, not the other way around? After all, the two companies have cooperated since at least as far back as the 1980s, and during most of that time the FT people have tended to condescend to their Japanese counterparts.
The truth is that Nikkei is a much stronger enterprise than the FT. This reflects the fact that the Japanese economy has been doing much better than successive FT correspondents – and their colleagues elsewhere in the anglophone media – have noticed.
One key factor that has led foreign observers to go astray is ideology: because Japan does not believe in Adam Smith’s “invisible hand”, its economic workings are reflexively belittled by many anglophone correspondents. FT correspondents in particular have long been blind to the long-term efficacy of the Japanese higher bureaucracy’s agenda – an agenda that has focused particularly on developing the nation’s prowess in manufactured exports. They generally eschew services because services typically need to be performed close to the customer and thus are much weaker exporters.
For nearly a century and a half, Japanese officials have been highly successful in “industrial targeting”. If they want to achieve global dominance in any particular industry, they take direct aim at foreign competitors and have little compunction about systematically weakening them. Hence, for instance, the fate of such once world-beating British industries as textile equipment, shipbuilding, motorcycles and compact family cars.
Thanks to Japanese “targeting” in the 1950s, 1960s and 1970s, Japanese suppliers quickly achieved dominance almost right across the board. The British players found themselves overwhelmed by subsidised Japanese competitors. More recently key American industries have been similarly targeted, with similar results. Thus it is that two Japanese companies have come to monopolise the world’s supply of super-pure semiconductor-grade silicon, for example. Meanwhile two Japanese companies – Nikon and Canon – share with Zeiss of Germany total dominance in cutting the giant lenses used in so-called steppers (the photo-optical devices that print lines on computer chips). Similarly Japan has come to dominate the world supply of carbon fiber, a crucial lightweight material essential in high-performance planes. The examples go on and on but you rarely read about them in the page of the Pink ’Un. Japan’s leadership in advanced manufacturing, particularly in producers’ goods, is, however, written all over international trade figures.
A second key factor in British observers’ comprehension problems is Japan’s counterintuitive public relations strategy. For many years Japanese officials have systematically exaggerated the Japanese economy’s various weaknesses, real and imagined. Why? Because the more troubled the economy appears, the less pressure they face to open Japan’s still closed markets. It is hard to exaggerate how protectionist Japan still remains. In the car industry, for instance, even Volkswagen, which is a match for Toyota in any other market, has never achieved more than a token presence on Japan’s roads.
The strength of the Japanese economy is evident in many other ways. Take healthcare. If the CIA Factbook is to be credited, Japan’s average life expectancy at birth has grown by 5.9 years – to 84.7 years from 78.8 years – since 1989. This means the Japanese now typically live 4.3 years longer than Britons. The progress, moreover, was achieved in spite of, rather than because of, diet. After all, the Japanese are eating more western food than ever. The key driver has been improvements in Japan’s socialist medical system.
Another telling indicator is unemployment. As newly arrived foreign companies quickly discover, there is no reserve army of the unemployed. Quite the contrary: virtually every employable person already has a job and is reluctant to make the switch to a foreign employer, even if tempted by a considerably larger salary. According to the CIA Factbook, Japan’s unemployment rate last year averaged 3.6%, versus 6.2% for the United Kingdom.
Japan’s affluence is visible everywhere. Take its skylines. According to figures compiled by skyscraperpage.com, as of 2012, 81 high-rise buildings taller than 152 metres (500ft) had already been constructed in Tokyo since the supposed “lost decades” began. That compares with 64 in New York, 48 in Chicago and seven in Los Angeles. Japan’s tallest structure, the Tokyo Skytree, completed in 2012, boasts a height of 634 metres. It compares with a height of a mere 330 metres for the UK’s tallest structure, the Emley Moor transmitting station in Yorkshire.
Trade is another indicator. On the CIA’s figures, the United Kingdom last year incurred a current account deficit – the widest and most meaningful measure of its trade – of $162bn. By comparison Japan enjoyed a current account surplus of $45bn. Japan’s performance was all the more remarkable for the fact that because of ageing demographics its workforce has been reduced by nearly 10% since the late 1980s. By comparison the United Kingdom’s workforce has steadily increased. (Japan’s ageing demographics, incidentally, are not the result of some terrible national death wish. They were set in stone in the late 1940s under the so-called Eugenic Protection Law, whose objective was to reduce the Japanese birth rate from one of the developed world’s highest to one of its lowest. The policy was established in recognition of the fact that shorn of its empire, post-second world war Japan would otherwise face an alarming food security problem.)
These trade figures testify to the fact that whereas on net Japan remains a significant capital exporter, the United Kingdom is a dangerously large net capital importer. One manifestation of this is that where cross-border UK-Japan takeovers are concerned, it is almost invariably the Japanese that are doing the buying.
Of course, not everything in Japan’s garden is rosy. It has certainly had its share of financial scandals. Just this week it was disclosed that Toshiba had for many years massively overstated its profits. The scandal merited big coverage in the anglophone media, though few correspondents mentioned the highly newsworthy involvement of Toshiba’s auditor, Ernst & Young ShinNihon, an affiliate of the prestigious London-based auditing firm of EY, which had evidently been asleep at the switch.
Do Toshiba’s travails signify a fundamental turning point? Probably not. Many previous predictions of the Japanese system’s demise have proved premature. Remarkably few significant Japanese employers ever go out of business – and indeed for the most part they do not even make layoffs (the nearest they get is to ask older workers to take early retirement and to let temporary workers go). It is a fair bet that Toshiba will continue as a pillar of Japan’s export economy – and will remain firmly under local management.
As for the FT, its takeover is consistent with a long-term trend for more and more of the commanding heights of the British economy to come under foreign control. Previous examples have included Corus, Cadbury, Pilkington and Jaguar. The difference is that this time, Britain is losing part of its soul.