Weakness of Japanese-style Management--The Reason for Japan's Low per Capita GDP

[Fujitsu Forum 2016 Special Presentation Report]

Fujitsu Forum 2016 was held on May 19 and 20 at the Tokyo International Forum.
During the special presentation on May 20, David Atkinson, a former analyst at a major securities company who currently serves as Chairman and CEO of Konishi Decorative Arts and Crafts Co., Ltd., which specializes in preserving cultural properties, and Yoko Ishikura, a management scholar who is an expert on global business strategy, discussed fundamental issues of Japan's economic and management system.

Japan's per capita GDP ranks 26th in the world

It is said that Japan's gross domestic product (GDP) ranks third following the United States and China and that Japan is an economic power worthy of praise throughout the world. However, Japan ranks as low as 26th worldwide in terms of per capita GDP. Although Japan is a leading economic power, its productivity is very low. Why is this happening?

IshikuraJapan is said to be an economic power. How do you feel about this?

AtkinsonIt is said that the reasons why Japan's GDP ranks third in the world are because the Japanese are hard-working people and Japanese technologies are excellent. However, in most cases, GDP levels can be explained by the difference in population as the economy is represented by "workforce x productivity."

When looking at the GDP rankings of industrialized nations, the United States is first, Japan is second, followed by Germany, the UK, and France. It is the population that has an almost 100% correlation with these rankings. Japan's population is approximately 127 million people. Among industrialized nations, only the United States and Japan have populations of more than 100 million people. We must recognize that the economy is determined not only by the level of technology but also the size of population.

IshikuraHow do you see it from the viewpoint of per capita GDP? Japan also has a major issue of population decline.

David Atkinson, Chairman and CEO, Konishi Decorative Arts and Crafts Co., Ltd.

AtkinsonWhen looking at the per capita GDP (IMF Statistics 2016, purchasing-power adjusted), Japan's ranking dropped as low as 26th in the world. The population has decreased and productivity does not improve. Since salaries are not rising, consumption is not increasing and deflation continues. Improving productivity is the biggest challenge for Japan. An increase in productivity may offset the decrease in population.

Attracting overseas tourists to Japan to revitalize the economy

IshikuraMr. Atkinson, you have published a book titled Shin-Kanko Rikkoku Ron (New Strategies for a Tourism-Oriented Country) (Toyo Keizai Inc.) in June 2015, and pointed out the importance of sightseeing in the Japanese economy. Would you please explain why sightseeing is important?

 

AtkinsonThe UK economy, which had been extremely sluggish, recovered to surpass Italy and France. The reason for the recovery was that the UK accepted immigrants during the era of the Thatcher administration (1979 to 1990). The population of the UK in 1987 was 56 million people, which has increased to nearly 66 million people now.

When looking at Japan, the population will not increase only by its own citizens. However, it is quite difficult for Japan to embrace the idea of accepting immigrants. The only remaining method is to invite overseas visitors for the tourism industry.

Yoko Ishikura, Professor Emeritus, Hitotsubashi University

IshikuraA lot of overseas visitors come to Japan and consume a lot. You mean that it has the same effect as the immigrant policy in terms of the economy, don't you?

Strong resistance and opposition to change

AtkinsonIf there is a labor shortage in Japan, jobs must be converted to highly productive ones; however, it is quite difficult for Japan to move in that direction. It seems that Japan has reached a conclusion that there is no other way but to continue the conventional management system from the era of a growing population. I wonder if this is really okay.

I will give you an example of our Konishi Decorative Arts and Crafts (Konishi Arts). In the case of repairing a cultural property in Kyoto, the repair contract period is one year. We start to prepare documents in April, tender a bid in June, put up scaffolding in July, and finish the repair work by the end of March. With this method, we cannot do any repairs and just have to keep bearing fixed costs from April to June. In the case of Yomei-mon Gate of the Toshogu in Nikko, for which we entered into a multi-year contract, we could do repair work between April and June as well, allowing us to reduce the repair period by three months. The time saved could be used to do other jobs and there was no need to work overtime. This way of contracting is full of advantages; however, government officials in Kyoto strongly resist our attempts to abolish one-year contracts and change our way of work. When I asked them why, all of the officials answered, "This is the way that has it been done since the Meiji era."

IshikuraJapanese resistance and opposition to changes are exactly as you pointed out. Changing as the world changes is quite natural. However, when we try to change we lose something, and we tend to focus only on things we will lose. Even if a new opportunity or possibility arises, we don't try to look at it.

AtkinsonJapan's economic and management system was established on the major premise that the population would grow. Although this premise has already collapsed with the population declining at an accelerated rate, it is difficult for the Japanese to change their minds and set specific goals based on solid reasoning.

IshikuraNow that the surrounding environment has greatly changed, what should we aim for and how should we achieve that? In short, we can't find out the "What." Sometimes the discussion does not proceed at all by placing too much focus on "how to," rather than "what to" as before.

Passing the torch early with expectations for the younger generation

AtkinsonFinally, management must be something that is based on objective reasoning, not an aesthetic activity. "I work so hard. Great, isn't it? Will you give me a raise?" This way will not be accepted in the future.

Japan's GDP accounted for 20% of the world's GDP when I started studying Japan at Oxford University around 1987, but now it has dropped close to 5%. Japan's ranking has been dropping rapidly for the past 20 years because its economy has not grown.

India's GDP by purchasing power parity based on comparison of prices has already surpassed Japan. It is a matter of time before India ranks third in GDP. Japan may fall out of the top 10 in the world in 30 years. If this occurs, Japan will have no voice and not many visitors will come. It is not known how much Japan will be ignored. Would that be okay?

IshikuraI completely agree with what you said. However, when it comes to change, I expect a lot from young people. The longer senior employees who are reluctant to change stay, talking nonsense like "public interest over private interest" as an excuse, the faster Japan will be in decline. Senior employees should pass the torch to younger employees as soon as possible.

AtkinsonIt is obvious that Japan will never fall out of the top 10 in the world from the viewpoint of its potential. However, I feel uneasy when I see Japan's performance.

There is a large disparity between Japan's performance and potential capacity. The Japanese should first consider what potential they have and next how they can close the disparity. To do so, I think it is important to pass this initiative to the younger generation.

Amidst the further acceleration of Japan's population decline going forward, constantly changing while setting clear goals based on objective reasoning will be vital for improving productivity in Japan. I think there is no other choice but to review and change various work styles.

Guest speakers:
  • David Atkinson Chairman and CEO
    Konishi Decorative Arts and Crafts Co., Ltd.

  • Yoko Ishikura Professor Emeritus, Hitotsubashi University